Railways say freight legislation is needless

Canada’s two l argest railways say the introduction of new freight service regulations that include fines and arbitration is an unnecessary intrusion that won’t improve the engine of the country’s economic growth.

“We were hoping that there would not be legislation because beyond the noise of advocacy I think the objective facts are quite clear — there’s really no evidence of systemic service problems,” CN chief executive Claude Mongeau said in an interview Tuesday.

He pointed to the acknowledgment of shippers and the government that Canadian railways have improved their level of service since the federal government announced a rail service review in 2008.

But Transport Minister Denis Lebel and Agriculture Minister Gerry Ritz announced amendments Tuesday to the Canada Transportation Act that apply to all shippers in Canada.

The changes follow a fiveyear review of service provided to shippers such as grain handlers, miners and manufacturers by federally regulated railways, such as Canadian National Railway and Canadian Pacific Railway.

Mongeau said the system thrives best when both sides work collaboratively to improve reliability and efficiency. The proposed regulations will instead force the railway to be more guarded with its customers to ensure it doesn’t share information that could be thrown back at it during an arbitration process.

“When you have the other party that has the regulatory recourse or an opportunity to get you, it just chills the innovation and it stifles the supply chain collaboration in a way that I think is not conducive to true competitive advantage — that’s the biggest cost to the economy.”

Service agreements account for about half of CN’s revenues. The Montreal-based railway had hoped that mediation would be a first step before shippers can pursue arbitration and that the new regulatory regime would only be accessible to shippers who are captive to one railway.

“(The government) should have said we have a good thing going, we’re going to keep a watchful eye and we’re going to restrain from introducing legislation that could have unintended consequences.” Canadian Pacific Railway said the best way to improve the country’s “world-class rail supply chain” is through commercial undertakings, better traffic forecasting and more certainty on traffic volumes.

CEO Hunter Harrison said the railway has been implementing earlier recommendations, including a service agreement template and a commercial dispute resolution process.

“As such, we are confident strong commercial relationships will continue to emerge with little need for the processes described in the legislation,” he stated.

Lebel said legislation gives shippers the right to an arbitrated service agreement if negotiations with the railway fail.

“We have introduced legislation that will enhance the effectiveness, efficiency and reliability of Canada’s rail system,” the minister told reporters.

“The railway-shipper relationship is vital to Canada’s economy as a whole because when shippers can move more volume this means more exports, more revenue and, for sure, more Canadian jobs,” Lebel said.

The Fair Rail Freight Service Act bill comes after shippers and the railways spent four months unsuccessfully trying to hammer out an agreement.

The amendments require railways to provide service contracts within 30 days of a shipper’s request.

If terms cannot be reached through negotiations, the shipper can seek arbitration from the Canadian Transportation Agency.

The interest-based arbitration process will have a 45-day timeline, but that can be extended for up to 20 days. The agency will provide arbitrators for two years before private arbitrators are appointed. Costs are then split evenly between the two parties.

The arbitrator’s decision would be binding and not subject to appeal. The imposed contract would be akin to a confidential contract and have a one-year term, or longer if both parties agree.

Railways face administrative penalties of up to $100,000 for each violation of an arbitrated service level agreement.

The legislation requires approval by the House of Commons and Senate and it is not clear when the law might receive royal assent.