Grain farmers hail rail freight service enforcement

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Prairie crop growers relying on the rails to get their wares past Canada’s geography are hailing Tuesday’s tabling of federal legislation which, if needed, would enforce levels of service between rail freight shippers and railways.

Bill C-52, the Fair Rail Freight Service Act, would give companies shipping goods by rail the right to set up a service agreement with railways, and provide for an arbitration process to set up such an agreement where commercial negotiations can’t.

Farmers and processors “must be able to get their world-class product to market in a reliable and efficient way,” federal Agriculture Minister Gerry Ritz said Tuesday in Winnipeg. “This bill is good news for Canada’s farmers as it will help ensure all shippers are treated fairly by the railroads.”

The new process “will create a strong incentive for shippers and railways to negotiate service agreements commercially,” the government said in a release Tuesday. “If these negotiations are not successful, shippers will be able to trigger a fast and efficient arbitration process with the Canadian Transportation Agency.”

To start the process rolling, a shipper must request a service contract from a railway company, which then must respond within 30 days. If negotiations don’t produce a deal, a shipper would have to satisfy the CTA that an “attempt was made” at a resolution with the railway.

That arbitration process, the government said, will be “interest-based” — as opposed to “final-offer” — with a 45-day timeline, subject to a 20-day extension where an arbitrator deems it necessary.

An arbitrator’s decision would be binding and non-appealable, and the resulting contract would be “akin to a confidential contract” and would run for at least a one-year term unless both parties agree to a longer time span.

Where federal transport legislation today requires that decisions from an arbitrator be “commercially fair and reasonable to both shippers and railways,” the new provision provides “guidance” for the arbitrator to consider both the shipper’s transportation needs to maintain and grow its business, and the railway’s need to operate an efficient network for the benefit of all users.

An arbitrator would also consider the “specific circumstances” of the situation, including any voluntary commitments a shipper makes to a railway.

Once an arbitrated service agreement is in place, the CTA may respond to violations with an administrative monetary penalty of up to $100,000 per violation, on top of “other existing remedies” such as a level-of-service complaint, to “ensure railways meet their service obligations.”

“We hope”

Where farmer groups have been largely enthusiastic on Tuesday’s announcement, the Western Grain Elevator Association, which represents the Prairies’ mainline grain handlers, veered toward more caution in its optimism.

“We hope the legislation will be effective in providing service accountability. The effectiveness will become known as service level agreements are finalized and put into effect,” WGEA executive director Wade Sobkowich said Tuesday.

However, the association said it’s particularly encouraged that the federal government recognizes “long-lasting improvements to rail service cannot occur without a change to the policy environment that allowed poor service to occur in the first place.”

“Without a legislative backstop, it is nearly impossible for even the largest shippers to negotiate service agreements that reflect what would happen in a competitive marketplace,” Sobkowich said.

That said, arbitrators will need to be knowledgeable of issues affecting the grain handling industry to make sure the agreements are effective, he added.

The National Farmers Union described C-52 as a “small step” and warned of pitfalls. “With each shipper negotiating individually with essentially two oligopolistic railways in a confidential contract, how much power will the shipper really have?” NFU president Terry Boehm said Tuesday.

“We were glad to see in this bill, the right to a service level agreement, an arbitration process when negotiations fail, and consequences for railways when they don’t live up to their obligations,” Richard Phillips, executive director of the Grain Growers of Canada, said in a separate release. “These components, in our view, are an important part of this legislation being effective and enforceable.”

“Canadian businesses and their industry organizations put a great deal of work into the recommendations on this legislation,” Greg Cherewyk, executive director of Pulse Canada, said in that group’s release. “While its premise is straightforward, it’s a complicated matter and it’ll take some time to review and consider the implications of the package the government put forward today.”

That said, “it is important to acknowledge how significant today is — this is a process of continuous improvement and every step taken in that direction is critical,” Cherewyk added.

“Without a predictable and reliable rail service in Canada we cannot hope to be able to improve our trade position with our competitors,” Doug Robertson, president of the Western Barley Growers Association, added Tuesday. “This is a big country, and when you only have two railways servicing it, you need the best from them, not their best intentions.”

The Canadian Fertilizer Institute, representing Canada’s fertilizer makers, wholesalers and retailers, said it “supports the thrust” of C-52, but wants Ottawa to clarify whether the legislation will also cover rail shipments from Canada into the U.S., the top market for Canadian fertilizer.

“No evidence”

C-52 flows from the Rail Freight Service Review, launched in 2008 to address “ongoing issues” with rail freight service, from which a government-appointed review panel issued its report in late 2010.

The government last year brought in a facilitator to develop a template service agreement and a “streamlined” commercial dispute resolution process between railways and shippers.

Of the two major railways, Canadian Pacific Railway (CP) hasn’t yet released an official response to Tuesday’s announcement.

Calgary-based CP last week announced a four-year plan that will see jobs cut, rail sidings lengthened and the head office relocated out of the city’s downtown, among other reorganizations under its new CEO, retired Canadian National Railway (CN) chief Hunter Harrison.

CN’s CEO Claude Mongeau, on the other hand, warned Tuesday that C-52 will send “mixed signals to customers and suppliers around the world about the government’s approach to commercial markets in Canada.”

“Putting aside normal operational and commercial issues, there is no evidence of systemic rail service performance problems in Canada” to warrant such a bill, the company said.

Montreal-based CN “invites the government to identify specific, systemic service issues that warrant this legislation,” Mongeau added. “We are ready to address any legitimate problems brought to our attention.”

Related stories:
Rail freight panel’s report pleases no one: MCO, Oct. 14, 2010
Former Alta. treasurer named rail freight facilitator, Nov. 2, 2011
NDP, Liberals push for rail freight service bill, July 30, 2012

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