Western Canadian Wheat Growers Association
Submission providing comment on the interim report of the
Rail Freight Service Review Panel
November 8, 2010
The Wheat Growers are pleased to provide the following comments with respect to the Panel’s
At the outset, we wish to emphasize that the Wheat Growers agree with the Panel that market
forces and commercial mechanisms should underpin the rail transportation system. We strongly
believe in the value of open and competitive markets as the best means of providing farmers with
good rates and service in all their business dealings. However, in those instances where such
market conditions do not exist (as is now the case in rail transportation), the Wheat Growers
recognize the need for “strategic public intervention”1 as the best alternative means to creating
the conditions that would prevail in a competitive market.
The Wheat Growers commend the Panel for its thorough analysis of the issues surrounding rail
service and for identifying the root cause of railway service problems:
“In the Panel’s view, the major cause of rail service problems is railway market power, which
leads to an imbalance in the commercial relationships between the railways and other
stakeholders. This, in turn, reduces the railways’ accountability for performance. As a result
railways do not always face the consequences that come from offering poor service that occur in
other sectors in which competition is more prevalent.” (page 37)
Your report goes on to state:
“The Panel has also concluded that, based on the preceding factors, the effectiveness of the
existing CTA shipper protection provisions is somewhat limited and, during the period leading
up to the Review, did not ensure that service was reasonably adequate.” (page 38)
The Wheat Growers concur with the above findings.
Section 5 (b) of the Canada Transportation Act, acknowledges that “regulation and strategic public
intervention” are necessary when outcomes “cannot be achieved satisfactorily by competition and market forces.”
(as referenced in page 5 of the Panel’s interim report)
The Wheat Growers are also pleased to note the Panel has identified several elements that are
key to improving rail service. Such elements are reflected in the Panel’s first five
recommendations: development of commercial mechanisms; improved notice provisions of
service changes; the establishment of service agreements; introduction of a commercial dispute
resolution process; and improved reporting and monitoring.
The Wheat Growers agree that improvements in each of these areas will contribute to
significantly improved railway service.
However, where we disagree with the Panel is with respect to its approach to bringing about
better outcomes in each of these areas. It appears to us that the Panel is of the view that such
improvements will occur naturally if the railways are left to their own devices, and have
consequently given the railways a two year’s grace period in which to show improvement in
many of these areas.
We respectfully submit that such an approach does not flow logically from the Panel’s earlier
conclusions. As we noted above, the Panel regards “railway market power” as the “major cause”
of the railway service problems. The Panel further noted that the effectiveness of existing
shipper protection provisions is “somewhat limited”. If we accept these findings (and we do),
then it follows that solutions to railway service problems lie in addressing railway market power
and introducing new (or different) regulatory measures.
The Wheat Growers note there has been no material change in the policy (i.e. regulatory)
environment today than existed when railway service issues became of such grave concern that
they gave rise to the rail service review and the establishment of your Panel. Yes, we
acknowledge that the political environment has changed – the railways are now operating under
the spotlight of a government mandated review panel – but there has been no change in the
We appreciate too that some shippers have witnessed an improvement in service over the past
two years. It is also true however that such improvement could easily reflect the downturn in the
economy that occurred (which freed up available railway capacity) and the fact that a political
spotlight has been shining on railway performance during the course of the Review.
The Panel itself acknowledges this point by noting that some stakeholders “attribute the service
improvements to the reduced demand for railway service relative to the booming economy of a
few years ago as well as to the Panel’s presence, which has motivated the railways to be on their
best behaviour pending completion of the review.” (page 33).
We are therefore perplexed as to why the Panel appears to hold the view that railway behaviour
will improve on a lasting basis without a material change in the policy (i.e. regulatory)
environment In our view, without a change in the policy environment any improvements in
railway service over the next two years are apt to be temporary and illusory.
The Wheat Growers maintain that effective and long-lasting improvements in rail service will
not occur unless there is “strategic public intervention”. In our view, the Panel was on the right
track in the provisions it proposed under recommendation #6.
For example, under recommendation #6, the Panel proposed that the negotiation of service
agreements be made a statutory right. We endorse this approach. Any shipper who requests a
service agreement from a railway should be entitled to obtain one. Furthermore, if the railway
and shipper cannot agree on the terms of such an agreement, either party should have the right to
refer the matter to a regulated dispute resolution process.
For many shippers, the efficient transportation of goods by rail is vital to the success of their
business. This is particularly true for grain shippers. In our view, grain transportation service is
too important to be left to happenstance. Traffic should move under negotiated service
agreements or confidential contracts if the shipper so wishes. Service agreements or confidential
contracts could encompass a wide range of performance-related measures, including reciprocal
Of course the Wheat Growers are not suggesting that the government should prescribe the
specific elements of service agreements. The specifics of any service agreement will
undoubtedly vary from sector to sector and may also vary from shipper to shipper – such
specifics should be left to the parties to negotiate.
