Ottawa Ontario - 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 (CN) and Canadian Pacific Railway (CP) 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 also said the decision also lacked adequate consultation with Canada's two main railways.
 
The representatives spoke at a committee hearing in Ottawa Tuesday over the government's sweeping changes currently 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.
 
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 percent of its revenues will be exposed to U.S. competitors under the LHI mechanism.
 
The companies argued that U.S. carriers such as the now-defunct 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, for their part, said the legislation will instead provide a more cost-competitive option for shippers in remote regions.
 
Shippers of products like 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 rail cars 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 shut downs 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 $1.25 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 legislative 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 Liberal's 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, which were imposed on the companies after a snag in grain shipments in 2013 and 2014 led to a massive glut of grain supply.
 
(An earlier version of this story said CP planned to spend $2.5 billion on rail infrastructure in 2017. In fact, it is $1.25 billion.)
 
Jesse Snyder.