Decision No. 85-R-2020

August 27, 2020

APPLICATION by Xinyi Canada Glass Unlimited (Xinyi Canada) pursuant to section 27 and subsections 127(2) and 127(4) of the Canada Transportation Act, SC 1996, c 10 (CTA), regarding interswitching of traffic and an extension of interswitching limits.

Case number: 
19-07085

SUMMARY

[1] Xinyi Canada filed an application with the Canadian Transportation Agency (Agency) seeking interswitching of Xinyi Canada’s traffic between its proposed float-glass manufacturing facility (facility), to be located near Stratford, Ontario, and two interchanges between the Canadian National Railway Company (CN) and the Canadian Pacific Railway Company (CP). Specifically, Xinyi Canada is requesting that the Agency:

  • require CN to interswitch traffic between its facility and the CN–CP interchange located in Woodstock, Ontario (Woodstock interchange);
  • deem its facility to be within 30 km of the CN–CP interchange located in London, Ontario (London interchange) and order interswitching to take place at this interchange (extended interswitching); and;
  • order any other such relief that the Agency considers appropriate.

[2] CN states that it is prepared to interswitch traffic in accordance with the Railway Interswitching Regulations, SOR/88-41 (Regulations) and regulated interswitching rates “with respect to the Existing Woodstock Interchange.” However, it argues that the applicant’s request regarding the London interchange should be dismissed. 

[3] This decision addresses whether the Agency has the authority, pursuant to subsection 127(4) of the CTA, to deem an interchange to be within 30 km of a point of origin or destination if a shipper is eligible for interswitching at another interchange pursuant to subsection 127(2) of the CTA (regular interswitching) and if so, whether it should do so in this case and order extended interswitching.

[4] For the reasons set out below, the Agency finds that it has the authority to order extended interswitching even if a shipper is eligible for regular interswitching, deems the London interchange to be reasonably close to the applicant’s facility and orders CN to interswitch Xinyi Canada’s traffic at the London interchange in accordance with the Regulations and applicable rates.

 BACKGROUND

[5] Xinyi Canada is a subsidiary of Xinyi Glass Holdings Limited (Xinyi Holdings), which is headquartered in Hong Kong. Xinyi Holdings has seven glass production facilities in China and Malaysia. In 2017, Xinyi Holdings’ board decided to expand Xinyi’s production footprint in North America with the construction of a float-glass plant in Ontario.

[6] Xinyi Canada states that it is planning to construct its facility near Stratford, Ontario, to serve the Quebec and Ontario float-glass market and that it will source most of its raw material by rail from suppliers located in the US. The facility will be located along CN’s Guelph Subdivision.

[7] On November 15, 2019, Xinyi Canada filed an application with the Agency requesting that the Agency order CN to interswitch its traffic at the Woodstock and London interchanges in order to allow Xinyi Canada to access rail service from CP. The Agency opened pleadings on December 20, 2019.

[8] On January 15, 2020, CN filed its answer, and on January 22, 2020, Xinyi Canada filed its reply.

[9] On May 7, 2020, the Agency issued Decision No. LET-R-31-2020, requiring CN, pursuant to section 24 of the Canadian Transportation Agency Rules (Dispute Proceedings and Certain Rules Applicable to All Proceedings), SOR/2014-104 to answer the Agency’s written question. The Agency asked CN: “where will CN and CP physically carry out the interswitching of traffic to and from Xinyi Canada’s facility?”

[10] On May 14, 2020, CN submitted its answer to the Agency’s question:

CN would, if ordered, physically interchange the Shipper’s traffic with CP to and from the facility at the London Interchange. However, CN submits that the London interchange is not reasonably close to the Shipper’s facility and thus, the remedy sought should not be granted.

PRELIMINARY MATTER

[11] On May 15, 2020, Xinyi Canada submitted a request to reply to CN’s answer to the Agency’s written question. Xinyi Canada argues that the answer introduced a new issue that was not raised in the answer that CN filed on January 15, 2020, and that the principles of fairness and natural justice require that it be given an opportunity to reply.

