Chair and CEO Scott Streiner addresses the North American Fertilizer Transportation Forum on August 21, 2017
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Join me, if you will, in a brief trip across space and time, to some clearings in southeastern Turkey, western Iran, and the Levant about 11,000 years ago. That was when people first shifted from foraging to farming. As they made conscious efforts to plant and harvest wheat, they obviously didn't know that they were the vanguard of one of the most profound transformations humanity would ever undergo. They had simply come to the realization, through trial and error, that if they applied certain techniques, they could grow plants in the same area year after year, and build permanent homes and communities.
The impact of the Agricultural Revolution was immense, not least in terms of demographics. Before the transition to farming, somewhere between 5 and 8 million people hunted and gathered across the face of the Earth. By the first century AD, when virtually all people lived off agriculture, there were 250 million of us. Agriculture allowed populations to burgeon and complex civilizations to emerge.
It wasn't long before farmers realized that they could enrich soils and improve crop yields by mixing in various substances. Thus was born the fertilizer sector. Three thousand years ago, humans and oxen carried manure to rice terraces in China. Today, those same terraces may be fertilized with nitrogen, phosphates, and potash picked up at the point of production by Canadian railway companies and transferred to large marine vessels at Canadian ports.
The importance of that process – of getting product to users smoothly and predictably – cannot be overstated. Efficient transportation is critical to the success of your businesses, and the national economy. And it is one of the core mandates of the Canadian Transportation Agency, or CTA, which I am privileged to lead.
Continuity and change
The CTA has been part of the Canadian transportation landscape since 1904. It is Canada's longest-standing independent, expert tribunal and regulator. It was established to ensure the orderly development of the country's railway system, and reliable, fairly-priced service to that system's customers.
The CTA's story is one of both continuity and change. Our mix of responsibilities and how we go about implementing them have evolved as the transportation system, the economy, and the society have evolved.
The Canada Transportation Act emphasizes market forces and competition. Wherever possible, shippers and railway companies should establish mutually-beneficial relations through commercial negotiations. But the law also recognizes that sometimes, that isn't possible, especially where bargaining power is unequal, so it includes a number of recourse mechanisms. The mere availability of such mechanisms can help balance bargaining power and foster commercial agreements – and if that doesn't happen, the mechanisms should produce fair, timely results similar to those that an efficient, well-functioning market would generate.
Today, I'd like to discuss how some of those mechanisms are developing, and how the CTA is working to ensure that they're as effective and accessible as possible. I'll focus on five areas: mediation, arbitration, adjudication, regulatory modernization, and information and data provision.
Let's start with mediation. Among the various dispute-resolution services currently offered by the CTA to shippers and railway companies, mediation is the least disruptive – yet it is relatively under-used.
If a shipper and railway company are at loggerheads, they can ask the CTA to appoint an expert mediator to help them find a solution.
Mediation is faster and cheaper than more formal dispute resolution options. It's also less likely to strain the relationship between shippers and railway companies, it is 100 per cent confidential, and neither prevents nor obligates parties to take the dispute forward if a settlement isn't achieved. But for the most part, shippers only turn to us when negotiations have dragged on fruitlessly for a long period and the dynamics between the two sides have become difficult – by which time, mediation may seem pointless.
Parties might want to think of us sooner.
To ensure the effectiveness of our mediation services, we've worked in recent years to create a team with specialized knowledge of railway companies' and shippers' realities. In April 2016, we established a separate unit to focus on these areas, and over the past few years, we've sent 21 CTA Members and staff on learning tours to western rail and shipper operations.
On the legislative front, the Government has recently tabled the Transportation Modernization Act, known as Bill C-49. Bill C-49 will be considered by a House of Commons committee during the week of September 11, and depending on the Parliamentary process, could come into force as soon as late fall. If passed, it will create a process that's even less structured than mediation, by empowering the CTA to try to facilitate informal resolution of issues between shippers and railway companies, and even requiring that the name of a shipper requesting assistance only be disclosed to the railway company with the shipper's agreement.
