Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 18 - Evidence, June 12, 2013


OTTAWA, Wednesday, June 12, 2013

The Standing Senate Committee on Transport and Communications, to which was referred Bill C-52, An Act to amend the Canada Transportation Act (administration, air and railway transportation and arbitration), met this day at 6:47 p.m. to give consideration to the bill.

Senator Dennis Dawson (Chair) in the chair.

[English]

The Chair: Honourable senators, I call this meeting of the Standing Senate Committee on Transport and Communications to order. This evening we continue our study on Bill C-52, An Act to amend the Canada Transportation Act (administration, air and railway transportation and arbitration).

In our first hour we will hear from Robert Ballantyne who will be speaking on behalf of the Coalition of Rail Shippers and the Canadian Industrial Transportation Association.

Following your presentation, Mr. Ballantyne, we will proceed to questions from the senators.

Robert Ballantyne, Chairman of the Board, Coalition of Rail Shippers; President, Canadian Industrial Transportation Association: Thank you Mr. Chair. As you mentioned, I am here today in my capacity as the Chairman of the Coalition of Rail Shippers and as President of the Canadian Industrial Transportation Association. I appreciate the opportunity to provide input to the committee.

The companies represented by the 16 CRS member associations are estimated to provide over 80 per cent of the Canadian revenue of CN and CPR. The association where I work, CITA, has been representing the freight transportation concerns of Canadian industry to various levels of government since 1916. The 100-plus members spend approximately $6 billion on transportation service by all modes — rail, truck, marine and air freight.

The written submission that we submitted appends the lists of both the industry associations in the CRS and the companies in the CITA membership. CITA is a member of the CRS.

You heard from several CRS member associations yesterday morning who provided insights on recent rail service experience as it affects their respective industries. They stated, as have all 16 members of the coalition, that they support the proposed amendments that CRS has put forward to the government and tabled as part of our submission to you.

The problem is that Bill C-52 is the government's response to the long-standing service problems identified and quantified by the independent Rail Freight Service Review Panel and its consultants. NRG Research Group, one of the consultants, found in its independent survey of 262 shippers that only 17 per cent of the respondents rated their satisfaction at a 6 or 7, based on 1 to 7 scale, with 7 being very satisfied. They also reported that 62 per cent of the shippers reported they had suffered financial consequences as result of poor performance.

The problem is market dominance. Rail freight is not a normally functioning competitive market; it is dominated by two sellers, CN and CPR. The review panel recognized this fundamental problem and stated on page 41 of its final report:

This railway market power results in an imbalance in the commercial relationships between the railways and other stakeholders.

In his testimony before the commons committee on February 12, Minister Lebel referenced the above conclusion and stated:

It is essential for the committee to understand why this legislation is necessary. We are not dealing with a normal free market. The reality is that many shippers have limited choices when it comes to shipping their products. It is therefore necessary to use the law to give shippers more leverage to negotiate service agreements with the railways.

Canadian railway law has acknowledged for over a century that rail freight is not a normally functioning competitive market. There has been considerable discussion that "commercial solutions are the preferred solutions.'' Throughout the service review and follow-up initiatives, the shipper community has stated its preference for commercial solutions. However, a necessary prerequisite is that there is a reasonable balance in the negotiating power between the buyers and sellers. Such is not the case in the rail freight market and corrective legislation is necessary to provide a surrogate for competition.

The CRS notes that in its operation, Bill C-52 will break new ground, with little relevant jurisprudence or experience available to the agency and to its arbitrators. The CRS has identified several areas where the bill can be strengthened in a way that will minimize uncertainty, give better guidance to arbitrators, and limit the opportunities for railways to mount legal challenges designed to frustrate the intent of Parliament, delay decisions and lead shippers, both large and small, into expensive legal battles. Yesterday, Ian May mentioned a dispute that the cabinet and my association have with CN that is now before the Supreme Court of Canada. If you want more information on that I will be pleased to provide it.

I would also point out that the competitive line rates provisions of the Canada Transportation Act is an example of a pro-shipper measure that has been rendered ineffective by railway actions. The intent of proposed CRS revisions is to prevent this from happening in Bill C-52.

Bill C-52 is deficient in incorporating some of the most significant recommendations of the rail service panel, in particular the panel's list of elements to be included in service agreements at the option of the shipper, such as consequences for non-performance and a negotiated dispute resolution process.

The CRS amendments to Bill C-52 will strengthen it and make it more likely to effectively rebalance the commercial relationship and meet the government's stated objectives for the bill which they said on March 18, 2011 is "to enhance the effectiveness, efficiency, and reliability of the entire rail freight supply chain.''

The recommendations are detailed in our written submission, which has been provided to the committee.

With regard to service quality, it is interesting to look back 94 years. In 1919, three years after my association, the Canadian Industrial Transportation Association, was founded as the Canadian Traffic League, minutes of a meeting on February 5, 1919 note that the league passed a resolution asking members to "tabulate any excessive delays experienced to their traffic over,'' a three week period, "the idea being to subsequently send a statement to the chief traffic and operating officials of the interested railways . . . with the idea of bringing about an improved service.''

Senators, unresolved service problems have been with us for a long time. An amended Bill C-52 could be an important step in correcting this long-standing problem. Once the bill becomes law, it will be vital for service data to be collected and analyzed by a third party. This was also part of the government's commitment on March 18, 2011, and will be essential to evaluating the utility of Bill C-52 going forward.

I look forward to our discussion.

The Chair: Thank you, Mr. Ballantyne.

Senator Eggleton: I have read over your detailed submission. You are making a very strong case for the six recommendations. However, I want to ask you first of all about the timing of all this. Yesterday, one of the members of your coalition suggested that it would be better to go with Bill C-52 as it is than to risk it being held up for a long period of time while these amendments are considered. That is because if we make these amendments here in the Senate it would have to go back to the House of Commons, but the House of Commons is about to rise for the summer so we would not be talking about it until the fall, and if there is a prorogation that would move it on a little earlier.

I will ask you the same question I asked the other people yesterday: Is it better to get something in place now to get it started, or is it better to get it right?

Mr. Ballantyne: The CRS has put forward its recommendations to Parliament and they think they are important. All 16 associations support that. When the CFI people appeared before you yesterday, they made the case that they preferred that the bill go ahead, but by and large the majority of the CRS members would prefer to see the bill done with the amendments as the preferred route.

Senator Eggleton: My second question may involve a longer answer. I have tried to get an understanding of the six amendments and I do have an understanding of some of them, but of course in your written presentation you do it in legalese, I must say. In everyday language, could you tell us what you think are important about these six recommendations, why you think it is much better to have these than to not have them?

Mr. Ballantyne: In the most general comment I can make, and I think we did say it in the written submission, our feeling is that the bill will not be effective and may not be used very much in its present form. What we are trying to do in the six amendments is to give some precision to the wording and also to prevent the possibilities of protracted and expensive legal maneuvering as people attempt to negotiate service agreements.

In the most general way, that is what it is. If you want, senator, I can go through each of the six in a little bit of detail.

Senator Eggleton: Yes, a little bit, sure.

Mr. Ballantyne: For the first one, the definition of "adequate and suitable accommodation'' and "service obligations,'' the feeling was that a little bit more specificity there would be helpful. That is one place where the bill, in my view, does not quite follow from what the suggested elements of a service agreement should include, that the Rail Freight Service Review Panel recommended. They had seven items. They suggested service obligations of the railway and obligations of the other party; communication protocols; traffic volumes; key performance metrics and standards to be set, against which the measures would be based; consequences for non-performance; dispute resolution within the service agreements; and force majeure.

The feeling was that it would give better guidance to any arbitrator if those things were spelled out. They do not have to be in, but they should be in at least at the request of the shipper.

The second one was discussed yesterday: Take the word "operational'' out of proposed section 169.31 of the bill and leave in the word "term.'' Yesterday, I think Ian MacKay made the point that by limiting it to "operational,'' it would preclude issues like force majeure to be included in the service agreement.

The feeling was that that was just a little too narrow. We do not have to worry about this straying into price. There are enough other issues and ways in the act to deal with pricing disputes, so that is not really an issue.

Third, proposed section 169.31 as currently written would not allow request of a mechanism for a determination of a breach of service. The feeling was, as recommended by the review panel, that there should be provision if the shipper so requires, provision in a service level agreement that would allow for consequences and dispute resolution once a service level agreement is in place. It is designed to deal with that.

The fourth one is section 120.1 of the act, which was new in 2008 and allows shippers to complain about so-called ancillary or penalty charges, things like demurrage and fuel surcharges. It is worded to say they have to be costs that are tariffs which apply to more than one railway. There are times and places when the railways issue public tariffs but only apply to one railway. This would provide a better approach for shippers.

