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Wednesday, December 12, 2012    

'Fair Rail Freight Service Act' enters Canadian legislature; additional rail regulation isn't warranted, CN and CP say


Yesterday, Canadian Minister of Transport, Infrastructure and Communities Denis Lebel and Minister of Agriculture and Agri-Food Gerry Ritz announced the introduction of the Fair Rail Freight Service Act, which proposes to provide rail shippers the right to craft a service agreement with railroads and create an arbitration process to establish an agreement between the parties when commercial negotiations fail.

The new process would create a strong incentive for shippers and railroads to work together to negotiate service agreements commercially, Lebel and Ritz said in a joint statement. If negotiations aren't successful, "shippers will be able to trigger a fast and efficient arbitration process with the Canadian Transportation Agency," they said.

An arbitrator would have a mandate to establish rail service terms and conditions based on a shipper's needs and a railroad's requirement to provide adequate and suitable service to all other customers, Lebel and Ritz said.

The Fair Rail Freight Service Act would establish enforcement mechanisms to hold railroads accountable for obligations imposed by an arbitrator. An administrative monetary penalty of up to $100,000 could be issued by the Canadian Transportation Agency for each violation of an arbitrated service-level agreement, in addition to other existing remedies, Lebel and Ritz said.

The legislation fulfills a key commitment following recommendations made by the Rail Freight Service Review Panel last year, they said. A report issued by the panel — which was formed as a result of a Rail Freight Service Review launched in 2008 — encouraged the use of bilateral service agreements between shippers and railroads as "an effective way of bringing more clarity, predictability and reliability to rail service," Lebel and Ritz said.

"This bill will help shippers maintain and grow their businesses while ensuring that railways can manage an efficient shipping network for everyone," said Lebel.

However, the legislation would place innovation and supply chain collaboration at risk, and result in potentially unintended consequences for the rail industry and rail shippers, said CN President and Chief Executive Officer Claude Mongeau in a prepared statement. Putting aside normal operational and commercial issues, there is no evidence of systemic rail service performance problems in Canada warranting the federal government's introduction of legislation to impose level-of-service obligations on railroads through increased regulation, he said.

"In recent years, CN has launched a comprehensive series of commercial initiatives that benefit our supply chain partners and the Canadian economy. CN is committed to helping its customers be more competitive in markets at home and abroad through better service and a relentless focus on continuous improvement," said Mongeau. "This is why I am troubled by the government's decision to introduce service legislation that is inconsistent with the facts underscoring improved rail service, as well as the government's stated agenda of innovation and productivity to foster economic prosperity for Canadians. I also believe the legislation sends mixed signals to customers and suppliers around the world about the government's approach to commercial markets in Canada."

CN invites the government to identify specific, systemic service issues that warrant the legislation, he said.

"We are ready to address any legitimate problems brought to our attention. We will continue to make our case that a commercial framework for the rail industry is what Canada needs to foster prosperity," said Mongeau.

Throughout the rail service review process, Canadian Pacific also has maintained there is no need for additional regulation between railroads and shippers, said CP President and CEO E. Hunter Harrison in a prepared statement. Commercial undertakings, coupled with a stable regulatory regime, remain the best approach to promote supply chain coordination and investment, he believes.

"CP has been implementing various commercial agreements that were included in the [review panel] report's recommendations, including a service agreement template and a commercial dispute resolution process," said Harrison. "As such, we are confident strong commercial relationships will continue to emerge with little need for the processes described in the legislation."

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