Rail interswitching rule seen already paying dividends

(Dave Bedard photo)

A 2014 federal rule that expanded rail options for some Prairie grain shippers has already made for more competitive freight rates and service and should be renewed this summer, commodity groups say.

Pulse Canada, Grain Growers of Canada and Alberta’s crop commissions on Tuesday called on the federal government to extend provisions from the previous government’s Bill C-30.

Sunset clauses in C-30, billed as the Fair Rail for Grain Farmers Act when passed in 2014, would see the bill’s provisions end effective Aug. 1 this year — unless said clauses are postponed via resolutions passed in Parliament.

Meant to improve grain traffic from Prairie elevators to West Coast and Great Lakes/St. Lawrence ports in the wake of rail logjams in early 2014, C-30 extended interswitching rights up to 160 km for grain and all other commodities moved by shippers in the three Prairie provinces.

Interswitching rules commit one rail carrier to pick up cars from a shipper, then deliver them to another railway for the line haul. The Canada Transportation Act (CTA) had previously allowed shippers to use interswitching for only up to a 30-km radius.

Ninety-four per cent of grain elevators are served by just one railway and the previous 30-km limit allowed just 14 elevators in that service radius to make a deal with a competing rail line, be it in Canada or the U.S.

The previous government said in 2014 that extending the interswitching limit to 160 km brought the number of eligible elevators up to 150.

Evidence is piling up that extended interswitching has directly benefited shippers, Pulse Canada CEO Gordon Bacon said in a statement Tuesday.

“Some companies are noting lower prices on certain routings,” he said, “and in cases where railways have lost business due to competition, they are actively campaigning to get it back by offering rate reductions and improved levels of service.”

The reductions in freight rates depend on the routing involved, Pulse Canada said, but the “most common” reduction it’s heard is around 20 per cent.

However, extended interswitching in many cases also allows shippers more leverage in getting rail car capacity where needed, Pulse Canada said.

“Placing car orders with a competing railway through interswitching will often make the serving railway reverse their position on car supply and provide incremental car supply to avoid the loss in market share,” the pulse industry group said via email.

“In these cases, freight rates are secondary to acquiring needed capacity for shippers.”

Pulse and special crops shippers have “only recently begun” to consider interswitching, Pulse Canada said, but “early signals” suggest those provisions are “starting to have the desired effect on behaviour.”

“It’s important to note that the measure of success of extended interswitching is not in how many times it is used, but rather its effectiveness in creating competitive forces,” Bacon said.

“There’s a lot of emphasis being placed on need for evidence that shippers have used the provision, but we need to move beyond that measure. When the desired outcome is a change in behaviour, success will mean the use of this provision is the exception to the rule.”

Pulse Canada and the grain groups made their statements in response to the February release of a major public review of the CTA.

The review, led by former Tory cabinet minister David Emerson, had called for an end to the extended interswitching rule and to the maximum revenue entitlement (MRE) that caps how much Prairie grain revenue Canada’s big two railways can keep each year.

Postponing C-30’s sunset would also buy time for government and industry to “review, assess and enter a constructive dialogue” on changes to the CTA, Pulse Canada said.

Mike Ammeter, the chairman of Alberta Barley, urged Transport Minister Marc Garneau to extend C-30’s provisions within Bill C-30 “while a long-term solution for improving our rail transportation system is developed.”

Extended interswitching and C-30’s other provisions would “keep railways more accountable for poor performance,” he said Tuesday in a separate release.

Garneau, speaking recently to the House of Commons’ transport committee, said the CTA review recommendations were complicating the government’s decision on whether to renew C-30’s provisions.

The expanded interswitching rule already survived a major court challenge in mid-January, when Canadian Pacific Railway’s September 2015 appeal against the expanded rule was dismissed at the Supreme Court of Canada. — AGCanada.com Network

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