Similarly, the Wheat Growers believe the provisions contemplated under recommendation #6
relating to notice provisions, dispute resolution and performance reporting will all lead to a more
balanced negotiating position between railways and shippers, providing the government moves
immediately to enact such provisions.
In our view, immediately enacting these provisions represents the type of “strategic public
intervention” that will yield outcomes that are more reflective of those that would be achieved by
competition and market forces. Indeed, these provisions will create the “balanced negotiating
power” that the Panel sees as important to driving commercial solutions:
“The Panel favours commercial processes that drive desired outcomes. In the absence of
normal competitive markets, the Panel believes the best way to improve service within the rail-
based logistics system is by fostering commercial processes that encourage bilateral
negotiations between parties with balanced negotiating power. If relationships are balanced
and effective processes are in place, then negotiations should produce results similar to those
expected in a normal competitive market.” (page 40).
The Wheat Growers encourage the Panel to treat the provisions contemplated under
recommendation #6 as the requisite measures now needed to address the railway market power
problem, rather than viewing them as “fallback provisions”. In the absence of these measures,
we fear that the effectiveness of existing shipper protection provisions will continue to be
“somewhat limited" and that any service improvements that we may see in the next two years
will not be lasting.
The Wheat Growers note the Panel considers the issue of “essential service” to be beyond the
scope of its mandate. We ask you to reconsider this view. Under your terms of reference, the
Panel is to consider the need for shippers to have “an effective, efficient, consistent and reliable
rail transportation supply chain”. In our view, a railway work stoppage, whether caused by strike
of lockout, can have a catastrophic impact on the reliability of rail service.
Invariably whenever a work stoppage occurs, the grain trade, farm organizations and shippers
from a wide spectrum of affected industries demand back-to-work legislation. While
governments have generally been responsive to such requests for action, the response has not
always been timely. To avoid the uncertainty and delays of back-to-work legislation, the Wheat
Growers recommend that railway service be declared an essential service, at least for rail service
in western Canada where few alternate transportation modes exist. We respectfully ask the Panel
to reconsider the issue of essential service and to make a positive recommendation on the matter.
Grain transportation issues
The Wheat Growers are disappointed the Panel considered many grain-related issues as beyond
the scope of its mandate. Perhaps it is too much to expect the Panel to “drill down” to the
specific issues relating to a single sector, however we do ask the Panel to recommend to
government that a separate review be undertaken to specifically address western grain
transportation issues. We note it has been more than ten years since the last comprehensive
review of grain transportation policy (i.e. the 1999 Estey review) was undertaken.
Issues that a grain transportation review should consider include:
A review of the revenue cap and whether there are alternative rate regulation measures
that could be adopted.
A review of pricing under the revenue cap. In this regard, the Wheat Growers
recommend a two-tier revenue cap and a fast-track review of the revenue cap along the
lines of the multi-year costing review conducted under the 2000 Kroeger process.
A review of discontinuance provisions relating to sidings for producer cars. The Wheat
Growers recommend the existing CTA provisions that are now in place for the
discontinuance of rail sidings in urban areas also be adopted for the discontinuance of rail
sidings in rural areas.
A review of the role of the Canadian Wheat Board in grain transportation. The Wheat
Growers maintain that the CWB’s regulatory role in grain transportation should be ended,
as recommended by Justice Estey. In the longer term, the creation of an open market in
wheat and barley, with the resulting increase in prairie grain processing and improved
access to alternate transportation routes, will significantly reduce railway market power
in the grain sector and the need for government intervention in the marketplace.
The Wheat Growers strongly believe in the value of open and competitive markets as the best
means of providing farmers with good rates and service in all their business dealings. In the
absence of competitive markets, the Wheat Growers maintain that regulatory intervention is
necessary to create a business climate that, to the greatest extent possible, leads to those
outcomes that would otherwise prevail in a competitive market.
The Wheat Growers agree with the Panel’s view that railway market power is the root cause of
the railway service problems that our industry has faced. We conclude therefore that the
solution to railway service problems lies in addressing the market power issue through the
adoption of measures that restore greater balance in the negotiating power of the railways and
their commercial partners.
Toward this end, the Wheat Growers strongly recommend that the provisions proposed under
recommendation #6 be adopted immediately, rather than being viewed as fallback provisions.
In our view, such measures would go considerable distance to rebalancing negotiating power
among all parties, and will lead to a lasting solution to the rail service problems that have
plagued our industry.
The Wheat Growers also encourage the panel to revisit the essential service issue, and to add a
recommendation calling for a western grain transportation review to deal with issues that relate
specifically to the shipment of prairie grain.
Thank you for your consideration of our views.
Western Canadian Wheat Growers Association