The fifth is concern that these introductory words make it possible for an arbitrator that would allow consideration of items raised by the railway company that were not included in the shipper's submission. Therefore, this provision is designed to limit consideration by issues that the shipper brings forward for arbitration in the service agreement arbitration.

The sixth one deals with 169.37(d) to (f). The bill raises the status of the company's network as a mandatory consideration of the arbitrator. This is something that does not exist under section 113 of the act at the present time and the feeling is that this could be a significant problem. For one thing, the only agency that could determine whether or not there are any network problems is the railway company itself, who has all the data.

That is a quick overview of the six amendments.

Senator Eggleton: Thank you very much.

Senator Unger: Mr. Ballantyne, given that this problem is truly an historical one, we heard overwhelmingly that the shippers would like us to pass the bill. It was a good first start. I wonder why your position is that it should be fixed and then reintroduced to the system. Why do you have a different opinion?

Mr. Ballantyne: As I said, I think all 16 of the members of the CRS prefer to see the amendments. There are a couple of associations — such as CFI who was here yesterday who said it, too — that they do prefer to see the bill go forward in its present state, if that is what the Senate decides to do.

Generally, the other members of the coalition feel that some of these problems are long-standing, and if it takes a little bit longer to get them resolved, then so be it. That is essentially the situation.

Senator Unger: This bill has been worked on by other governments going back as far and 2001 and 2002. Nothing had been done, and it underwent a fairly extensive review process where everyone gave input. This is the culmination of it. How often do negotiations between railways and shippers fail?

Mr. Ballantyne: That is a very difficult question for me to answer because the negotiations between railways and individual companies are confidential. I really do not have an answer to that question.

Senator Unger: Do you have any sense of the success rate?

Mr. Ballantyne: No, I do not.

Senator Mercer: Mr. Ballantyne, we heard some of the information before, and Senator Eggleton asked a couple of very good questions and I have struck them off my list.

I want the viewers and my colleagues around the table to get a good picture of who Robert Ballantyne represents. It is 16 different organizations. How many employees would be with those organizations? Can you tell me the number of employees, the amount of freight shipped and how that compares with the overall amount of freight that is shipped by rail in Canada?

Mr. Ballantyne: I do not have those figures handy with me. It would be something that we would have to canvas all the 16 industry associations to provide. You did hear in my remarks that we estimate that the companies represented by the coalition represent about 80 per cent of the revenue of CN and CP, and that is something that we have been reporting for quite a few years now.

At the moment, I am sorry, but what is the best answer I can give you.

Senator Mercer: Eighty per cent of the revenue of the two major railways in this country is a significant piece. We are talking about some very important people — if we go backwards from that — who create jobs in forestry, farming, manufacturing, et cetera. This is a key sector. We are not dealing with small change here.

The statement was made by some that this arbitration process will not be used very much. Why?

Mr. Ballantyne: Our feeling is that the way it is worded now, it has some openings in it that would allow the railways to use various legal processes to either delay or thwart the intent of the bill to cause the shippers, in some cases, to incur probably fairly significant costs. Therefore, the feeling is that with the way it is worded now, it just would not get very much use, primarily for those reasons.

Senator Mercer: As opposed to down the road, the answer to Senator Unger's question about how many disputes there are between shippers and railways will become fairly evident by the number of arbitrations that have been put in place. The answer to that question is something we will know in a number of years if this bill passes in its current form.

Mr. Ballantyne: Yes.

The Chair: If you do get documentation on employees and the number of associations, it would be appreciated if you send it to the clerk, and the clerk will forward it to the members.

[Translation]

Senator Boisvenu: Mr. Ballantyne, I would first like to make a comment. When a problem persists as long as it has for the railroad owners and shippers, clearly the hardest thing to do is reach a consensus.

If the six amendments you would like to see made to the bill are a sine qua non, and non-negotiable on your part, do you think the current bill would be before us this evening?

[English]

Mr. Ballantyne: I am not sure I quite understand that, senator.

Senator Boisvenu: I mean that you have six recommendations.

[Translation]

Your position would be more along the lines of waiting for your recommendations to be integrated in the bill rather than adopt the current bill, if I understood Senator Mercer correctly.

If your six conditions must provide the basis for a consensus between you and the railroad owners, would reaching that consensus be as possible as the one we have in the current bill?

[English]

Mr. Ballantyne: I do not think that there is consensus between the shippers and the railway companies on this legislation, either in its present form or with the amendments, although the railway people who are here tonight could give you their perspective on that.

All I can say is that the shipper community started to analyze the bill and felt that the way it was worded would really not do the job required for the shippers. That was the reason the amendments were put forward to the government and the House of Commons standing committee. There was a vote in the committee that went on party lines: The government party objected and the opposition parties approved.

[Translation]

Senator Boisvenu: But do you not think that, after almost 100 years of communication problems and perhaps a lack of partnership, between you and the railroad owners, what we have on the table as a bill is, from an evolution point of view, a major step that might help us integrate your current recommendations in three or five years?

[English]

Mr. Ballantyne: I think the preference of the coalition — and it is a coalition and therefore I have to represent the consensus views of the coalition — is that the bill needs to have the amendments in it to be effective.

Senator Boisvenu: My question was not if it needs amendments. I know that. Is that present bill — it is an evolution that can bring your group and the other group —

[Translation]

— towards a situation that will improve steadily?

[English]

Mr. Ballantyne: The general consensus of the coalition is "probably not.'' However, that remains to be seen.

One of the things I said in my prepared remarks is that this bill breaks new ground. The fact of the matter is no one really knows how it will play out in practice because there is neither jurisprudence nor experience in this area. It is breaking new ground, and so it is quite a big unknown. No matter what happens, it is a big unknown.

[Translation]

Senator Boisvenu: There are railroads that fall under federal regulations and others fall under provincial regulations.

Is your relationship with the railroad companies that fall under provincial regulations easier than with those that fall under federal regulations?

[English]

Mr. Ballantyne: I guess the best way I can answer that question is to talk about the relationship between the provincially regulated railways and the federally regulated ones. From a shipper's point of view, they — not entirely but almost always — are dealing with a federally regulated railway, one the big railways, usually. Usually the traffic may end or terminate on a provincial short line. In those cases, usually the main-line railway would provide the cars, and often the rate between the shipper and the railway would be between the shipper and the federally regulated railway.

The federally regulated would have some other business arrangement with the short-line railway. Mr. Finn from CN may be able to comment on that as well.

The Chair: Mr. Ballantyne, on behalf of the committee, I would like to thank you for your presentation, your answers and your clarity.

Senators, our second panel is composed of Michael Bourque, President and Chief Executive Officer of the Railway Association of Canada; Sean Finn, Executive Vice-President of Corporate Services for CN; and Michael Murphy, Vice-President of Government Affairs for Canadian Pacific Railway.

Welcome. Mr. Bourque, you will have the floor first. Following your presentation, we will hear from Mr. Finn and Mr. Murphy and then proceed to questions.

Michael Bourque, President and Chief Executive Officer, Railway Association of Canada: Thank you, I appreciate being invited today.

I am here today as the President and Chief Executive Officer of the Railway Association of Canada but really as the chief myth-buster for the railways in Canada. I am glad to be here with my colleagues. We appreciate the opportunity to talk to you about Bill C-52, An Act to amend the Canada Transportation Act.

I will begin by addressing the short title of this bill, which is the Fair Rail Freight Service Bill. I think any objective observer would conclude that somehow, prior to the introduction and eventual passage of this bill, rail service in Canada was unfair. That is patently untrue, and I welcome this opportunity to address a number of myths which are frequently propagated by various shipper groups.

The first myth: Some members in the other place stated during debate on this legislation that the railway industry is a monopoly and that the sector lacked real competition. This is wrong. The Railway Association of Canada represents five Class I railways, including CN and CP, and the Canadian operations of BNSF, Norfolk Southern and CSX. I would note that CSX has announced this year a $100 million investment in Valleyfield for an intermodal terminal. This is not a small company.

We also represent over 30 short-line railways, those small- to medium-sized entrepreneurial Canadian railways that are very close to the customer, offering all kinds of services. Those that are federally regulated are directly impacted by this bill.

There is competition. Railways, including CN and CP, compete vigorously with each other for business but also with other modes of transport and as part of a globally competition supply chain with other transportation networks in other countries.

Another myth is that the railways provide poor service and shippers are unhappy with the level of service they receive from railways. These complaints typically suggest that railcars do not show up when ordered, they are in disrepair or the quantity of cars is not what was required.

