A CP train passing prairie grain silos - Date/Photographer unknown - Canadian Pacific.

19 December 2012

Proposed Railway Service Penalties Unnecessary CN Rail CP Rail Chiefs Argue

Toronto Ontario - Canada's largest railways said new legislation tabled in Parliament Tuesday aimed at improving the quality of service they provide their customers was unnecessary, including the threat of hefty fines if they fail to do so.
 
Claude Mongeau, chief executive of Canadian National Railway Co., said Ottawa ran the risk of stifling innovation in the industry by implementing "unnecessary and overly burdensome" rail regulations. He urged the government to make the rules applicable only to captive shippers, who have no alternative to move their goods, and to allow for mediation before costly arbitration in any disputes the railways have with customers.
 
"I am disappointed," he said in an interview. "Beyond the politics, and noise of it, as you can see, the objective facts are quite clear, there's no evidence of systemic service problems, and, in fact, I believe we have a world-class rail system both in efficiency and reliability."
 
The new legislation stems from the federal Rail Freight Service Review, which was established in 2008 to address systemic complaints of poor service from Canadian railways.
 
But Mr. Mongeau argues CN's service has improved dramatically since the launch of the review, including through a series of service agreements reached with its customers and other stakeholders, like the ports, to address the concerns raised in the review.
 
There's No Evidence of Systemic Service Problems
 
CN's smaller rival, Canadian Pacific Railway Ltd., has implemented similar measures in the aftermath of the review, and said the new rules were unnecessary as a result.
 
"We are confident strong commercial relationships will continue to emerge with little need for the processes described in the legislation," said Hunter Harrison, CP chief executive, in a statement. "Canada is fortunate to already have the best rail system in the world from which to build upon."
 
The Fair Rail Freight Service Act, if passed, would grant companies that ship goods by rail the right to a service agreement within 30 days of requesting one from the railways.
 
It would also create an arbitration process to establish an agreement should commercial negotiations fail. The outcome of the arbitration would be binding and non-appealable and would allow the Canadian Transportation Agency to impose fines of up to $100,000 for each violation of the arbitrated service agreement for its duration.
 
Federal Transport Minister Denis Lebel said at a press conference in Winnipeg the new regulations were needed because there is power imbalance in the negotiations between the shippers and the railroads. He felt the new regulations would act as a catalyst for the parties to reach a commercial agreement at the risk of having one imposed. "Ideally, this arbitration process will never need to be used," he said.
 
CN and CP have argued throughout the process further regulations are not needed, in part, because of the consumer-friendly commercial measures implemented since the review was launched, including several service agreements with their customers and other stakeholders.
 
They argued the measures they have implemented have improved service, including shortening transit times, and increasing reliability. They argued meddling in a complex system like the railways could make the quality of service worse by impose non-competitive terms upon them.
 
Bob Ballantyne, chairman of the Coalition of Rail Shippers, said while service has improved in some areas in the aftermath of the review, most shippers continue to feel the legislation is needed as a backstop to prevent the railways from slipping into their old ways once the spotlight is removed from the service issues.
 
"Generally, the shipper community is happy with the general thrust of the bill," he said.
 
Fadi Chamoun, BMO Capital Markets analyst, said he doesn't see the legislation as being too burdensome for the railways.
 
"To be sure, no legislation would have been better than one that obviously adds red tape for the industry. But as far as legislation goes, this one does not appear to be materially onerous to the railroads," he said in a note to clients.
 
Scott Deveau.