CN, CP cry foul over long-haul route plan

GIVES U.S. ACCESS

JESSE SNYDER OTTAWA • Canada’s two major rail companies sounded off Tuesday against a new legislative proposal they say will give U.S. competitors unfair access to the Canadian rail network, and potentially cause more of the country’s smaller and remoter rail lines to be abandoned.

Representatives for and

said a government proposal to impose so-called “long-haul interswitching,” or LHI, fails to address the concerns of shippers in remote regions, and could even crimp their ability to serve customers in farflung regions. They also said the decision lacked adequate consultation with Canada’s two main railways.

The representatives spoke at a committee hearing in Ottawa looking at the government’s sweeping changes proposed under Bill C-49, the Transportation Modernization Act.

“It’s a remedy which, until it appeared in the bill, had never been discussed or considered,” said Janet Drysdale, vice-president of corporate development at CN.

Interswitching is a longheld railway practice in which one company will carry goods along a shorter route on behalf of a second company, typically when the customer is “captive” to a single carrier. The carriers then reimburse each other on an annual basis.

Ottawa’s update of its transportation bill proposes an expansion of current interswitching mechanisms to include long-haul routes up to 1,200 kilometres — a change that will give U.S. carriers far more extensive access to the Canadian rail network, CN and CP said. CP representatives estimated as much as 20 per cent of its revenues will be exposed to U.S. competitors under the LHI mechanism.

The companies argued that U.S. carriers such as Burlington Northern Railway, among others, had already supplanted CN and CP shipping volumes due to the “expedited interswitching” provision introduced under Bill C-30, an earlier version of the legislation.

Under the currentlyproposed Bill C-49, U.S. companies will have an expanded reach onto the Canadian system, the representatives said.

CN and CP argue that the rule is unfair because similar interswitching mechanisms are not available to Canadian carriers operating on U.S. rail networks. The decision to include an LHI mechanism does not come with a similar provision south of the border, they said.

“We don’t understand why, especially while NAFTA negotiations are ongoing, Canada would give away this provision without getting anything in return,” Drysdale told the committee.

The LHI mechanism could “undermine the competitiveness” of Canada’s rail network, said James Clements, the vice-president of strategic, planning and transportation services at CP.

He said the provision could “dampen shipping volumes at Canadian ports” if U.S. rail companies were to transport higher volumes of Canadian goods, suggesting they might ship those products to preferred ports south of the border.

Liberal committee members said the legislation will instead provide a more costcompetitive option for shippers in remote regions.

Shippers of products such as lumber, iron ore, grain or consumer goods in Canada’s remotest regions are often beholden to a single rail line, leaving them with fewer transportation options. The bill aims to remedy that dependence on a single shipper by allowing competing companies to place bids on longhaul shipper contracts.

CN and CP said the earlier “extended interswitching” mechanism, which allowed competing lines to ship goods up to 160 kilometres, caused them to lose several thousand railcars worth of shipping volumes to U.S. competitors.

However, that only accounts for a fraction of their total shipping volumes, said Ken Hardie, a Liberal MP and Transportation committee member. “We don’t really see the kind of damages that these folks are speculating,” he said.

“They didn’t lose much business — hardly any at all.”

CN and CP also argued that the latest long-haul interswitching mechanism could make the economics of short-haul shipping even less competitive, potentially leading to shutdowns of smaller rail lines.

“We’ve actually had to abandon some regions,” Drysdale said.

CP said it has invested $7.7 billion on rail infrastructure since 2011, and plans to invest roughly $2.5 billion in 2017. CN said it reinvests around half its revenues back into infrastructure maintenance and expansion.

Other experts also view the LHI provision as potentially harmful for the “hundreds” of smaller Canadian communities that rely on short-haul rail links.

“I am concerned that with the latest reliance on the high-speed, high-volume lines, the feeder lines are not being attended to,” said David Emerson, a former Conservative and Liberal cabinet minister.

Emerson conducted a report on how to update Canada’s Transportation Act, which was made public in February, 2016. It formed the basis for the government’s current proposals. The report included a long list of recommendations on how to improve the efficiency of travel by air, road and rail in Canada.

The proposed bill does not follow through on one of Emerson’s most contentious recommendations: to lift income caps for grain shipments on CP and CN, imposed on the companies after a snag in grain shipments in 2013 and 2014 led to a massive glut of grain supply. CN and CP are decrying a proposed change in the Transportation Act which would open up more business for U.S. carriers without any quid pro quo by the U.S.