I have noted that you have not heard from any companies directly at this committee or in the other place. It will not surprise you that there are two sides to the story. You will hear a number of shipper groups complain about railcars not showing up in some instances, so let us address those concerns.

Keep in mind that last year we moved some 4 million originated carloads of freight goods in Canada. That is over 11,000 carloads every day. However, this underestimates the number of railcars that are in transit. Class I railways alone estimate that the number of railcars in transit every day is approximately 140,000 cars, which is equivalent to a train about 3,000 kilometres long, about the distance from Vancouver to Thunder Bay.

If a customer can provide a railway with a forecast or, better still, a specific commitment on traffic in a reasonable time period, requesting a quantity of railcars delivered on this day to be picked up on another specified day, the railways, with remarkable accuracy, will deliver. If the customer is not sure how many cars they need and cannot guarantee they will be ready for pickup on a specified day, the railways will use best efforts to meet their requirements. Put another way, the best way to improve overall predictability and reliability in the supply chain is through better visibility on the traffic offering. Give us an accurate forecast well in advance and we will deliver.

During debate in the other place it was stated that 80 per cent of freight rail customers were unhappy with their service. This is simply untrue. This number stems from a statistically suspect survey conducted more than five years ago based on the responses of 262 of a possible 8,000 shipper perspectives; shoddy research at best.

A more recent survey was conducted for shippers last year by Supply Chain Surveys Inc. This survey was done for Mr. Ballantyne's group who you just heard from. This research reports that 72.5 per cent of shippers reported 95 per cent or better on time departures and on time arrivals performance from their carriers, an upward trend that began a few years ago. There is also a very credible survey done by RBC Capital Markets for their customers. That survey, the 2013 North American Railroad Shipper Survey, found 69 per cent of rail customers rated rail service as being good or excellent, up from 58 per cent the previous year.

Generally, satisfaction with rail service is on par with other modes of transportation such as shipping and trucking, modes with which the shippers agree have competition.

Let me address the worst myth of all: the suggestion that Canada's railways enjoy and abuse market power. Railways are an asset-based business. Canadian freight railways own, maintain and improve over 60,000 kilometres of track in North America, which is roughly 35 per cent larger than the national highway system. They pay for it, build it and maintain it. They do that with private sector money. It is extremely expensive to build and maintain a railway, so it is not surprising that there are a limited number of competitors.

Once built, however, they must compete in the marketplace against seaways, trucking, pipelines and railways. Just because they are limited in number does not mean they do not compete vigorously for business, nor does it suggest that there is an abuse of market power. According to data from the OECD and the Association of American Railroads, Canada enjoys the lowest freight rates in the world, including when compared to other countries which heavily subsidize their railroads. In fact, commodity prices by contrast have risen significantly over the past 10 years while rail freight rates have remained largely flat. Canada's railways are doing exactly what you would hope for. They are implementing innovative measures to operate the network more efficiently and passing those savings on to customers. They are investing billions of dollars annually to improve and upgrade the network — over $3 billion last year — and they are continuing to seek new ways to improve their communications and service to customers.

The phrase "precision railroading'' was brought up the other day and was almost a disparaging remark, so I will address it. It has garnered some interest lately. It is a term for improving productivity on a railroad to meet customer demand. Precision railroading focuses on asset utilization, velocity and efficiency. These areas of focus are generally accepted in other modes of transportation as the drivers of productivity. Recently we have also heard a lot about the term "operating ratio'' because railways have been successful in driving these ratios down through tremendous gains in productivity. Can you even think of another industry whose productivity indicator, the equivalent of operating ratio, is even discussed or known? The productivity gains by railways are helping customers to access low rates and remain globally competitive. Customers are benefiting from better rail productivity.

Finally, let me leave with you with our view on the legislation. We believe that we have been consistent in our message to the government throughout this entire process. We do not believe this bill is necessary. The marketplace and commercial negotiations work. Since the beginning of the Rail Freight Service Review in 2008, railways have been dramatically improving their customer service and signing collaboration agreements with supply chain partners like ports and terminals. The surveys that the customers are doing reflect our improved service levels. Railways should be allowed to continue to work without reregulation.

In conclusion, every Canadian should be proud of the excellent railways we have in Canada and the contribution they make to the country; to the economy, transporting the equivalent of 15 per cent of GDP every year with the lowest freight rates in the world; to the environment, transporting 71 per cent of all freight for only 3 per cent of the greenhouse gas emissions in transportation; and to our society by linking communities and businesses to customers around the world.

Sean Finn, Executive Vice-President, Corporate Services and Chief Legal Officer, Canadian National Railway Company: Good evening. My name is Sean Finn and I am Executive Vice-President, Corporate Services and Chief Legal Officer at CN. Thank you for allowing us to appear this evening.

I expect most of you are familiar with CN. We are the largest Canadian railway, operating on a network of approximately 21,000 miles — which can you see on the map in blue — spanning Canada from Vancouver and Prince Rupert to Halifax and through the middle of the United States from Michigan, Wisconsin and New Orleans.

At CN, we pride ourselves on being the true backbone of the Canadian economy. We believe that the rail industry plays an important role in our country's prosperity. Canada is a trading nation, and many of our commodities and manufacturers are located long distances from ports.

[Translation]

Our company has grown. Every month in 2012, we hit record highs in the company's history. We are shipping more goods effectively and we provide a better service than ever before since the inception of our company. We are taking market shares away from other modes of transportation, which is a good indicator of the quality of our service; clients have a choice. In addition, we are attracting a growing volume of import traffic going to the U.S. through Canada, as shippers are choosing Canadian ports and railroads because of the quality of our services; they have choices elsewhere, in North America.

That is a quite a change compared to the situation of CN and of the railroad sector from 25 years ago. At that time, the situation in the sector was critical. We were heavily funded by Canadian taxpayers. We were not sufficiently profitable to reinvest in our infrastructure and our rolling stock. Contrast that with the situation today. In 2013, CN by itself will invest almost $2 billion in the maintenance and improvement of its network.

What made it possible for us to have this type of turnaround? To a large extent, it was the result of effective government policies. First under a Conservative government, then under Liberal governments, the sector was gradually deregulated. As a result, Canada has today one of the best rail services in the world. As Mr. Bourque mentioned, our freight transport prices are the lowest of all the OECD countries, to the advantage of Canadian shippers.

[English]

We recognize that five years ago there were some challenges. We went through a period of rapid change at CN and we did not always do a very good job of communicating or consulting with our important customers. As a result, there were many concerns, which led to the government setting up the Rail Freight Service Review.

We welcomed the review and provided the panel with a great deal of data that we felt illustrated that while there were issues, they were not nearly as serious as some people were claiming. We were very disappointed that rather than focusing on actual numbers, the panel chose to focus on anecdotal evidence they were presented. We believe the result was a flawed report.

However, even though we had many issues with the panel's report, we still recognize there were issues we needed to address. We used the panel as a catalyst to have changes at CN to improve our relationship with customers and other supply chain players. We signed written agreements with every major port in Canada, and all the terminals at the ports now have agreement with CN when it comes to servicing them. We have a service agreement with many of our customers and have made clear we are prepared to negotiate service agreements with any customer who wants one, big or small, anywhere in Canada.

Our agreements are focused on information sharing and communication. The better information we have, the better job we can do to serve our customers. More and more of our customers are recognizing this. They are sharing their forecasts and keeping us updated on their needs to better enable us to service them. There are still a few customers — very few — who take the position, "I do not have to tell you anything; it is your job to provide service.'' However, I can say that this attitude is becoming less prevalent all the time.

Customers are recognizing that railway assets are not unlimited; inevitably, there will be times when supply is tight. Similarly, there is a recognition that all parts of the supply chain must work together in order to provide optimal service. If grain cars are not being unloaded at the terminals at the ports, we cannot get them back to the Prairies to meet demand of the farmers. Similarly, if ships are late and terminal elevators are plugged, they do not have room to unload our cars.

For this reason, CN has started playing a role as a supply chain enabler. We do not just take orders and deliver cars; we look at the overall supply chain. We now watch every facet of the supply chain, from how much coal various producers have on the ground to arrival schedules of the ships, to better serve them.

When it comes to our service, our order fulfillment of cars has, over the past few years, gone from 88 per cent to 95 per cent on average, per customer. We now measure the time of placement of cars from the date, not from the week, as in the past.

We do not claim to be perfect. Railroading is an outdoor sport, and Canadian winters provide a very serious challenge. Winter 2013 on the Prairies was particularly challenging, with some locomotives buried in snow up to 16 feet high. Our service suffered and the breaks between the bad weather were not long enough for us to be able to catch up or recover.

