Websitemage774x427-02-15On February 25, 2016, the federal government tabled a report entitled “Pathways: Connecting Canada’s Transportation Systems to the World” which was the result of a statutory review of the Canada Transportation Act (CTA) and associated transport issues. The review panel was chaired by the Honourable David Emerson. MLI author and rail transport expert Malcolm Cairns was consulted by the panel and several of the panel’s key recommendations reflected Cairns’ findings in the MLI report.

Overall, the report has recognized that railways in Canada play a crucial role in supporting and strengthening business competitiveness, trade, economic growth, and prosperity. This performance has been accomplished with a drive for efficiency and optimization which has led to significant productivity gains shared with shippers. The report also quotes from Cairns’ 2015 MLI report, Staying on the Right Track: A review of Canadian freight rail policy: “except for concern with the occurrence of train accidents, Canadians in general do not especially connect with freight rail, recognize its significant contribution to the national economy, or know that their industry is world-class”.

Several of the panel’s key recommendations reflected Cairns’ findings in the MLI report

Real freight rates have declined over the past two decades, and it is therefore perhaps not surprising that the report noted that “in general, there have been few concerns expressed to the Review about rates charged by railways. Access to Final Offer Arbitration (FOA) and interswitching remedies are long-standing, and although several changes have been proposed in this report, these remedies are generally considered to function well.” As indicated in the report, the majority of comments received by the Review concern railway service and performance, since there is disagreement among shippers and railways about what obligations the level of services provisions in the CTA impose on railways, and how these should be met.

Aside from the report’s general conclusions that the freight rail system is working well and that in general significant new regulations are not required, as concluded by MLI, there were a number of technical recommendations that mirrored Cairns’ report. Below we compare the review panel report’s findings to those of MLI:

  • Review panel report: Any suggestions to enhance competition through “open access” to rail lines by regulated running rights were rejected as associated costs outweigh the perceived benefits; (MLI: Expanding running rights is unnecessary and should be avoided, as it would be very difficult to implement and would upset the competitive balance in the regulatory framework)
  • Review panel report: Recommendations to modernize the maximum revenue entitlement for the movement of western grain, in anticipation of its total elimination within a seven-year time horizon, would finally place the grain sector on an equal footing with all other commodities transported by rail in Canada; (MLI: Consideration should be given to eliminating the maximum revenue entitlement for western grain as a further step towards a fully commercial grain transportation system)
  • Review panel report: It is recommended that the extended 160 km interswitching limits in western Canada, and related to the Fair Rail for Grain Farmers Act, be allowed to sunset; (MLI: Allow extended interswitching to lapse in 2016 as it undermines pricing freedom and differential pricing for the Canadian railways, distorts competition in favour of US railroads, and will deter future investment)
  • Review panel report: The recommendation to provide shippers with the option of a three-year FOA would likely increase the risks and uncertainties already associated with the FOA process; (MLI: Existing FOA provisions to address the issue of potential abuse of market power are working well and are not in need of amendment)
  • Review panel report: The recommendation to encourage municipal governments to establish a buffer zone around new rail developments, in order to provide separation from residential development and mitigate future concerns over rail and logistics operations, is welcome; (MLI: The regulatory approach to noise and vibration complaints and requests for rail crossings should be reviewed in light of the need to preserve railway property for future capacity expansion)
  • Review panel report: Recommended changes associated with the movement of dangerous goods should enhance efforts already undertaken to moderate risks to public health and safety; (MLI: Changes to railway liability in the event of catastrophic accidents currently under consideration – such as establishing a fund to cover liabilities beyond a cap – should be implemented)
  • Review panel report: The complex list of recommended changes to the level of service provisions and associated commercial tools will require further scrutiny to estimate their impact. (MLI: Recent changes to the regulations concerning rail service should be given time to see how they are working, while also monitoring the full supply chains to provide a more system-wide approach)

“Overall, the report findings – as far as freight rail in concerned – are generally positive”, said Cairns.