[12] On May 25, 2020, CN submitted a response to Xinyi Canada’s request. CN points out that when the Agency directed it to provide an answer, the Agency did not contemplate a reply from the applicant. CN requests that the Agency disregard the reply found in Xinyi Canada’s request since it should not have been filed with the Agency until leave was granted.

[13] The Agency finds that the answer submitted by CN does not provide any new information that would require a reply from Xinyi Canada. Consequently, the Agency denies the request to place Xinyi Canada’s reply to CN’s answer to the Agency’s written question on the record.

 THE LAW

[14] Section 5 of the CTA describes the National Transportation Policy as follows:

It is declared that a competitive, economic and efficient national transportation system that meets the highest practicable safety and security standards and contributes to a sustainable environment and makes the best use of all modes of transportation at the lowest total cost is essential to serve the needs of its users, advance the well-being of Canadians and enable competitiveness and economic growth in both urban and rural areas throughout Canada. Those objectives are most likely to be achieved when

(a)  competition and market forces, both within and among the various modes of transportation, are the prime agents in providing viable and effective transportation services;

(b)  regulation and strategic public intervention are used to achieve economic, safety, security, environmental or social outcomes that cannot be achieved satisfactorily by competition and market forces and do not unduly favour, or reduce the inherent advantages of, any particular mode of transportation;

(c)  rates and conditions do not constitute an undue obstacle to the movement of traffic within Canada or to the export of goods from Canada;

….

[15] Section 127 of the CTA states:

(1)  If a railway line of one railway company connects with a railway line of another railway company, an application for an interswitching order may be made to the Agency by either company, by a municipal government or by any other interested person.

 (2)  If the point of origin or destination of a continuous movement of traffic is within a radius of 30 km of an interchange, the Agency may order

(a)  one of the companies to interswitch the traffic; and
(b)  the railway companies to provide reasonable facilities for the convenient interswitching of traffic in both directions at an interchange between the lines of either railway and those of other railway companies connecting with them.

 (3)  If the point of origin or destination of a continuous movement of traffic is within a radius of 30 km of an interchange, a railway company shall not transfer the traffic at the interchange except in accordance with the regulations and the interswitching rate.

 (4)  On the application of a person referred to in subsection (1), the Agency may deem a point of origin or destination of a movement of traffic in any particular case to be within 30 km of an interchange if the Agency is of the opinion that, in the circumstances, the point of origin or destination is reasonably close to the interchange.

 POSITIONS OF THE PARTIES AND FINDINGS OF FACT

 Xinyi Canada

[16] Xinyi Canada states that the location for its proposed facility was selected because it met the majority of criteria established under its site selection process.

[17] Xinyi Canada indicates that the location is served directly by only one class 1 railway company, CN, and that the London interchange is located along the track between its proposed facility location and the Woodstock interchange.

[18] Xinyi Canada notes that the large volume of raw materials required for its glass manufacturing (silica sand, soda ash and dolomite) will be transported by rail from the US. It states that it has been unable to reach an agreement with CN that provides for competitive rail rates.

[19] According to Xinyi Canada, CP provides direct service to the Woodstock and London interchanges, both of which are in the vicinity of its proposed facility, and although Woodstock is a confirmed interchange point between CN and CP, it is not, in practice, used by the railway companies. Xinyi Canada claims that its facility is within a 30 km radius of the Woodstock interchange, while the radial distance to the London interchange is approximately 39.81 km.

[20] Xinyi Canada observes that when the Agency approved extended interswitching in Decision No. CONF-15-2018 (Paterson v CN) [Paterson], the proposed interchange was essentially the same radial distance from the point of origin (39.8 km) as the London interchange is from its facility (39.81 km).

[21] Xinyi Canada notes that in Paterson, the Agency considered distance, service levels and market competition as relevant factors in determining whether an interchange is reasonably close within the meaning of subsection 127(4) of the CTA and that in respect of the first factor, the Agency found that radial distance is the primary consideration and track distance a secondary but relevant consideration where it is substantially longer than radial distance.

[22] According to Xinyi Canada, a determination that its proposed facility is reasonably close to the London interchange would have no impact on CN, as the facility is eligible for regular interswitching because it is within the interswitching limits of the Woodstock interchange. It observes that the track distance of 44.6 km between its facility and the London interchange is less than the track distance of 87 km between its facility and the Woodstock interchange.