This is a challenge in the railway business; it has been snowing in Canada for many years. Once your network is backed up, it takes a certain amount of time to get everything back to where it should be and resume operating at peak efficiency. Throwing more equipment at the problem just leads to more congestion. However, I am happy to report that we have recovered from this winter and service is back where it should be.

CN is somewhat disappointed in Bill C-52. While acknowledging that the drafters did a good job in recognizing some key points, such as the network nature of the rail business, we still believe the bill is not necessary. Canadian shippers have access to some very strong regulatory protection in the form of level of service provisions in the law today and the right to final offer arbitration on price. We believe that the terms of service agreements are best left to be worked on commercially by the railway and its customers.

I had the privilege of participating in sessions with facilitator Jim Dinning, who did everything he could to develop a commercial process to deal with the negotiation of service agreements. I believe Mr. Dinning did an excellent job, and a deal could have been reached with the facilitator on what should be contained in the service agreement. Unfortunately, the shippers knew the legislation was coming and decided they would rather have a system imposed than work it out commercially — mostly shipping associations. I very much agree with Mr. Dinning when he wrote in his report regarding a commercial solution: "Try it. It might just work.''

With regard to the legislation before you, we are particularly disappointed that there is no provision for mandatory mediation between the railways and customers prior to going to arbitration. We believe that if mediation were required, the vast majority of disagreements could be solved without need to go to arbitration.

We are also disappointed that the Canadian Transportation Agency will not hear all the arbitration cases themselves. We believe those are complex issues between the railway and customers, and only the agency has the expertise to deal with them, particularly in the relatively short timelines provided for in the bill.

I look forward to your questions.

Michael Murphy, Vice-President, Government Affairs, Canadian Pacific Railway: Good evening. I appreciate the invitation to appear here today.

As you know, CP transports bulk commodities, merchandise, freight and intermodal traffic. We are a core enabler of the Canadian economy, and we ship commodities worth $135 million every day. I would like to spend a little time outlining the significant traffic volumes moved by CP and the complexity of the network we optimize.

In 2012, CP and its supply chain partners moved about 40 million tonnes of grain, 23 million tonnes of coal, 11 million tonnes of potash, 2 million containers, 67,000 car loads of forest products, and 162,000 car loads of finished automobiles. For 2013, you can add about 70,000 car loads of crude oil to the mix. In total last year, we moved 2.7 million car loads with an average length of haul of about 1,400 kilometres.

To accomplish this, we run a network that spans 22,000 route kilometres in 6 provinces and 13 U.S. states. We serve about 3,000 customers, originate 10,000 shipments a day, and we interface with five other class I railroads and numerous short-line railroads.

At CP, the importance of a supply chain is elevated further by the fact that over two thirds of our traffic comes through or exits from a Canadian port or a border gateway. Our 3,000 customers are all served by the same set of expensive resources, including about 40,000 railcars, 1,450 locomotives and over 1,000 trained crews. As with any network or supply chain, service issues, vessel delays, labour shortages, port congestion, inclement weather incidents and other factors affect CP and its connections. Issues in any one area can often spread to negatively affect the network generally.

I would like to state that throughout the Rail Freight Service Review process, we maintain that there was no additional need for regulation between railways and customers, as it is the company's belief that reciprocal commercial arrangements, coupled with a stable, balanced regulatory regime, as outlined by Mr. Dinning, remain the best approach to promote supply chain coordination, investment and financial sustainability. Obviously, however, the government has decided to move forward on a different path.

I would also like to take the opportunity to make it very clear that we think the Rail Service Review Panel's commentary in 2010 on railway market power was incorrect as well as unsubstantiated. As we argued at the time, it should have been withdrawn. The panel's finding of market power was made on the basis of only a cursory discussion, without any research or indeed reference to research. For example, the panel did not discuss what relevant markets might be in respect of which railways allegedly enjoy market power, nor did it discuss what direct or indirect evidence exists to support a finding of the existence of market power in the relevant markets. It also did not consider the constraints on the exercise of market power, including the countervailing market power of purchasers and the impact of the large suite of existing shipper remedies, including the grain revenue cap, inter-switching, final-offer arbitration, reasonableness of a charge, competitive line rates and running rates, have in the marketplace. This is unfortunate, and it diminished the overall utility of that report.

Since 1987 when confidential contracts were introduced, bilateral commercial negotiations created a very competitive rail supply chain that has resulted in the lowest transportation rates in the world. For example, system- wide at CP, we move a tonne of freight a mile for 4.1 cents. This is truly remarkable, and when compared to overall commodity values, the cost of rail transportation compares very favorably.

The incredibly efficient supply chain in Canada is in part an enabler for Canadian exporters who are highly successful in world and North American markets, even though they are sometimes thousands of kilometres from tidewater or the marketplace itself. The current regime with its commercial underpinnings is also supporting significant levels of capital investment in the rail supply chain. This year, we at CP will invest over $1.1 billion. These investments are critical in supporting Canada's trade, driving innovation, and providing continuing improvement and service to our customers.

In today's highly competitive global economy, customers, railways and supply chain partners all have greater service expectations. Every car on CP has a plan before it is even loaded. A major input into these plans is a forecast for future traffic movements. The key is that as many movements as possible are forecasted and predicted for a long enough period of time. This is because of the need to supply crews, locomotives, cars, yard and main-line capacity, all of which are expensive resources and not available on a moment's notice. We spend a lot of time, effort and money to get assets in the right place at the right time to handle traffic, and getting those assets in the right place takes substantial lead time.

This intricate service design and overall optimization of the network is managed in a similar fashion to a bus route, not a taxi service. It is essential to integrate our various services with one another and with assets. Furthermore, when forecasts are not accurate or customers do not have traffic to be moved, the cost is borne by the railway.

Everyone who rides the bus would like it to come at the time that most suits their individual needs, but bus routes are planned to provide the best possible service to the most people rather than being tailored to each rider's specific desire. Service on a rail system is much the same. The system must perform to the benefit of all, not just of one.

In terms of the sustainability of improved service, CP is a strong supporter of working together with all supply chain partners and our customers on improving reliability and predictability. That is why we have agreements in place with 70 per cent of customers by revenue, as well as all the major ports and terminals. The agreements we have put in place cover a range of best practices, including performance targets, key performance indicators, dispute resolution, communication and business development. They are delivering results.

For example, container dwell at the Port Metro Vancouver is consistently running less than two days, and recently we announced a reduction of one full day, from five to four, on our transcontinental container service from Vancouver to Toronto.

The more recent improvements of the supply chain have come out of these collaborative efforts to improve reliability and predictability. CP therefore supports the Dinning approach to service agreements, and it allows for the mutual accountability among customers and railways. With better visibility on how traffic will be presented, and in some cases bilateral commitments, we can collectively improve overall supply chain performance. That is why it is absolutely critical that if a regulator will impose service, that service cannot be considered from the perspective of any single customer in isolation.

Introducing a new remedy that allows for imposed service by a regulator must be done carefully. At a minimum it must support commercial undertakings, it should reflect the idea that visibility on the traffic offering is an important consideration, and service must be viewed from a perspective that looks at the entire network because the resulting effects would span it entirely.

We are firmly of the view that continued improvement in Canada's world-class supply chain will be best achieved through offsetting commercial undertakings, in particular, better traffic forecasting and more certainty on traffic volumes. To that end, CP has been implementing various commercial agreements included in the Dinning report, including a service agreement template and a commercial dispute-resolution process. As such, we are confident that strong commercial relationships will continue to emerge with little need for the processes described in the legislation.

Thank you, Mr. Chair.

Senator Mercer: Gentlemen, thank you very much for being here.

By way of background, I am a senator from Halifax, Nova Scotia, so I understand the importance of railways getting our products to and from the Port of Halifax, to the market and back to Halifax to ship out. I also come from a railway family where at least eight of my relatives either are or were CN retirees. I have a great deal of respect for what you do. However, that is not why we are here this evening.

I also am Deputy Chair of the Standing Senate Committee on Agriculture and Forestry. Two of the major products that you all move are forestry and agricultural products. We have heard in testimony here, and I have heard in testimony at the Agriculture Committee, the concern about the availability of cars at the right time when agricultural products are moving from east to west, through the Port Metro Vancouver in particular. This is not necessarily me, but I want to hear your answer. They feel they are being bumped, particularly pulse products out of Saskatchewan and other areas, to allow oil and gas or crude oil to take spots that they may normally have had in terms of availability of equipment. Do you have any comment on that?

