CP, CN react to Canada's proposed Transportation Modernization Act

The proposed Transportation Modernization Act (Bill C49) introduced this week by Canada's Transport Minister Marc Garneau would reduce uncertainty in the rail industry, Canadian Pacific officials say, adding that they're continuing to review the legislation.

CP officials are "cautiously optimistic" about the bill, according to a company press release.

"Like any piece of legislation, there are pieces that resonate with certain groups and other pieces that do not," said CP President and Chief Executive Officer Keith Creel.  "We continue to review the details and will consult with Transport Canada officials and other key stakeholders."

Introduced by Garneau on Tuesday, the legislation would "provide a better experience for travelers and a transparent, fair, efficient and safer freight-rail system to facilitate trade and economic growth," according to a Transport Canada press release.

Key measures addressing the freight industry include improving access, transparency, efficiency, and sustainable long-term investment in the freight-rail sector; and increasing the safety of transportation in Canada by requiring railways to install voice and video recorders in locomotives.

Earlier in the week, Creel endorsed the bill's measure to mandate voice and video recorders in locomotive cabs.

The bill also would replace temporary extended inter-switching with long-haul inter-switching (LHI), clarify language around "adequate and suitable" service, and retain the Maximum Revenue Entitlement (MRE) regime, with minor modifications, CP officials said.

"The proposed changes to the Maximum Revenue Entitlement should promote hopper car investments and that is good for the farmer, good for CP and for all Canadian exporters," said Creel.

"The details on LHI need further review; however, a move to commercial, market-based fundamentals versus the current regulated approach to extended inter-switching is a step in the right direction," he added. "However, potential access to the Canadian network by U.S. based railroads via LHI without reciprocity is not good public policy as it could create an uneven playing field and disadvantage Canadian railways vis-a-vis those in the U.S., with a negative impact on jobs and investment."

In terms of service, CP believes the bill to be "balanced and focused on what service level is reasonable given the specific facts and circumstances," the press release stated.

"We are supportive of anything that facilitates railway investment in the supply chain to enable additional capacity and efficiency," said Creel.

Meanwhile, the proposed law also would lift ownership restrictions on CN to 25 percent from the current 15 percent, according to news reports.

"It was reasonable to increase that to 25 percent," Garneau said at a press conference this week, Bloomberg reported. "We felt that this wasn't fair to CN."

Among those who could benefit by the law change is American billionaire and Microsoft co-founder Bill Gates, who is the Class I's biggest single shareholder, Bloomberg reported.

CN CEO Luc Jobin criticized the proposed inter-switching changes.

"Our initial view is that long haul inter-switching may have unintended consequences with respect to investment and could give U.S. railways access to the Canadian market at regulated rates — without reciprocity," Jobin said in a written statement reported by Bloomberg.

However, CN endorsed other changes, including the requirement for locomotive voice and video recorders.