[23] Xinyi Canada submits that interswitching its traffic at the London interchange would be more efficient, less costly and consistent with the objectives of the National Transportation Policy and the intent of the CTA. Xinyi Canada asserts that it is more sensitive to rail carload freight rates than its competitors, as their locations in the US provide greater access to truck transportation. Since rail freight represents a high portion of the total cost of its raw materials, Xinyi Canada argues that it faces a competitive disadvantage compared to its competitors and that an extended interswitching order will help to mitigate this competitive disadvantage.

 CN

[24] CN states that it is prepared to interswitch Xinyi Canada’s traffic with CP in accordance with the Regulations and regulated interswitching rates “with respect to the Existing Woodstock Interchange.”

[25] CN argues that it is not necessary for the Agency to grant Xinyi Canada’s request to deem the facility to be within the required 30 km radius of the London interchange because it already falls within that radius for the Woodstock interchange.

[26] CN calculates the radial distance from the facility to the London interchange to be 41.5 km. It argues this interchange is not “reasonably close” to the point of origin because the radial distance is 38 percent beyond the 30 km statutory limit and the track distance also exceeds 30 km.

[27] CN argues that the purpose of the interswitching provisions of the CTA is to provide shippers served by only one railway company with reasonable access to the services of other railway companies and that this purpose is achieved through regular interswitching at the Woodstock interchange. It submits that ordering extended interswitching at the London interchange would constitute an unnecessary market intervention. It also argues that the authority to extend the interswitching limits set out in subsection 127(4) of the CTA should be interpreted as an exception, when subsections 127(2) and 127(3) do not apply.

[28] CN references Decision No. CONF-18-2018 (Richardson) and states:

Of note, in the recent Richardson decision, once the Agency determined that the shipper was within 18 km of the interchange, it did not proceed to determine whether Richardson’s Lamont elevator was reasonably close to the Clover Bar interchange given that the regulated remedy was available.

[29] CN contests Xinyi Canada’s assertion that it will be at a competitive disadvantage without the approval of extended interswitching at the London interchange, claiming that Xinyi Canada’s competitors’ circumstances are not comparable. CN argues that when the Agency ordered extended interswitching in Richardson and Paterson, it did so to level the playing field between the applicants and competitors that had access to regular interswitching and that there are no comparable playing field issues in the present case. CN points out that Xinyi Canada has stated that its competitors are not situated in Canada and instead rely primarily on the trucking network in the US for distribution.

[30] CN also contends that it would not be fairly compensated for interswitching at the London interchange because complex activities are required to move traffic beyond a 30 km radial distance and the approved interswitching rate contemplates traffic movement only within a 30 km radius.

[31] Finally, CN submits that Xinyi Canada is attempting to avoid market rates by framing its position as consistent with the intent of the National Transportation Policy. CN contends that the regulated rates available to the applicant due to the proximity of its plant to the Woodstock interchange are “valid and binding.”

Findings of fact

[32] Both the London and Woodstock interchanges are interchanges for the purposes of the CTA and the Regulations.

[33] While the parties agree that the location for Xinyi Canada’s proposed facility is within a 30 km radius of the Woodstock interchange, they disagree on the exact distances between the facility and each of the interchanges.

[34] Xinyi Canada submitted detailed maps used to calculate the radial distances from its proposed facility location to the Woodstock and London interchanges. CN provided a less detailed map that showed the radial distances in miles. Based on the greater precision of Xinyi Canada’s evidence, the Agency finds that the radial distance of the proposed facility is 29.97 km from the Woodstock interchange, and 39.81 km from the London interchange.

[35] Xinyi Canada submitted calculations of the track distances from the proposed facility to the two interchanges: 44.6 km to the London interchange and 87 km to the Woodstock interchange. CN did not dispute these calculations. The Agency therefore finds that the track distance from the facility is substantially shorter to London than to Woodstock.

[36] In addition, the Agency finds that the track configuration around the proposed facility means that Xinyi Canada’s rail traffic will always pass through the London interchange.

