Canadian government enacts Fair Rail Freight Service Act

Canadian Minister of Transport, Infrastructure and Communities Denis Lebel yesterday announced the Fair Rail Freight Service Act was enacted after receiving Royal Assent.

The law requires railroads to offer a service agreement to companies shipping goods by rail, if requested by a shipper. If railroads and shippers can't reach an agreement through commercial negotiations, shippers can employ a new arbitration process to establish service terms.

The arbitration process will operate under the Canadian Transportation Agency (CTA). For each violation of an arbitrated service agreement, the CTA can assess a penalty of up to $100,000 against a railroad.

The goal of the legislation is to encourage railroads and shippers to work more collaboratively, Lebel said in a press release.

"Our government is proud to have taken concrete action to strengthen our economy by passing legislation that will improve the predictability, clarity and reliability of rail freight service across Canada," he said.

The legislation follows the Canadian government's tabling of the Fair Rail Freight Service Act in December and fulfills a commitment made in 2011 as part of the government's response to the Rail Freight Service Review's final report, said Lebel.

Several leaders of Canadian rail shipper groups voiced approval of the new law:

"Ensuring a fair and balanced relationship between shippers and the railways will help the forest products industry retain and create jobs for the benefit of the entire Canadian economy." — David Lindsay, president and CEO of the Forest Products Association of Canada

"The new legislation respects the commercial nature of the relationship between the railway carrier and the propane shipper, but also addresses the recommendations of the Rail Freight Service Review Panel." — Jim Facette, president and CEO of the Canadian Propane Association

"The federal government has taken an important step towards balancing the commercial relationships between railways and their freight customers. Fertilizer companies have commitments to their customers not only in Canada, but the United States and around the world." — Roger Larson, president of the Canadian Fertilizer Industry

However, CN and Canadian Pacific officials — which long opposed the Fair Rail Freight Service Act — expressed disappointment in the bill's enactment.

"It is unfortunate that the government has passed this legislation because it is not consistent with a sound public policy agenda that encourages increased productivity and innovation in Canada," said CN President and CEO Claude Mongeau in a statement issued on June 21. "There is always room for continuous improvement, but we operate in a well-functioning market where there are no systemic service issues. This enviable situation is the result of 25 years of successful public policy that progressively deregulated railways and encouraged greater reliance on normal commercial market forces."

The Rail Freight Service Review encouraged railroads to embrace greater supply chain collaboration and to strengthen service levels, which was a catalyst in CN's decision to launch a series of collaboration agreements with shippers and business partners, he said. The agreements are encouraging stakeholders in the supply chain to achieve improved service levels and greater productivity, and compete more effectively in global markets, said Mongeau.

"We believe the government should have recognized these significant successes and resolved to promote further progress within a commercial framework. Instead, the government adopted new rail regulation — regulation that could actually chill supply chain innovation that benefits both the rail industry and its customers," he said.