Canadian freight-rail service review facilitator issues recommendations; CN urges feds to favor commercial solutions to service issues

On Friday, the Canadian government announced that the facilitator of the “Rail Freight Service Review” released a final report that includes five commercial–oriented recommendations aimed at building upon recent freight-rail service improvements.

The recommendations stipulate that:
• Transport Canada should make a service agreement template available to freight-rail stakeholders as a guide to all parties, including small shippers, as they negotiate a service agreement;
• Transport Canada should make a commercial dispute resolution process publicly available for stakeholders usage;
• Transport Canada should monitor the use of the service agreement template and commercial dispute resolution process, and encourage all parties to improve the process as required;
• Railroads should be encouraged to revise their current dispute resolution processes to address service issues to make them more consistent; and
• The rail industry should be encouraged to review and update the service agreement template and commercial dispute resolution process as business conditions warrant.

In fall, the Canadian government plans to introduce a bill aimed at improving the process for railroads and shippers to negotiate a service agreement.

“The bill will be another component of our response to the Rail Freight Service Review’s recommendations. I will be engaging with stakeholders before the government introduces a bill … to give shippers the right to service agreements with the railways and a process to establish such agreements should commercial negotiations fail,” said Denis Lebel, minister of transport, infrastructure and communities, and minister of Canada’s Economic Development Agency, in a prepared statement. “The stakeholder engagement process will be completed at the end of July.”

The Rail Freight Service Review was launched in 2008 to address ongoing freight-rail service issues. In October 2011, the government appointed an independent facilitator to lead a six-month facilitation process to develop a template service agreement and streamlined commercial dispute resolution process between railroads and stakeholders. The process concluded in April and was followed two months later by the facilitator’s report.

CN President and Chief Executive Officer Claude Mongeau commended the federal government's Rail Freight Service Review process. The review provided the impetus for Class I and rail industry to “re-engage with customers to improve service from one end of the supply chain to the other,” Mongeau said in a prepared statement.

“CN has achieved significant improvements in customer service in the past three years and has initiated — and continues to embrace — supply chain collaboration agreements and service-level agreements with a wide array of stakeholders and customers, both large and small,” he said. “These agreements already cover a significant proportion of CN's revenue base, in forest products, grain, metals, coal and intermodal traffic.”

However, shipper representatives, or the associations they represent, chose to advocate a regulatory agenda rather than work within the commercial approach encouraged by the facilitator, and continually demand new “intrusive, regulatory intervention,” he said. For example, during the facilitation process, shipper groups demanded that the government legislate service parameters and outcomes, provide individual shippers effective veto power over service standards and to enforce those standards on railroads through financial penalties, and require the imposition of third-party service-level agreements if a railroad and shipper couldn’t agree on service agreement terms, according to CN.

Now that the facilitation process is complete, Mongeau urged the federal government to carefully weigh the future regulatory environment for Canada's rail industry.

"Shippers' demands for greater government intervention in rail service are clearly misguided. This regulatory stance represents a missed opportunity to take supply chain collaboration to the next level,” he said. “CN strongly urges the federal government to favor commercial solutions to rail service issues. Canadian railways are widely known internationally for their efficiency and reliability — which is a key asset for a trading nation like Canada. The nation should not put such an asset at risk through additional burdensome and unnecessary rail regulation."

Officials at the Coalition of Rail Shippers (CRS), which includes 18 industry associations, expressed gratitude that the government intends to introduce legislation that would provide a process to establish a railroad/shipper service agreement if commercial negotiations fail.

What has become an “unacceptable imbalance of power” by railroads has led to “inadequate service,” which impacts the competitiveness of Canadian businesses and their ability to serve export markets, said CRS Chairman Bob Ballantyne in a prepared statement.

“Rebalancing the commercial framework will encourage real commercial negotiations between the railways and their customers,” he said.