After many years of study and debate, on December 10, 2012, the government of Canada introduced Bill C-52 the Fair Rail Freight Service Act. This Bill is actually an amendment to the Canada Transportation Act and it would require a railway company, at the request of a customer (or “shipper”), to make the customer an offer to enter into a contract for service. The Government promised this legislation prior to the last election because of pressure it was getting from agricultural groups and other shippers. Currently, the Bill is before the Standing Committee on Transportation, Infrastructure and Communities in the House of Commons. In short, this Bill will make it possible for a shipper to force railways into an agreement for service. The question is: do we still need this legislation?
The answer to this question doesn’t lie in the frenzied lobbying or exaggerated anecdotal complaints from interest groups. Instead, we must look at the history of freight rail in Canada, the evolution of our large railways- CN and CP, and the policy drivers that led to the privatization and commercialization of freight rail in Canada. It would be an injustice to the history of the rail supply chain in Canada to attempt to outline these drivers and decisions here. But the fact is that successive governments realized they could not run railways or contribute to the rail supply chain efficiently, nor could they afford the investment in infrastructure it required. In the late 1970’s and early 1980s, the Government of Canada purchased 8000 hopper cars for transporting grain and in 1981, the cost to repair the rail system in Canada was estimated at $3.2 billion (the equivalent of $9.3 Billion in 2013). By 1995, direct subsidies for the movement of grain to the railways had peaked at $650 million, a time when Canada’s debt was a whopping 68% of GDP and our currency was known as the “northern peso”.
Since that time we have seen a tremendous turnaround in the rail supply chain sector in Canada and in the economy and our fiscal situation federally. A commercial approach unleashed a range of market based forces that allowed the rail supply chain to become efficient, competitive and profitable over the next fifteen years. A significant step in the industry’s evolution was the implementation of innovative measures to operate the entire network more efficiently. The keystone of this innovation: precision railroading, focused on asset utilization, velocity and efficiency. These areas of focus are now widely accepted in other modes of transportation as the drivers of productivity. We’ve heard a lot about “operating ratios” because railways in Canada have been driving these ratios down. What other mode (or industry) has succeeded in improving their productivity so demonstrably? These improvements have led to profitable, competitive railways that enjoy significant investor confidence.
The last eighteen years have not been without challenge. Thanks to an emerging global economy and a swing to east-west trade, freight volumes have shifted to Canadian shores. There was a need to optimize the supply chain across the country, in partnership with other players such as ports, terminals, ship owners and governments, (who played a vital role in managing their infrastructure including the Asia Pacific gateway). In 2008-2009, we faced the biggest recession since the Great Depression. The major challenge for railways was managing customers and meeting their expectations as this transformation was taking place.
You cannot run a great business if you don’t listen to your customers and so the next phase in the evolution of today’s railways was to focus on collaboration and improving predictability and reliability in the rail supply chain. CN and CP have very different franchises, with different customers and demands. However, they have a common desire to sign agreements with their customers and supply chain partners (such as ports and terminals) and to deliver on the obligations in those agreements. Today, Canadian railways offer the lowest freight rates in the world. In fact, commodity prices have risen significantly over the past ten years while freight rail rates have remained largely flat.
A globally competitive supply chain has led to tremendous success for Canadian ports in winning new business, as shipping is very competitive in North America and around the world. Rail is the backbone of an advanced, integrated supply chain infrastructure. About ten thousand rail cars are moved every single day in Canada. Thanks to commercialization, today’s rail transportation system is a complex network characterized by high productivity, low costs, efficiency and transparency.
From debates in the House of Commons, we have learned that many MP’s need accurate information about today’s railways and about the history of freight rail in Canada. There are too many misperceptions, based on myths. For example, we’ve heard association representatives and MP’s say that 80 percent of freight rail customers are unhappy with their service. This is simply untrue. This inaccurate number, from a survey done five years ago, was based on responses from only 262 of a possible 8,000 shipper perspectives. A more recent survey was conducted for shippers last year by Supply Chain Surveys Inc.. This survey reports that 72.5 percent of shippers reported 95% or better on time departures and on-time arrivals performance from their carriers- an upward trend that began a few years ago. There is also a very credible survey from RBC Capital Markets: the 2013 North America Railroad Shipper Survey –which found that 69% of rail customers rated rail service as being “good” or “excellent” –up from 58% in the previous year.
As members of the Standing Committee review this Bill, they must consider the history of rail in this country and the important decisions that have enabled today’s railways and customers to thrive in a commercial context. They must ask themselves if the legislation is still required and if the supply chain will be upset by new regulation. They could ask themselves if they have already delivered on their promise and if so; recommend that this Bill do not proceed.
President and CEO
The Railway Association of Canada
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Michael Bourque, President and CEO RAC
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A Leger poll taken earlier this year highlights some surprising attitudes by Canadians about freight rail. It seems a great majority of Canadians (87%) would support the government providing funding for rail. However, the freight rail industry is not asking the government for such subsidies, nor does it receive any today. Read the full comment published in The Financial Post by clicking here.
CTV News Channel
Michael had a chat with Dan Matheson, co-host of Morning Express, on the resurgence of Canada's Rail sector.
Click here to watch the video.
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Michael discussed the rail sector's growing momentum on CBC's The Lang & O'Leary Exchange. To view the interview