[37] The Agency also finds, based on the statement made by Xinyi Canada at paragraph 50 of its application and the fact that CN did not contest this statement in its answer nor, when given an additional opportunity by the Agency in its written question, in its response to that question, that CN and CP will interswitch Xinyi Canada’s traffic at the London interchange, regardless of the interchange ordered for interswitching.

 ANALYSIS AND DETERMINATIONS

[38] The interswitching provisions in section 127 of the CTA provide shippers with access to the rail transportation services of railway companies other than those that directly serve the points of origin or destination of their traffic. Under subsection 127(2) of the CTA, the Agency can order a railway company that provides direct service to a point of origin or destination to interswitch cars containing the shipper’s traffic at an interchange with another railway company with which the shipper has made transportation arrangements.

[39] The Agency prescribes the rates for the service between the point of origin or destination and the interchange on an annual basis through a regulatory determination published in the Canada Gazette. There is no factual foundation to CN’s claim that the approved interswitching rates contemplate traffic movement only within a 30 km radius and that it would not be fairly compensated for interswitching at the London interchange. Regulated interswitching rates are established using a prescribed methodology that takes into account a variety of considerations—including the long-term investment needs of the railway companies—and address traffic movements beyond a 30 km radius.

[40] If the radial distance between a point of origin or destination and an interchange is 30 km or less, an interswitching order in respect of that interchange is normally granted. If the radial distance is greater than 30 km, subsection 127(4) of the CTA gives the Agency the discretion to deem an interchange to be within 30 km of the point of origin or destination if the Agency “is of the opinion that, in the circumstances, the point of origin or destination is reasonably close to the interchange.” Interswitching can then be ordered at that interchange under subsection 127(2) of the CTA.

[41] The parties agree that Xinyi Canada’s proposed facility is within a 30 km radius of the Woodstock interchange, and CN does not oppose an order for interswitching there. The Agency therefore finds that Xinyi Canada is eligible for regulated interswitching.

[42] The issues before the Agency, therefore, are whether it has the authority, in the circumstances, to order extended interswitching at the London interchange and if so, whether it should do so.

 Does the Agency have authority to order extended interswitching in this case?

[43] It is well established that statutory provisions must “read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament,” as originally set out by Elmer Driedger in Construction of Statutes (2nd ed. 1983), at p. 87 and cited repeatedly by the Supreme Court of Canada, including recently in Canada (Minister of Citizenship and Immigration) v Vavilov, 2019 SCC 65, at para. 117.

[44] CN submits that the availability of the Woodstock interchange for regular interswitching provides Xinyi Canada the required access to a CN competitor and that this precludes an extended interswitching order for the London interchange. It points out that, historically, when the Agency has ordered extended interswitching, the shipper did not already have access to regular interswitching.

[45] Specifically, CN notes that in Richardson, the Agency did not consider a second interchange after finding that an interchange was available within a 30 km radius of the Westmor elevator. CN’s answer was filed with the Agency on January 16, 2020. One week later, the Federal Court of Appeal (FCA) set aside Richardson and returned it to the Agency for redetermination. However, the FCA did not overturn the Agency’s decision in relation to the Westmor elevator and its decision does not bear on the arguments of either party in the current matter.

[46] Xinyi Canada argues that the Parliament intended for the Agency to have the discretion to order extended interswitching on a case-by-case basis, based solely on its assessment of whether an interchange that is more than 30 km in radial distance from a point of origin or destination is reasonably close to that point of origin or destination. Nothing in the text or history of the statute, Xinyi Canada submits, supports CN’s claim that extended interswitching should be ordered only in extraordinary circumstances.

[47] CN’s observation that the Agency has not, to date, ordered extended interswitching where an interchange was available within a 30 km radius of the point of origin or destination of a shipper’s traffic is accurate. So too is Xinyi Canada’s observation that nothing in the language of section 127 of the CTA suggests that the Agency’s discretionary authority under subsection 127(4) is limited to situations where interswitching would not otherwise be available. Section 127, in its grammatical and ordinary sense, provides the Agency with broad discretion to determine whether an interchange is reasonably close to a point of origin or destination and does not remove its authority to do so when another interchange is within a 30 km radius of a point of origin or destination.

