Feds to legislate service agreement option for rail shippers

Enshrining Canadian rail shippers’ right to a service agreement with a Canadian railway will be part of the federal government’s legislative response to the recommendations of the Rail Freight Service Review.

A final report was released in late December from the service review, which was launched in 2008 to look at shippers’ “ongoing issues” with rail freight service. The federal government made the report public Friday as it released its own response to the report’s contents.

The government said Friday it plans to follow the panel’s approach in taking several steps it expects will “improve the performance of the entire rail supply chain.” They include:

  • tabling a bill to give shippers the right to a service agreement;
  • launching a six-month facilitation process with shippers, railways and other stakeholders to negotiate a “streamlined” commercial dispute resolution process as well as a “template” service agreement to use in setting up an agreement where the negotiated approach fails;
  • setting up a “Commodity Supply Chain Table” to give exporters a forum to “address logistical concerns and develop performance metrics to improve competitiveness”; and
  • having Transport Canada, working with Agriculture and Agri-Food Canada, lead an “in-depth analysis” of the grain supply chain to focus on related issues and help identify “potential solutions.”

Taking a “broader supply chain perspective” to deal with logistical issues and develop public performance metrics is “the best way to achieve timely, flexible and customized solutions, improve relationships and enhance the effectiveness, efficiency and reliability of the entire rail freight supply chain,” the government said Friday.

Furthermore, the government said, “while it is always preferable to achieve commercially negotiated agreements, when this is not possible, the proposed bill would provide a recourse to establish such a service agreement between a shipper and a railway.”

The service review report recommended that railways and stakeholders negotiate service agreements, and that railways should have to provide 10 days’ advance notice of service changes. The government said it accepts those elements.

The government also accepted the report’s view that a “fair, timely and cost-effective commercial dispute resolution mechanism should be developed” and that “supply chain performance should be monitored through enhanced bilateral performance reporting between shippers and railways, and through public performance reporting.”

Railways’ reactions

Canadian National Railway (CN), for one, said Friday it’s pleased the government has “recognized the importance of a supply chain approach and noted its preference for commercial solutions,” but also said it’s “concerned” that legislation, if tabled, “could stifle supply chain innovation and Canada’s competitiveness in the global marketplace.”

Citing a dissenting view in the review panel’s report, CN CEO Claude Mongeau said his company is “concerned that the panel’s recommendations are drifting backward toward more regulation instead of encouraging the current momentum for positive change.”

Also, the company said, the panel “failed to recognize the significant positive change that has been taking place over the past two years to address key service issues” and “missed the fact that all participants in the supply chain are accountable for transportation system performance, not just railways.”

CN also contends that the panel went beyond its mandate through putting forward its opinion on the level of competition in Canadian rail.

“The panel asserted that the railways’ ‘market power’ is a cause of service problems, while ignoring the clear evidence to the contrary and providing no support for its unsubstantiated claim.”

Canadian Pacific Railway (CP), in a separate release Friday, largely agreed with CN’s view, commending the recognition of “commercial principles” while also warning that “additional regulation for relationships outside of commercial agreements is completely unwarranted.”

“I recognize the government is addressing the weaknesses in the panel’s findings by taking steps to encourage even further improvement across the entire supply chain,” CP CEO Fred Green said.

“While the report suggests negotiated commercial principles are preferred, I am concerned about the application of some of the recommendations involving regulation. The devil will be in the details. We will work with government to ensure equitable accountability is achieved throughout the supply chain and fosters further gains in service reliability.”

CP also noted it’s signed “numerous” commercial agreements already with customers, terminal operators and ports that “will drive improvements in supply chain performance.”

Shippers’ standpoints

The Canadian Wheat Board, meanwhile, cautioned solutions to rail issues in the grain sector “will only be effective if they address the power imbalance between the railways and grain shippers, including Prairie farmers.”

“It will be crucial that a new process for dispute resolution between the railways and shippers has the teeth required to compel reasonable rail service,” CWB chairman Allen Oberg said Friday.

The board had called for the creation of a rail service office with the power to make binding decisions on disputes, but noted the government has “committed to developing a fair, timely and cost-effective commercial dispute-resolution mechanism.”

“Effective regulatory or legislative recourse is crucial if shippers hope to have any leverage in rail disputes,” Oberg said.

The board also hailed the government’s “much tighter timeline” for seeking improvements in the next six months, rather than “reassessing railway performance in 2013 under a ‘wait-and-see’ approach” as had been suggested in the review panel’s interim report last fall.

Greg Cherewyk, executive director of pulse crop industry body Pulse Canada, said the group is “very pleased to see that the government is acting on our recommendation to mandate service level agreements (SLAs) and a process to establish fair and balanced terms.”

SLAs, he said, “will inject predictability and accountability into the supply chain. Predictability will drive down costs and improve our reputation in markets around the world.”

Also, “the establishment of a supply chain working group to ‘measure what matters’ is going to ensure that we all focus our efforts on improving system performance,” David Nobbs, Pulse Canada’s chairman, said in the same release Friday.

“Independent measurement of performance was a cornerstone of the review and it must remain a top priority as we transition into the solutions phase.”

The pro-deregulation Western Canadian Wheat Growers Association also largely hailed the government’s position, and the group’s president Kevin Bender on Friday also noted its appreciation of the government’s pledge for a separate review of the grain supply chain.

“That process, together with the initiatives announced today should significantly improve our industry’s ability to meet the needs of our customers on a more timely and reliable basis,” he said.

Among other ag industry players, the Canadian Fertilizer Institute hailed the government’s stance as “an important step towards balancing the commercial relationships between railways and their freight customers.

“Fertilizer companies have commitments to their customers in Canada, the United States and around the world,” CFI president Roger Larson said Friday. “Railway service cannot be allowed to continue to be the weak link in Canada’s export pipeline.”

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