Mr. Finn: A good example when it comes to agricultural products is grain. One of the outcomes of the Rail Freight Service Review Panel in 2010 was that we, at CN, used to measure how we perform by spotting cars at the elevators for the farmers. We would commit to spot within a week. We would say within the next five days of operations we promise to get your cars at your grain elevator. We were there probably 80 per cent of the time on time, but sometimes it would be worse than that.

One of the results of the rail service review is we decided that was not good enough for our customers. We now have a precision rail-spotting service where we spot the car to the day, so we can tell a grain elevator that we will be there at Tuesday before nine a.m. On the average, we were between 85 and 95 per cent on time to the day.

This is a good example of how the Rail Freight Service Review Panel brought to our attention the importance of doing a better job in serving the customers.

When it comes to car supply, there is not an issue when it comes to grain cars. In the area of forest products, the issue most of the time, in the last four or five years, we had centre beams parked by the thousands because the forest product industry was not shipping as many goods as they were. All of a sudden it comes back in a big rush and we are expected to deliver to them, and we try to do our best to deliver cars. The difficulty is you cannot get a forecast from some mills because they are not too sure where the product is going, and it is hard to guarantee the car supply.

I have one last comment about that. This is a team sport. When a shipper in northern B.C. is sending cars to Memphis, Tennessee, or to Los Angeles, it will go on centre CP from northern B.C. to Chicago and then on another railway to destination. We lose control of the car. Notwithstanding that, we do a pretty good job in guaranteeing them some service, which is pretty good service, but realize this is a team sport. The cycle times of cars will depend on how quickly some of our team players can serve the customers, same as we do.

It is an issue, but we have addressed it, we think. We think that both in the case of the forest products industry and the grain industry we have come a long way in providing a lot better service than we had four or five years ago.

Mr. Murphy: I will add a couple of points to what Mr. Finn mentioned.

Just to put it in perspective to give you some sense of what we are moving, grain is about 20 per cent of our business. The agricultural component is the largest single area of traffic in our business.

You mentioned cars being diverted or traffic being diverted away from meeting the needs of the grain community to deal with crude. Crude, just to give you a sense of perspective, is about 2.5 per cent of our car loads. You can see the difference there, and I think that is pretty significant. This is a very good year to talk about not only the performance that Mr. Finn just talked about, but about volumes and the success we have had collectively with the grain supply chain in terms of volumes. We are up this grain year, which started last August, about 5 per cent above our five-year average on grains. We are moving a heck of a lot of product, not only domestically but for export.

There are a number of reasons for that, but part of it is obviously the successful pricing going on in terms of the value of these commodities. Mr. Bourque mentioned that. We are very happy with what is going on in grain. We are hearing a lot of good things from our customer base in that area.

Senator Mercer: I did not mention grain in my question. With the price of grain now, not many people are complaining. There is a complaint that they cannot get it out the door fast enough because the price has been very good.

I did talk about pulse products, which are much more time sensitive in shipping. Our major customers are in Asia and India. You did not comment on pulse.

Mr. Finn: Even with the pulse shippers we have offered, in the context of the Dinning process, to have individual service agreements with them to commit the services. Often, in the case of smaller shippers who are part of pulse, they cannot commit to volumes or forecasting. Rest assured that if the purpose of the bill is to allow these shippers to have service agreements, we offered to do so, to have agreements in place so they could have an understanding of what would be required for them to give us this forecast so we can commit to providing cars. You cannot just order a car and say, "I want it there next Thursday to ship the grain to destination.'' We need advanced notice and planning. Rest assured we have offered that and we think we would be better served by having a commercial negotiation, one on one, between the railway and the smaller shippers of grain, members of pulse, to arrive at that result.

Senator Mercer: At a meeting earlier this week it was stated — and we all found it rather funny, but they had a good point — that knowing where the trains are at all times is an important part of what you do. Some of the shippers were saying that they did not think you knew — they did not mention which line they were talking about — as well as Canada Post knows where parcels are going through the postal system. It is the first time I heard Canada Post used as a good example.

The issue I want to go back to is a previous study of this committee that talked about the availability of containers. I know you do not necessarily own the containers, but you do manage to move them. In that study, one of the single biggest problems we found is that there are hundreds of thousands of empty containers in Canada. No one really knows. You could not tell me today where a container number is because it is not tracked as well as your trains. Is there a way to fix that problem?

Mr. Finn: I am a bit surprised that they said we did not track containers; we do track them. I can give you another example through the Rail Freight Service Review. We arrived with agreements with the various terminal operators in Canada, so both Vancouver and Halifax.

Historically there was no sense of urgency between the terminal operators and the railway to get boxes off the dock onto the trains. Today, every morning our CEO personally gets an email showing the dwell time of every container at the Port of Vancouver that is waiting to be loaded on a CN train. By 9:30 in the morning, if he sees containers that have been there for more than 48 hours, there is a phone call from the railway to the terminal saying, "That box of garden furniture at the bottom of the pile has to be in Toronto next Thursday morning. What are we waiting for to move it?'' All of a sudden, we get a lot of attention, so we are line of sight.

That is due to the fact we now have agreements with the operators of the ports and terminals to say, "Listen, we are only as strong as the weakest chain in the link. If you do not do a good job of moving the boxes off your terminal onto the railway line, we all suffer for it.''

I guarantee you, Senator Mercer: Boxes over 40 hours we call "troubled boxes,'' and we are all over it like a wet towel.

The Chair: If we are to expose conflicts, my father worked for CP for 47 years and my godfather worked for CN for 50 years — as did my great grandfather — so I am also a bit conflicted.

[Translation]

Senator Boisvenu: Gentlemen, I do not even know where to begin. You have a client-supplier relationship with your shippers, correct?

Mr. Finn: Yes.

Senator Boisvenu: What surprises me to see in your presentations is that you do not have the same view of the issues at all. I have always thought that a partnership or business relationship is successful if the client and supplier have a shared understanding of the issues.

Could one of you tell me how your understanding of the issues came to be diametrically opposite? You have been working together for 100 years, after all.

Mr. Finn: You picked the right term. We do not call our clients "shippers''; we call them "clients.'' That is new for the industry. I cannot say that it has been 100 years, but over these past few years, we have realized it was important to think of them as clients, not shippers.

Senator Boisvenu, I can tell you that, among the witnesses you have heard from here, there have not been a lot of clients. You have heard from client associations that represented various industries. It was sort of the same issue with Mr. Dinning's report. He said that he had worked with 14 clients over seven months during which there were some client and shipper representations. They said that they did not want to negotiate trade agreements before being able to impose legislation. They agreed on that, but because they knew that a piece of legislation was coming, they did not commit to the same extent.

At one of the meetings, we asked a major shipper if he could give us their traffic forecasts for the next six to 12 months. With that information, we could have ordered the cars, assured them that we were there to serve them and made the necessary arrangements with other shippers.

He asked us why he would give us the forecasts, because we were responsible, as the carrier, to provide him with the cars when he ordered them and that he did not have to provide us with the forecasts.

I did not get upset because he is a very good client. But I told him with all due respect that, if he wanted to have good service, he had to tell me when he wanted to send shipments and how much, because that would help us a great deal.

There was a change of direction three or four years ago. We work with our clients more; we talk to them. And we must sign individual service agreements with all CN clients, not just the big ones but also the small ones.

We sent a letter to 1,400 small Canadian shippers saying that we wanted to sign a service agreement with them. As you say, we have responsibilities and obligations. Some clients replied and said that they did not want a service contract, but that they wanted us to move their goods instead. We answered that that is what we are there for.

The dynamics have changed but how are we supposed to explain to client associations that we do not ship goods as such? They want legislation, so it is up to them to answer this question, not us. Clients are not able to say that the service is not good and that the solution would be more legislation. They want service agreements, but they especially want the goods to be delivered when the time comes to do so.

Senator Boisvenu: However in your submissions this evening, I would have liked to hear — and you can tell me why I have not — what types of organizational or even financial impacts this bill will have on your companies. You submitted a very positive report on the progress of your operations, I believe. I did not hear you say how this bill will affect your operations and your financial sustainability. You just said that you did not need the bill.

Mr. Finn: If I may, I will give you a very concrete example. The legislation will enable a shipper to negotiate an agreement in good faith with the railroad. Unfortunately, they will not be able to have an agreement on exactly when the shipper would like the cars delivered on any given day. Mr. Murphy's example is somewhat like a bus service. Every client wants a bus at the door when he goes out, but the system is unfortunately a bit more complicated. This legislation will therefore enable clients, who do not succeed in negotiating with a railroad, to have an arbitrator impose a level of service.