[48] This interpretation of the Agency’s authority finds further support when the entire context, scheme and object of the legislation are considered. The CTA’s interswitching provisions are aimed at increasing the access of shippers to services from multiple railway companies, given the reality that there is often limited choice in the freight rail transportation market, notably for shippers directly served by only one railway company. More generally, the National Transportation Policy at section 5 of the CTA stresses the importance of efficiency, competition, regulation and strategic public intervention to achieve outcomes that cannot be achieved through market forces alone. These considerations militate against a narrow interpretation of section 127 that would read into the statutory language restrictions on the Agency’s discretion that Parliament did not choose to establish and, in so doing, constrain the Agency’s ability to advance the statute’s and the section’s purposes.

[49] For these reasons, the Agency finds that it has the authority to order extended interswitching if it is of the opinion that an interchange is reasonably close to the point of origin or destination of a shipper’s traffic, whether or not another interchange is available within 30 km of that point of origin or destination.

[50] The fact that the Agency has this discretion does not mean it will always exercise it. In most cases, the ability to interswitch at an interchange located at a radial distance of 30 km or less from the point of origin or destination of traffic can be expected to reasonably meet the needs of a shipper and satisfy the purposes of section 127, and the Agency will therefore not need to consider ordering extended interswitching for that traffic. However, there may be particular circumstances where it is more reasonable for the Agency to exercise its discretion and to order extended rather than regular interswitching.

 Should the Agency order extended interswitching in this case?

[51] The Agency has in past decisions established three factors to determine whether an interchange is “reasonably close” to a point of origin or destination of traffic and should therefore be deemed, under subsection 127(4) of the CTA, to be within interswitching limits. The main factor is distance, with radial distance being the primary consideration and track distance a secondary but relevant consideration where it is substantially longer than radial distance. The second and third factors—service issues and competitive position—may also be considered by the Agency depending on the specific circumstances of each case but will not normally be accorded the same weight as distance.

 DISTANCE

[52] At a radial distance of 29.97 km, the proposed facility is very close to the 30 km limit for regular interswitching at the Woodstock interchange. The 39.81 km radial distance of the proposed facility from the London interchange is comparable to that of interchanges that were the subject of extended interswitching orders made in other applications. In Paterson, the interchange ordered for extended interswitching was 39.8 km from the shipper’s facility. In Decision No. 269-R-1988 (Domtar), the interchange ordered for extended interswitching was 37 km from the shipper’s facility.

[53] With respect to track distance, the proposed facility is substantially farther from the Woodstock interchange at 87 km than the London interchange at 44.6 km.

 SERVICE LEVELS AND COMPETITIVE POSITION

[54] Given that Xinyi Canada’s facility is still in the planning stages, any assertions regarding these considerations are necessarily hypothetical and speculative in nature, and the Agency therefore does not find them to be relevant in this case.

 CONCLUSION

[55] This case is marked by an unusual combination of circumstances; namely,

  • the radial distance to the London interchange is similar to the radial distance of interchanges subject to extended interswitching orders in other cases;
  • the track distance to the Woodstock interchange is almost twice the track distance to the London interchange;
  • all rail traffic to and from the proposed facility will pass through the London interchange; and
  • interswitching will occur in practice at the London interchange, regardless of whether interswitching is ordered at the Woodstock or London interchange.

[56] Taking these circumstances into consideration, the Agency:

  • is of the opinion that the London interchange is reasonably close to the proposed facility and, accordingly, deems that interchange to be within a radius of 30 km of the facility;
  • concludes that Xinyi Canada’s reasonable service needs and the objects of the interswitching provisions can be satisfied by ordering interswitching at only one, rather than both, of the interchanges identified in the application;
  • finds that it is more reasonable and consistent with the purposes of the CTA’s interswitching provisions and the National Transportation Policy to order extended interswitching at the London interchange rather than regular interswitching at the Woodstock interchange.

 ORDER

 [57] The Agency orders CN to interswitch Xinyi Canada’s traffic at the London interchange in accordance with the Regulations and applicable rates.

 

Member(s)

Scott Streiner
J. Mark MacKeigan
Heather Smith
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