The Harper government moves to strengthen rail freight service

WINNIPEG, Dec. 11, 2012 /CNW/ - Today, the Honourable Denis Lebel, Minister of Transport, Infrastructure and Communities, along with the Honourable Gerry Ritz, Minister of Agriculture and Agri-Food, announced the introduction of the Fair Rail Freight Service Act bill 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.

"The Harper government is taking action in the interest of all Canadians to enhance the effectiveness, efficiency and reliability of the entire rail freight supply," Minister Lebel said. "This bill will help shippers maintain and grow their businesses while ensuring that railways can manage an efficient shipping network for everyone."

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.

Most shippers acknowledge there has been improvement in rail service since the Review began. The new legislative provision builds upon that progress, and will help solidify these gains.

"To continue creating jobs and growth for the Canadian economy, agriculture producers and processors must be able to get their world class product to market in a reliable and efficient way," said Minister Ritz.

"This bill is good news for Canada's farmers as it will help ensure all shippers are treated fairly by the railroads. We will continue to work on improving the performance of the supply chain for all crops, with an emphasis on innovation, capacity, efficiency and stakeholder collaboration through the Crops Logistics Working Group as we move towards a stronger rail freight supply chain and stronger Canadian economy.

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.

An administrative monetary penalty of up to $100,000 could be issued by the Canadian Transportation Agency for each violation of an arbitrated service level agreement. This is in addition to other existing remedies in the Act (e.g. Level of Service Complaint) to ensure railways meet their service obligations.

Further details about Rail Freight Service Review process can be found at http://www.tc.gc.ca/eng/policy/acg-acgb-menu.htm.

Backgrounder

SERVICE CONTRACTS UNDER THE FAIR RAIL FREIGHT SERVICE ACT

To exercise the new right to a service contract, a shipper will first have to request one from the railway.  The railway will then be obligated to respond within 30 days.  If an agreement cannot be reached through commercial negotiations, service arbitration would be available to a shipper to establish the terms of service. To access the remedy, a shipper would have to satisfy the Agency that an attempt was made to resolve the matter with the railway.

The arbitration process will be interest-based (as opposed to final offer), with a 45-day timeline.  This could be extended by the arbitrator, for up to 20 days, if needed.  The arbitrator's decision will be binding and non-appealable. The imposed contract would be akin to a confidential contract and have a one-year term (or longer, if both parties agree).

The new provision describes the elements that must be included in an arbitrated service agreement broadly, including the operational terms and conditions of service that a railway must comply with.  These could include communication protocols and performance standards, and operational terms in the event of a performance failure (e.g., recovery plans). This broad definition of elements gives the arbitrator flexibility to impose comprehensive service contracts tailored to a shipper's needs.

The Act currently requires that decisions rendered by the arbitrator be commercially fair and reasonable to both shippers and railways. The new provision provides guidance for the arbitrator to take into consideration the shipper's transportation needs to maintain and grow its business, as well as the railway's need to operate an efficient network for the benefit of all users. In rendering a decision the arbitrator will consider the specific circumstances of the situation, including any voluntary commitments made by the shipper to the railway.

The new provision allows for an Administrative Monetary Penalty (AMP) of up to $100,000 to be applied against a railway for each confirmed violation of an arbitrated service agreement.

BACKGROUND ON THE RAIL FREIGHT SERVICE REVIEW AND LEGISLATION

The Rail Freight Service Review was launched in 2008 to address ongoing issues with rail freight service.  It fulfilled a government commitment as part of the 2008 process that amended the Canada Transportation Act.  On December 22, 2010, after extensive consultations with stakeholders, the Panel submitted its Final Report to the Minister of State (Transport).  The Report recommended commercial and, if necessary, regulatory solutions to address the issues identified by the Review.

On March 18, 2011 the federal government formally responded to the Review, accepting the Panel's commercial approach and that it intends to implement a number of steps to improve the performance of the entire rail supply chain. As part of its response, the government committed to engage a facilitator to develop a template service agreement and a streamlined commercial dispute resolution process between railways and shippers. The government also indicated its intent to table a bill to give shippers the right to a service agreement with the railways and provide a process to establish such an agreement should commercial negotiations fail.

On December 11, 2012, the federal government tabled a bill to fulfill this commitment. In addition to the rail service provision, the bill also includes some administrative amendments that will streamline internal processes and make minor updates to the legislation.  The new legislative provision and other amendments to the Act are in line with the priorities of the Government of Canada, including economic growth, job creation and prosperity for Canadians.

SOURCE: Transport Canada