Try to stay with me. If the client gets an arbitrator who, within 45 days, will reach a conclusion and impose a level of service between us and the client, a level of service that might require us to deliver the cars on Tuesday morning at 9, it is important to understand that this will have an impact on the other clients on the line who want to have the service on Wednesday. We will now have to tell them that we will go to them on Tuesday morning because the bus is scheduled for Tuesday, not Wednesday.

The challenge for the arbitrators who will hear those cases will be sorting things out with the client who wants to have a X,Y or Z service. You understand that it is a North-American network, it is big and things happen. We are simply saying that, to the extent to which we continue to provide clients with good service, as we must, and thanks to the government's action to impose the rail freight service review panel, we have made changes. It is quite extraordinary to allow a client who is not happy with a particular service, which is often the case with that client, to have a trade agreement imposed. Give me one example in Canada where an arbitrator imposes a level of service to clients who can have a commercial agreement. That is rather unique.

Senator Boisvenu: Are you assuming that, when the arbitrator makes a decision, he will only consider the client's expectations, not the constraints of your company?

Mr. Finn: No. I assume that, in 45 days, when we have to deal with delivery issues with the cars in Shawinigan and Quebec City, cars that come from all across North America, things will get a little more complicated. The arbitrator has 45 days to make his decision. If the boss does it, it is safe to assume that he has a good understanding of the impact on the system, but let me repeat: try to make an arbitrator understand the impact of a service on a client compared to other clients. It is not easy. The railroad will have to explain the evidence on the other side and there will not be any. That is the problem with imposing service agreements. Will the impact of the network be taken into consideration? It is there in the bill. That is our challenge. The impact is not just financial. There is also an impact on the quality of service to our other clients in the network.

[English]

Senator Unger: I think most of my questions have been answered.

How often do negotiations between shippers and railways fail to result in a contract?

Mr. Murphy: I will use an example that I mentioned in my opening remarks. CP has about 3,000 customers, give or take. Over 70 per cent of them are already under confidential contracts, which were brought into the legislative process many years ago. It is something that CP has taken advantage of since then by sitting down and negotiating with our clients. They are agreements that meet the needs of both the company and the customer. That is the nature of a commercial discussion. We have done very well in terms of the prevalence of having agreements. Most of our customers have signed agreements with us, so it has been a very positive experience.

Does every negotiation that we enter into lead to a commercial agreement? Not necessarily. In some elements of our business, for example because of the way the regulatory regime works — and grain is a good example — it is unlikely to have the same kind of opportunity to discuss under a commercial arrangement. We will see what the future brings.

Of course, we are regulated in terms of how much revenue we can earn in the regulated grain area, which has made it difficult to negotiate specific agreements. One of the principal drivers of an agreement is how much the customer is willing to put on the table with respect to a forecast or even a more specific volume commitment. We have done very well with that, so we are very happy with the regime that we have been working with. We have concluded a lot of agreements, and that has been a positive for our company.

Senator Unger: Volume forecasts would apply more to big shippers, would they not, than the smaller shippers or clients who are stranded and depend on the railways? They may or may not be able to do that. I am assuming that that would apply to bigger shippers.

Mr. Murphy: It applies right across the spectrum. As I mentioned, we have confidential contracts with over 70 per cent of our client base, and that includes shippers of every size. Each one has its own perspective on what they want to put on the table. As Mr. Finn mentioned, some are of the view that they do not want to make any specific commitments; they just want us to move the traffic that they deliver to us and they will let us know when they are going to deliver it to us. Others will make a very specific volume commitment of so many cars over a certain period of time. That is not necessarily only impacted by the size of the firm; it is more in terms of the type of traffic that they would have. That would play a role as well.

Mr. Finn: When we say "commitment,'' we are not always looking for guaranteed commitments. One advantage of a service agreement is being able to ask for forecasts. We ask them how they think their business is going. Obviously, we will work with the shipper. Both CN and CP want to grow our businesses, so when we have customers who want to ship more goods, we are in the business of moving their goods. However, by having an agreement we can force a dialogue and say, "If you cannot provide a guaranteed forecast, give us as an indication of your business and we will tell you how many cars we can deliver.'' It will not be 100 per cent of their needs, but we will try to work with them.

Again, we do not think it is by imposing a level of service agreement that you get to that result; it is by having a commercial discussion and negotiation about the needs of our customers, our capabilities of meeting those needs and how we can serve them in a way that gets their goods to market. That is the ultimate test.

Senator Unger: I am from Alberta, and of course we have petroleum products there that we are very anxious to get to market. The railways are taking up a lot of the slack that pipelines, which have not yet been built, cannot deliver. How has this affected your business? Given that Alberta also has agricultural and forestry products, there must be an imbalance being created in that marketplace.

Mr. Murphy: I mentioned earlier that CP moved about 53,000 carloads of crude last year. That is about 2.5 per cent of the carloads that we move. Our total was about 2.7 million last year. That gives you some perspective.

This is getting the attention that it is because it is growing significantly. A few years ago, we were not moving very much product. We hit an annualized rate of growth in the first quarter of this year of about 70,000 railcars, and we have indicated that over the next couple of years we will have the opportunity to at least double that. To keep that in perspective, it is 2.5 per cent of our volume. It might grow to 3, 3.5 or 4 per cent of our volume. We will see when the growth comes. That is the reality in terms of crude movements today.

There is no question that there is potential for growth there. We think we are a very nice complement to pipelines, and we think that will be a permanent part of the landscape because producers like the benefits of using rail to move crude, and there are many benefits. We can get into that if you wish, but that is part of our reality today.

Mr. Bourque: Ironically, one thing that oil producers like about rail is that they do not have to sign a long-term service contract and they do not have to build the network, as it is already there. It is ironic that at the time we are going through this service review, we are hearing from those producers how delighted they are that there is a great deal of flexibility by using rail.

Senator Unger: That was my next question. You do not have to sign service agreements with them?

Mr. Bourque: Some will want to sign long-term service agreements. We have seen that start to happen. However, initially, when this particular business was growing and producers were just becoming familiar with using a different mode than pipelines, one thing they realized early on was that they could try it while retaining flexibility. They did not have to commit to long-term contracts and they did not have to commit to specific traffic. They could use railways as a flexible option if they had too much production for a pipeline. Also, if the price was not high enough where the pipeline was going, they had flexibility by sending it elsewhere on a railcar.

Senator Eggleton: You are all saying the bill is not necessary. I got the message loud and clear.

Mr. Finn, you said something interesting, but it was very quick and I wonder if you might expand on it. You mentioned mediation before arbitration. How would that benefit this whole process?

Mr. Finn: It is pretty standard in any dispute resolution process between commercial parties. Both CN and CP already have a dispute resolution process on our websites for our customers. We provide for mediation. It is a lot more flexible. We get all the issues on the table and ensure that no one is misunderstanding what is happening. It is typical in Canadian dispute resolution processes to have mediation before arbitration. Arbitration is a bit more structured; it is often binding. Typically we get lawyers involved in arbitration and it is a heavier process.

Again, we offer our customers mediation before going to arbitration to see if we can come to an agreement. It often identifies the real issues and often more people from the railways get involved who have a different perspective. The customers will bring a different perspective and we can often solve the differences.

The customers want information; we want forecasts, some certainty. The outstanding issues when you get down to mediation will often be very precise, and that is more conducive to coming to agreement by mediation than going on arbitration. Just explaining the issue to an arbitrator will take a while. These are not easy issues to address when it comes to service on a big network.

Senator Eggleton: If Bill C-52 passes as is, can you still do mediation within the context of it?

Mr. Finn: The parties always could, but I would submit that those customers that will want a level of service agreement imposed by an arbitrator will want it imposed. They are not interested in negotiating or mediation; they want it imposed.

Senator Eggleton: You never know what an arbitrator will decide.

Mr. Finn: One of the unforeseen consequences of this legislation will be that if we have a series of arbitration decisions that impose a level of service to specific customers, you might have service problems on a network because we will be called upon to serve customer X in one way to the detriment of customer Y. One of the unintended consequences of having a level of service agreement imposed is that you can have negative consequences for other customers versus those who get the decision from the arbitrator.

Senator Eggleton: I want to ask about the movement of goods into the United States. You both have extensive networks in the United States. How does this bill, if it is put into effect, impact cross-border shipments?

Mr. Finn: The law does not apply to U.S. shipments. That was something some people wanted to see. If you have goods moving from Canada to the U.S., even the U.S. portion of the movement would be subject to a level of service agreement imposed by Bill C-52. That is not the case. The draftsmen ensured it only applied to movements in Canada.

