June/July 2014

MAC Economic Commentary

Feds can’t play favourites with rail rules

By Brendan Marshall

This spring, the federal government instituted mandatory grain-shipping quotas for railways in an attempt to remedy delays in agriculture shipments incurred this winter. But similar rail service issues have also plagued other industries like mining. The government’s interventionist and sector-specific approach to addressing Canada’s rail transportation challenges runs counter to its trade and economic development priorities, and will not address the problems. Reliable and effective rail service is no less essential for mining and other products as it is for the movement of grain. Transportation policy, informed by railway data, should reflect this.

A particularly harsh winter, causing trains to travel slower with fewer cars in tow, converged with a bumper crop to create a significant grain backlog on the Prairies. The government’s response was to mandate grain sector-specific volume commitments for Canada’s Class I railways.

First, through an Order in Council, and then through Bill C-30 Fair Rail for Grain Farmers, the federal government enacted requirements for Canada’s Class I railways – CN and CP – to carry no less than one million tonnes of grain combined each week. Failing that, they would be subject to monetary penalties. The current order in council keeps the one-million-tonne minimum until August 3, 2014, after which a new minimum level could be instituted by the government. Bill C-30 sunsets in August 2016, meaning these exclusive volume commitments would be in force for at least the next two years.

The government acted under the auspice that it needed to protect Canada’s trade reputation as a world-class grain supplier, when in reality the provisions enacted may dampen our reputation with regard to the rest of the economy. Railways have a limited number of cars, crew and equipment at their disposal to service all sectors. Requiring minimum volume commitments for grain effectively allocates rail capacity to the grain sector at the expense of all other shipping sectors.

As the largest customer group of Canada’s railways, consistently accounting for more than half of the total rail freight revenue generated in Canada and nearly half of the total volume carried by Canadian railways annually, this is a big issue for mining. Though the issues surrounding agriculture shipments this winter were severe, the problems are systemic in nature, widespread throughout the shipper community and longstanding. Poor rail service creates unpredictable operating environments, prevents companies from expanding their market share internationally, and creates a perception of company unreliability in their relations with customers. Rail service caused a range of challenges for miners through the winter period, resulting in some instances in the downscaling of production at operations. It is a perennial issue across the network and needs to be addressed as such.

In order to tackle rail service issues effectively, it is essential to properly identify the nature and extent of the problem. If sector- and company-specific data were available to the government and shippers, they would be able to more easily determine the cause of service disruptions. Various performance measures could provide evidence of capacity displacement from one shipper to another or, conversely, prove that railways are acting responsibly and that service disruptions are, as the railways maintain, beyond their direct control as but one part of the larger transportation ecosystem. Moreover, transparency would likely lead to less of an adversarial relationship between railways and shippers, as both parties, being aware of the strength of each other’s position, would be motivated to negotiate in order to avoid a legal proceeding and arrive at mutually beneficial results.

While appearing before the House of Commons Agriculture and Agri-Foods Committee on Bill C-30, MAC advocated for policies informed by accurate data, recommending the government enact a railway requirement to provide both regular monthly public rail performance data on a sector basis, and confidential company-specific performance data upon request.

As the government begins the 2015 Statutory Review of the Canada Transportation Act, it would be wise to ensure those conducting the review have the information required to make informed public policy decisions. Data transparency would permit the government a clearer understanding of how the logistics supply chain is performing, where challenges exist, and what policies are needed to properly address them to the benefit of shippers and the Canadian economy as a whole.

Brendan Marshall is director of
economic affairs at MAC. He works
to advance the mining industry’s interests
and understanding of key economic issues
such as taxation, international trade and
investment, transportation, energy and
climate change, and innovation.

It is possible to significantly reduce energy expenditures at milling facilities, especially those with low utilization, considering the current billing structure in Ontario. Energy conservation measures can provide savings, but it is equally important that whenever energy is used at a facility, it is done as efficiently as possible. Confronting the elephant in the room may be intimidating, but the rewards are worthwhile and sustainable in terms of both efficiency and overall savings.

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