The bill to create the Fair Rail Freight Service Act was introduced to give companies that ship goods by rail the right to a service agreement with railways. It will also create an arbitration process to establish an agreement when commercial negotiations fail.

This announcement fulfills a key commitment following the recommendations made by the Rail Freight Service Review Panel in 2011. The Panel’s report encouraged the use of bilateral service agreements between shippers and railways as an effective way of bringing more clarity, predictability and reliability to rail service.

The new process will create a strong incentive for shippers and railways to negotiate service agreements commercially. If these negotiations are not successful, shippers will be able to trigger a fast and efficient arbitration process with the Canadian Transportation Agency. The goal of the legislation is to encourage railways and shippers to work together.

The arbitrator will have the mandate to establish terms and conditions of service based on the shipper’s needs, as well as the railways’ requirement to provide adequate and suitable service to all the other customers. Strong enforcement mechanisms will hold railways to account for obligations imposed by an arbitrator.

Claude Mongeau, President and CEO of CN says that, 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 railways through increased regulation.

Mongeau said: “The objective fact is that Canada has a world-class rail system, one known internationally for efficiency and reliability – a key asset for a trading nation like Canada – and that reflects a well-functioning market for rail services. “The government’s Rail Freight Service Review (RFSR) process launched in 2008 was a key factor in spurring further improvement in rail service. CN addressed every commercial recommendation of the RFSR panel to improve service, entering framework cooperation agreements with a wide array of stakeholders and level of service agreements with many of its customers to increase supply chain collaboration and deepen customer relationships.

“Jim Dinning, while heading the RFSR’s railway-shipper facilitation process, recognized this fact, saying in his report that commercial forces were already driving improved rail service and advising the government that shippers should take advantage of the improved customer focus of the rail industry. 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.

“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 this legislation. We are ready to address any legitimate problems brought to our attention, in the same way we addressed all the commercial recommendations of the RFSR panel. We will continue to make our case that a commercial framework for the rail industry is what Canada needs to foster prosperity.

“CN is a true backbone of the Canadian economy. We are central to sustained economic growth, helping take the nation’s goods and commodities to market efficiently and reliably. Canada should not put the commercial framework of its rail system at risk through unnecessary and overly burdensome rail regulation. Such an approach would stifle innovation, chill the positive service momentum that’s taken hold and result in potentially unintended consequences for the rail industry and the customers we serve.”

The Coalition of Rail Shippers (CRS),however, is pleased to see Bill C-52, the Fair Rail Freight Service Act. It considers C-52 to be a step in the right direction in terms of allowing shippers to get some commercial balance in their negotiations with railways.

On March 18, 2011, the government promised to “Table a bill to give shippers the right to a service agreement.” This action flows from the conclusions and recommendations of the independent Rail Freight Service Review Panel in its 2011 Final Report. The Panel stated:

“Finally, it has long been recognized in transportation law that regulations are required to address the potential abuse of market power by railways.”

“…the Panel concludes that railways continue to have market power over some of their customers and that there are sectors and regions where competitive alternatives are limited or lacking altogether. This railway market power results in an imbalance in the commercial relationship between the railways and other stakeholders.”

“Shippers expect to bargain commercially with the railways.” says CRS Chairman, Bob Ballantyne. “However, because railways can unilaterally impose conditions on customers or refuse to provide any at all, shippers frequently find themselves with no ability to get adequate levels of service or even negotiate terms of service. That’s why railway customers have been looking for the right to a service level agreement and a dispute resolution process with consequences for non-performance by the railway. “Bill C-52 establishes a legislative framework that will act as a surrogate for the normal competition that most businesses expect daily”, he added.

CRS says that Bill C-52 meets the fundamental requests of railway customers for commercial agreements. Shippers may now request elements found in normal industrial agreements, i.e. what the seller is selling in some detail (i.e., a product specification), what the buyer will pay, and how disputes will be resolved.

CRS shippers appreciate the consistency of the government over the past six years in addressing these long-standing problems that impact Canadian global competitiveness, and CRS and its members look forward to working with the government and with Parliament to improve Bill C-52 where possible.

Canadian Pacific (CP) commented on the federal government’s proposed amendment to the Canadian Transportation Act saying that throughout the RFSR process, CP has maintained there is no need for additional regulation between railways and shippers as it is the company’s belief that commercial undertakings, coupled with a stable regulatory regime, remain the best approach to promote supply chain coordination and investment.

“The proposed legislation contains key elements of the Dinning Report,” said CP President and CEO, E. Hunter Harrison. “We firmly agree that improvement in Canada’s world class rail supply chain will best be achieved through offsetting commercial undertakings, in particular, better traffic forecasting and more certainty on traffic volumes.”

“CP has been implementing various commercial agreements that were included in the Dinning 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.”

“Canada is fortunate to already have the best rail system in the world from which to build upon,” added Harrison. “CP continues to make across-the-board service improvements where customers are benefiting from more consistent, safe and efficient service.”