One reason is there is a regular regime in the U.S. that is different from the Canadian one. You can imagine that a shipper who is in the U.S., if he is not happy with the service he is getting from the Canadian border to somewhere else, there is a regime that is different from the Canadian one. With all due respect, many Canadian customers like our regime in Canada today more than what is in the U.S. I think that is why the law today only applies to movement of goods within Canada.

Senator Eggleton: I do not know if you know offhand the percentage of shipments of these shippers into the United States versus across Canada.

Mr. Finn: It is not really a percentage; it is more destination. The shipper will decide if he is moving goods from Edmonton to Wisconsin or to Jackson, Mississippi, so it is not really a percentage. Cross-border is between 45 and 50 per cent of the goods being moved.

However, when looking at service, the distance can be one third in Canada and two thirds in the U.S., and the service in the U.S. can be different service than in Canada.

Senator Eggleton: I understand.

Mr. Bourque: The minister responded to the question about the United States. He said that the government does not have jurisdiction there, so it ended here.

Senator MacDonald: I know you are convinced that legislation is not necessary, and perhaps there is some truth in that, but I think, to use a pun, it is coming down the track. Is there anything in particular you find excessively egregious? If you had an amendment to this bill, what would you propose?

Mr. Bourque: The one that stands out for us is mediation before arbitration.

The second one that Mr. Finn mentioned is we would like the transportation agency to conduct the arbitration processes themselves, because the network nature of the business means that you really need to understand the impact of your decision on the next customer and the next customer, keeping in mind this bus-route concept. Probably mediation would prevent a lot of arbitration, and that would be the one.

Mr. Murphy: To add to that, our preferred way of doing business is what we are doing now: commercial negotiation with our customers. We are hopeful that we will be able to continue to do that. This bill is designed — I think sometimes you can forget these things — to be a backstop. It is not designed to be the way we now change our relationships in terms of sitting down and negotiating with customers. It is a backstop, and it will be there and will act that way.

If you were to go the other way and look at some of the amendments that you heard expressed from some of the shipper groups, now you would be talking about something incredibly different and a bill that would be very negative. From our standpoint, living with this bill would be one thing; to look at the amendments that have been proposed would render this thing very troubling.

Senator MacDonald: I have a question that has nothing do with the bill but something I have always wanted to ask railroad people. Since I was a kid I have seen many railroads abandoned in this country. In Nova Scotia, 80 per cent of the railroads have been abandoned in the province in the past 50 years.

I have always been curious — I think it was related to the fact that passenger service had dropped off — how much of the abandoned railroad in this country could now be put to use if it had not been abandoned by the railroads?

The Chair: The chair will accept the question, but he would hope for a shorter answer.

Mr. Bourque: I just read a story about a railroad in Texas that was going to be abandoned, and the municipality stepped in and purchased the railroad. It lost money for several years, but now suddenly it is moving oil and they are making money hand over fist. To your point, you never know.

There is a protocol in place before a railroad is abandoned completely and turned into something else. We should always observe that protocol to ensure that every possibility is looked at because once it is gone it is hard to get the land and right-of-way back. I take your point.

Senator MacDonald: They are just used for ATVs now.

The Chair: Mr. Bourque, Mr. Murphy and Mr. Finn, I thank you on behalf of committee members.

I would like to tell committee members that the rumour is there will be amendments tabled. They will be distributed and we will go to clause-by-clause consideration. I will ask whoever tables those amendments to explain them as they go.

Honourable senators, before we go to clause-by-clause consideration, are there any comments? Is everyone agreed to proceeding with clause-by-clause consideration?

Senator Eggleton: I think the sponsor of the motion should consider sending this back to the drawing board. I will tell you why. Of all the witnesses who have been here, with the one exception of the Canadian Fertilizer Institute and even they were qualified in their comments, no one wants this bill. None of them want this bill. We just heard the railways representatives say they do not think it is necessary. Mr. Ballantyne, who represents the coalition, said it will not be effective and he said it will not get used much. If that is the case, why are we proceeding with this bill? As Senator Boisvenu also pointed out, there does not appear to be a consensus. Consensus is always desirable, but it is not always attainable, in which case the government —

Senator Boisvenu: That was not me. That does not mean we do not need the bill.

Senator Eggleton: In which case the public good is what has to be considered. I do not think this particular bill does the job. The review panel said that this railway market power results in an imbalance in the commercial relationship between the railways and the other stakeholders. The stakeholders, in terms of the coalition, have very clearly said that there is an issue here and they feel very much at a disadvantage given the strength of the railways in terms of their dealings. However, they do not think this is the way to do it.

They put forward the six amendments. If you want to adopt the six amendments, then the bill will mean something, but the bill does not mean very much, if anything, according to their comments. They do not support it, with one exception, as I said.

I do not think we should go to clause-by-clause consideration and I would hope that the sponsor will now speak to this and say it should go back to the House of Commons, back to the drawing board, and they should rethink this and come back with something better that better serves the needs and the purpose for which the bill was intended but does not do.

That is what sober second thought is all about. If we agree with sober second thought, then we should not proceed with this bill.

The Chair: I think the deputy chair had a comment.

Senator Greene: I think that Senator Eggleton's intervention points out that the bill is perfectly balanced because the two sides to the issue disagree with the bill for different reasons, essentially. One says the amendments go too far and the other side says it does not go far enough. It is perfectly balanced and I would like to move that we proceed.

The Chair: The chair will recognize Senator Unger and then we will go to clause-by-clause consideration.

Senator Unger: Senator Eggleton, this bill passed through the House of Commons unanimously. This type of legislation, as I stated earlier, has been worked on by your government previously, did not go anywhere, passed through a rigorous review by all shippers and has been brought forward.

Based on all the testimony I have heard to date, I feel that the best thing for us to do is pass this bill. It is a step in the right direction and I agree with what Senator Greene said. When both sides are not completely happy, it has to be right. It strikes the right balance. Striking the right balance in an imperfect market relationship is accomplishing something. Therefore, I would like to see the bill passed.

The Chair: I have a proposal to go to clause by clause if the committee agrees.

Senator Eggleton: I am still speaking to the matter. I wish to speak again.

Yes, it has been worked on, but they still have not got it right and it still has not balanced things. I do not know how you can say this is a step in the right direction just because, as you say, both sides are equally unhappy so it must be good. That is nonsense. It is a theoretical and it is not the case here.

As they said, the bill will not be effective, will not be used much, and the railways dumped all over it as well. It is still not doing the job. We are here for sober second thought. If you were just going to rely on the fact that this has gone through a long process — I am not finished. I am speaking and I have the floor. Thank you.

Yes, it has involved more than one government, but it still is not right. It is still not doing anything effectively. That is what sober second thought is about. If we are here to rubberstamp bills coming from the House of Commons just because they passed through there, why have these people come in? Why do we listen to them if we do not want to pay attention to what they say? I do not think we should go to clause by clause.

The Chair: Is the committee ready to go to clause-by-clause consideration of Bill C-52?

Senator Eggleton: On division.

The Chair: On division. It is agreed that the committee proceed to clause-by-clause consideration of Bill C-52, An Act to amend the Canada Transportation Act (administration, air and railway transportation and arbitration). Shall the title stand postponed? Agreed?

Hon. Senators: Yes.

The Chair: Shall clause 1, which contains the short title, stand postponed?

Hon. Senators: Yes.

The Chair: Agreed.

Shall clause 2 carry?

Hon. Senators: Agreed.

The Chair: Carried.

Shall clause 3 carry?

Hon. Senators: Yes.

The Chair: Shall clause 4 carry?

Hon. Senators: Agreed.

The Chair: Shall clause 5 carry?

Hon. Senators: Agreed.

The Chair: Shall clause 6 carry?

Hon. Senators: Agreed.

[Translation]

The Chair: Shall clause 7 carry?

Hon. Senators: Agreed.

The Chair: Shall clause 8 carry?

[English]

Senator Mercer has an amendment on clause 8.

Senator Mercer: I move:

That Bill C-52 be amended in clause 8, on page 4, by adding after line 20 the following:

"(1.6) For the purposes of this Division and without restricting the generality of the term, "service obligations'' includes obligations in respect of

(a) the timeliness and frequency of the receiving and the delivery of traffic by the railway company;

(b) dwell times, estimated times of arrival, transit times and cycle times regarding the carriage of traffic;

(c) the quantity, condition and types of rolling stock to be provided by the railway company;

(d) the furnishing of adequate and suitable accommodation for the carriage, unloading and delivering of the traffic;

(e) accommodation and facilities for the exchange of information regarding the billing, receiving, carriage and delivery of traffic; and

(f) car order fulfillment, car spotting performance and car placement at destination.

