Ottawa Citizen

Long-haul route plan gives U.S. rivals unfair access: rail giants

Proposal could hurt ‘competitiv­eness’ of Canadian carriers, CN and CP argue

- JESSE SNYDER Financial Post jsnyder@postmedia.com

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 Canadian National Railway Co. and Canadian Pacific Railway Ltd. 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 far-flung regions. They said the decision also 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, the vice-president of corporate developmen­t at CN.

Interswitc­hing is a long-held 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.

The federal government’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 currently proposed 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 a 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 cost-competitiv­e 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 long-haul 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 member of Parliament 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 representa­tives 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.

 ?? DARRYL DYCK/THE CANADIAN PRESS ?? CN, CP and some experts see the federal government’s proposal to update Bill C-49 as potentiall­y harmful for the “hundreds” of smaller Canadian communitie­s. The plan is to expand interswitc­hing mechanisms to include longhaul routes.
DARRYL DYCK/THE CANADIAN PRESS CN, CP and some experts see the federal government’s proposal to update Bill C-49 as potentiall­y harmful for the “hundreds” of smaller Canadian communitie­s. The plan is to expand interswitc­hing mechanisms to include longhaul routes.

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