By Alex Binkley
The growth in free trade agreements will shift Canada from a North-South commercial preoccupation to an international focus that will bring more import and export business to the major ports, predicts Michael Bourque, the new President of the Railway Association of Canada (RAC).
“We’re producing more and more goods, and more and more customers from around the world want our products,” he said in an interview. “We’re going to be increasingly a port and externally focused country.” To gain the full benefit of that shift, Canada will have to work hard at improving its supply chains to deliver the goods.
“It’s not just about the railways, but about the whole supply chain and how we bring product into this country from other trading nations and move it across the country and take advantage of our relationship with the United States and how we get our goods to the ports.”
A free-trade deal is possible with Europe before the end of this year, talks have begun with Japan and are under discussion with China and India and Canada is joining the Trans-Pacific Partnership negotiations. Mr. Bourque points to the Keystone pipeline debate as an important lesson to Canada about the vulnerability of relying too heavily on one trading partner. He believes that the government is doing the right thing by expanding trade arrangements.
Mr. Bourque, who came to RAC from the Canadian Chemical Industry Association, which represents a wide range of manufacturers and shippers, says the railways will play a critical role in the supply chain. “By helping optimize it, we are going to be able to help our customers. This is where manufacturers and resource producers can increase the value of their products. In addition to shipping logs, or energy in the form of bitumen, we will be able to upgrade these products and ship them to markets around the world.
“That requires a lot of technology, which is what rail has been investing in for inventory control, different types of freight cars, relationships with shippers and with the supply chain so that products can be delivered in a timely way to very specific markets,” he notes.
The more sophisticated the supply chain, the more possibilities become available to Canadian exporters, he points out. “In addition to shipping different kinds of grain in bulk, we can ship individual-size shipments from farmers who have specific kinds of pulses or lentils that go to Spain or Portugal in the format that they want in those markets. By allowing our customers to do that, we’re enabling them to add value, to raise prices and create more wealth in Canada. We’re at this point in history where rail is going to be a really important driver of this new supply chain and the supply chain, and infrastructure around it should really be our focus going into the future.”
Once the trade deal with Europe is complete, “we’re going to see all of a sudden that there is tremendous opportunity both for buying and selling,” he continues. “Let’s say you’re importing products from Europe. Your cargo can arrive at the port of Montreal, be put on a train and go right down into the United States either on CP through Windsor or on CN through Sarnia. We have tremendous relationships and regulatory systems, and to a certain extent regulatory harmony, that allows us to access the United States with competitive railroads and we have a high level of functionality with other supply chain partners. We have the ability to leverage trade agreements with the United States to sell a tremendous amount. But that would be a smaller part of the business. A larger part would be utilizing our supply chain partners: trucks, the Seaway, ports and intermodal to get products to external markets.”
The whole debate about trade has changed fundamentally, he observes. “Even five years ago when you talked about globalization, a lot of it was in the context of large companies wanting to take advantage of their size and wealth to impose things on people or move to low cost producing countries. Now there is a realization that globalization is something very different. It’s recognition of the fact that a lot of countries are developing very, very rapidly. We call them developing countries, but look at the growth they’ve had, especially in their middle class. It’s astonishing to see how the world is moving to become a much more interconnected place of business. So railways are extremely relevant to all of their customers because we have to be absolutely efficient in order to help them remain globally competitive and reach new markets.”
The incentive for Canada to beef up its supply chain is that “our products are increasingly in demand. We have new mining operations. The fastest growing industrial sector in Canada is actually mining, more so than energy, and energy is growing like crazy. Then we have potash and agricultural products that the world needs. We will have 9 billion people on this planet by 2050 and we will have to feed them and Canada has an immense capacity to produce food. We’re producing more and more goods, and more and more customers from around the world want our products.”
The recent release of the report by Jim Dinning on his unsuccessful efforts to win railway and shipper agreement on level of service agreements and the government’s pledge to bring in legislation this fall to guarantee agreements for all rail shippers put the spotlight on a concern Mr. Bourque has about the future health of the supply chains. “Our job as the transporters of goods is to enable the competitiveness of our customers. It’s too bad that for the last several years, and that was my experience in a shipper organization, there was a lot of acrimony and mostly anecdotal stories about a company having a hard time with a railway.”
The resulting debate about legislation to ensure commercial relationships doesn’t “recognize the railways have done an amazingly good job in being very customer focused. And signing agreements with customers and entering into contracts with customers. What we’ve seen is that there has been a sea change in the way railways deal with their customers. At the same time the railway sector has never been healthier and more profitable.
“You have to look at that and say the business model of being focused on being extremely efficient on the one hand, and being customer-focused on the other hand, is a sustainainable approach for the railways,” he says. “We believe that’s true and we’re very fearful of any kind of regulation or legislation that would change that. When we have the most efficient railways in North America and our customers benefit from them, why would we want to knock ourselves off that perch?”