(1.7) For greater certainty, a railway company shall be considered to have fulfilled the service obligations referred to in paragraph (1.6)(d) if it has carried them out in a manner that meets the rail transportation needs of the shipper.''.

The Chair: Senator Mercer, do you have any other comment?

Senator Mercer: We have heard the arguments from many of the witnesses. You have seen the explanations circulated by the coalition, so I will not go into long details.

The Chair: Are there any other comments from honourable senators?

It is moved by the Honourable Senator Mercer that Bill C-52 be amended on clause 8, on page 4 at line 20 — may I dispense reading the amendment?

Hon. Senators: Yes.

The Chair: Is it your pleasure, honourable members, to adopt the motion in amendment?

An Hon. Senator: A recorded vote.

The Chair: Honourable senators, we will now be proceeding to a roll call. The clerk of the committee will call members' names, beginning with the chair, and then going in alphabetical order. Senators should verbally indicate whether they vote for, against or abstain. The clerk will then announce the results of vote, and it is my duty as chair to declare whether the motion is carried or defeated.

[Translation]

Keli Hogan, Clerk of the Committee: The Honourable Senator Dawson.

Senator Dawson: Yes.

Ms. Hogan: The Honourable Senator Boisvenu.

Senator Boisvenu: No.

[English]

Ms. Hogan: The Honourable Senator Doyle.

Senator Doyle: No.

Ms. Hogan: The Honourable Senator Eggleton, P.C.

Senator Eggleton: Yes.

Ms. Hogan: The Honourable Senator Greene.

Senator Greene: Against.

Ms. Hogan: The Honourable Senator Housakos.

Senator Housakos: No.

Ms. Hogan: The Honourable Senator MacDonald.

Senator MacDonald: No.

Ms. Hogan: The Honourable Senator Mercer.

Senator Mercer: Yes.

Ms. Hogan: The Honourable Senator Unger.

Senator Unger: No.

[Translation]

Ms. Hogan: The Honourable Senator Verner, P.C.

Senator Verner: No.

[English]

Ms. Hogan: It is seven nays, three yeas.

The Chair: The amendment is defeated.

The Chair: Shall the clause 8 carry?

Hon. Senators: Yes.

The Chair: Shall clause 9 carry?

Hon. Senators: Yes.

The Chair: Shall clause 10 carry?

Hon. Senators: Yes.

The Chair: Shall clause 11 carry?

Hon. Senators: Yes.

Senator Mercer: I have amendments, Mr. Chair. If you bear with me, I can do a couple of things to move them along. I have a number of amendments to clause 11. I can give you them all, and it will not be our proposal that we have a recorded vote from here on in.

The Chair: Do members agree for the sake of expediency?

Hon. Senators: Agreed.

The Chair: Cooperation and compromise.

Senator Mercer: It is wonderful; I can feel the love in the room.

I move:

That Bill C-52 be amended in clause 11, on page 5,

(a) by replacing line 9 with the following:

"(a) the terms that the railway'';

(b) by replacing lines 14 to 16 with the following:

"(b) the terms that the railway company must comply with if it fails to comply with a term described in'';

(c) by replacing lines 18 to 20 with the following:

"(c) any term that the shipper must comply with that is related to a term described in paragraph (a)''; and

(d) by replacing line 28 with the following:

"to a term described in paragraph''.

Let us go to the next amendment. I move:

That Bill C-52 be amended in clause 11, on page 6, by replacing line 28 —

Senator Greene: I think these are out of order.

The Chair: Let us go one by one.

It is moved by the Honourable Senator Mercer that Bill C-52 be amended at clause 11, page 5, at line 9 —

Senator Greene: Dispense.

The Chair: Carried or defeated?

Some Hon. Senators: On division.

The Chair: On division.

Senator Mercer.

Senator Mercer: We finished page 5, so we are now on page 6.

Senator Greene: There is another one.

Senator Mercer: I apologize. Thank you, Senator Greene.

The Chair: Even the government helps the opposition.

Senator Mercer: I move:

That Bill C-52 be amended in clause 11, on page 5, by replacing line 17 with the following:

"paragraph (a), including terms governing the determination of whether or not a service failure has occurred and the manner in which damages are to be assessed and paid to the shipper for losses resulting from any such failure;''.

The Chair: It is moved by the Honourable Senator Mercer that Bill C-52 be amended in clause 11, on page 5 —

Senator Mercer: Dispense.

The Chair: On division?

Some Hon. Senators: On division.

The Chair: Next.

Senator Mercer: Now we are on page 6. I move:

That Bill C-52 be amended in clause 11, on page 6, by replacing line 28 with the following:

"company with respect to a term''.

The Chair: It is moved by the Honourable Senator Mercer —

Senator Mercer: Dispense.

The Chair: On division?

Some Hon. Senators: On division.

Senator Mercer: I will move on to the next one. I move:

That Bill C-52 be amended in clause 11, on page 6, by adding after line 41 the following:

"169.321 If a railway company intends to present evidence to the arbitrator in respect of any of the matters described in paragraph 169.37(d), (e) or (f), it must

(a) no later than five days before the day on which it submits a proposal under subsection 169.34(1), notify the shipper and the arbitrator in writing of this intention; and

(b) no later than the day on which it submits the proposal, inform the shipper and the arbitrator in writing of the evidence that it intends to present.''.

The Chair: It is moved by the Honourable Senator Mercer —

Hon. Senators: Dispense.

Some Hon. Senators: On division.

The Chair: On division.

Senator Mercer: We are on page 7. I move:

That Bill C-52 be amended in clause 11, on page 7, by replacing line 24 with the following:

"(a) any term described in para-''.

Some Hon. Senators: On division.

The Chair: On division.

Senator Mercer: All right, we are on page 8. I move:

That Bill C-52 be amended in clause 11, on page 8, by replacing line 38 with the following:

"lish any term described in paragraph''.

The Chair: It is moved by the Honourable Senator Mercer —

Some Hon. Senators: Dispense. On division.

The Chair: On division.

Senator Mercer: This is on page 8 and page 9. I move:

That Bill C-52 be amended in clause 11,

(a) on page 8, by replacing line 45 with the following:

"resolve the matters submitted by the shipper to the Agency''; and

(b) on page 9, by replacing line 1 with the following:

"for arbitration. In making his or her''

The Chair: It is moved by the Honourable Senator Mercer —

Some Hon. Senators: On division.

Senator Mercer: We are on page 9 again. I move:

That Bill C-52 be amended in clause 11, on page 9,

(a) by deleting lines 11 to 19; and

(b) by relettering paragraphs 169.37(g) and (h) as paragraphs 169.37(d) and (e) and any cross-references thereto accordingly.

The Chair: It is moved by the Honourable Senator Mercer —

Some Hon. Senators: On division.

The Chair: On division.

Senator Mercer: This is the final one. I move:

That Bill C-52 be amended in clause 11, on page 9, by adding after line 26 the following:

"169.371 If the arbitrator's decision establishes a term with respect to the application of a charge described in paragraph 169.31(1)(e), the Agency may, on application by the shipper, reduce the amount of the charge if the Agency determines that it is unreasonable.''.

The Chair: It is moved by the Honourable Senator Mercer —

Some Hon. Senators: On division.

The Chair: On division.

Shall clause 11 carry?

Hon. Senators: Yes.

The Chair: Shall clause 12 carry?

Hon. Senators: Yes.

The Chair: Shall clause 13 carry?

Hon. Senators: Yes.

The Chair: Shall clause 14 carry?

Hon. Senators: Yes.

Senator Doyle: Point of order. Did we vote on the amendments?

The Chair: They were defeated.

Senator Doyle: You did them all in bulk.

The Chair: These are the clauses as not amended. We go back to the original clauses, since the amendments were defeated.

Shall clause 1, which contains the short title, carry?

Hon. Senators: Yes.

The Chair: Shall the title carry?

Hon. Senators: Yes.

The Chair: Shall the bill, as unamended, carry?

Senator Eggleton: On division.

The Chair: On division.

Is it agreed that the chair report this bill without amendments to the Senate?

Senator Eggleton: On division.

The Chair: On division.

Are there any other questions or comments?

The chair will be glad to report as early as tomorrow on this bill. I do not know if the sponsor and the opposition spokesperson will want to comment, but that will be the time when they will have an opportunity to make their comments.

Senator Greene: What does "lish'' mean?

The Chair: "Establish.''

There being no other comments, the chair will declare the meeting over. Unless the steering committee will be meeting next week and unless we continue into July, we will probably not meet until September.

(The committee adjourned.)