Railways ride the Liberal gravy train
In the next week or so, Parliament is expected to pass Bill C-49, a bill amending the Canada Transportation Act (CTA). The bill will impact the mining sector’s ability to get our products to market reliably and cost-effectively on Canada’s railroads, which are controlled by only two companies. Mining products represent about half of rail freight revenue and volume and 20 per cent of Canada’s exports, and support hundreds of thousands of jobs. Bill C-49 will likely contribute to higher costs and reduced railway service for Canada’s miners, and harm our nation’s ability to compete globally for jobs and investment.
Over the past few months, there has been extensive media coverage about poor rail service affecting grain farmers. But with grain representing little more than 10 per cent of rail volume, the debate has ignored the larger issue, like a tail wagging the dog of Canada’s export economy. The response, in Bill C-49, is similar: It largely includes measures that will help the grain sector while leaving mining and many other shippers without effective remedy.
Transport Minister Marc Garneau’s Conservative predecessors twice amended the CTA to try and address rail service and cost issues that have been harming Canada’s economic competitiveness, and both attempts fell short. Garneau’s attempt is the most robust to date, but it also fails the majority of shippers because different remedies are needed for different shippers.
Many mines and forestry operations are “captive” shippers. These are operations that completely depend on one railway company to get their goods to market. As captive shippers, they suffer the full effects of railway market power: They pay the highest rates (essentially subsidizing the rates of others, like grain farmers, who enjoy a revenue cap) and, in return, get the worst service. Not just that, but when railways invest in infrastructure and maintenance, they invest where they have competition, and not where captive shippers operate.
For decades, the one useful remedy for captive shippers was Final Offer Arbitration. For FOA to work properly, there has to be reasonable access to information on both sides of an arbitration, including costing information. Without such information, shippers are negotiating in the dark, and arbitrators are unable to assess the reasonableness of bids. For many years, shippers requested such information during an FOA and the railways complied, leading to fair processes and reasonable outcomes. But that all changed about a decade ago when railways started objecting to this information being shared, leaving shippers at a major disadvantage and effectively nullifying the FOA remedy.
A coalition of eight shipping groups lobbied hard to get this changed by pushing for an amendment that would have made the provision of costing information a mandatory input into an FOA process. The railways opposed and, sadly, Garneau sided with them — the two railway companies responsible for poor service and high rates — instead of with the wealth- and jobcreating shippers. There was hope when a majority in the Senate sent Bill C-49 back to House of Commons with this amendment, but the government struck it out. The Senate fought back a second time, but to no avail.
Even worse, Garneau not only rejected the Senate amendment but further harmed those few captive shippers who are permitted to access FOA by declaring that FOA is not a costbased remedy but “rather a commercially-based process to settle a dispute during a negotiation of a confidential commercial contract.”
The first problem with this is that he is wrong. The Federal Court of Appeal (and the Alberta Court of Queen’s Bench) declared FOA to be a form of rate regulation and an arbitrator appointed under FOA to be a regulatory authority. Ignoring the courts, Garneau has sided with the railways.
The second problem is that the railways can now quote him in support of their position. While the average business person will understand this statement to be incorrect, arbitrators will have to take it into account. Shippers who already are exposed to daunting odds in the use of FOA will face yet another hurdle.
Bill C-49 cleared another vote in the House of Commons Tuesday, and will return to the Senate once more, where we expect it will pass fairly quickly on its way to becoming law. Its long-term consequences remain to be seen. However, the signal to international markets, who have been watching this bill with interest, is that Canada will become a less reliable provider of goods and services. And the message to investors in Canada’s resource sectors is that the costs of doing business in Canada are going to rise further, as the railways reap the gains of having a minister and government squarely in their corner.