We hope that as word gets out about our mediation program and, if Bill C-49 becomes law, our informal facilitation services, more parties will realize that we can be of assistance before positions are entrenched and relations are strained. Because resolving disagreements earlier is in everyone's interest.
Arbitration is available if a shipper and railway company can't reach a deal – either on their own or with assistance from the CTA – on rates of carriage or service levels.
For rate disputes, the law requires final offer arbitration, where the arbitrator picks either the proposal submitted by the shipper or the proposal submitted by the railway company. Arbitrators in rate disputes are required to reach decisions as expeditiously as possible, and a simplified, shorter summary arbitration process is provided for rate disputes where the total freight charges are under a specified threshold.
For service disputes, the law doesn't require final offer selection but rather, allows arbitrators to craft Service Level Agreements, or SLAs, by mixing elements proposed by each party, or choosing alternatives that they believe are more appropriate. All service level arbitrations must be completed within 45 days of the submission of an application, unless the arbitrator deems this impractical, in which case the deadline can be extended to 65 days.
To ensure that arbitrators are well-supported – and to address concerns shippers have raised about the scope of information required to submit an application for arbitration – the CTA has made it clear that the technical and legal expertise of its staff will be made available, as required, to arbitrators.
In addition, we've provided specialized arbitration training to Members and staff who may be called upon from time to time to act as arbitrators. Finally, we've issued Rules of Procedure for Rail L evel of Service A rbitration to help ensure that their tight timelines are met, and to give shippers and railway companies as much clarity as possible on how the process will unfold.
Bill C-49 introduces two changes for rate arbitrations. First, at a shipper's request, the rates established through the arbitration will apply for two years rather than just one. Second, the threshold for expedited, summary rate decisions will be increased from the current $750,000 in total freight charges to $2 million, pegged to inflation.
For service arbitrations, Bill C-49 confirms the CTA's previously temporary authority to make regulations on the operational terms that will be considered during service level arbitrations, and explicitly allows for reciprocal penalties to be included in arbitrated SLAs.
Shipper uptake of the rate and service arbitration options has been relatively modest. If this is because there are few disputes that would benefit from arbitration, that's very good news. But if it's because shippers have been hesitating for a variety of reasons to avail themselves of statutory remedies, we hope that the steps we've taken and the changes that could come as a result of Bill C-49 will address some of these concerns.
Let me turn now from arbitrations – which produce binding decisions, but are not formal proceedings before the Agency – to adjudications – where the CTA's status as a quasi-judicial tribunal is most obvious and it exercises all the powers of a superior court.
While service level arbitrations are prospective – creating SLAs for the future – service level adjudications are retrospective – involving claims from a shipper that a railway company has failed to provide the "adequate and suitable" service that the law requires.
Service level adjudications are among the most complex cases that the CTA handles, and often have significant financial implications. One recent example is the Univar-CP dispute, which stemmed from the loss of direct service to Univar's island-based facility after a rail bridge was damaged by fire and, subsequently, by a barge strike. After reviewing over a thousand pages of material submitted by the parties and holding an oral hearing in Vancouver, the CTA ordered CP to cover Univar's extra transportation-related expenses for periods outside of what the decision termed "reasonable pauses" in service obligations stemming from the two force majeure events – and to keep paying Univar's expenses until the bridge is either rebuilt or the operation of the line running over the bridge is formally ended, pursuant to the law's discontinuance provisions.
Another example is the EMI-CN dispute, which centred in part on where EMI's products should be loaded onto trains, given that EMI's facility does not have a loading point. The CTA found that there were two "points of stopping" that would allow for the provision of "adequate and suitable" service to EMI – both located in a CN yard – and ordered CN to select one of the points and serve EMI from it. The CTA also found that CN should cover EMI's extra transportation-related expenses for the period during which service was not provided from one of these locations.
I should note that the CTA is still seized with quantifying the expenses owed in the Univar-CP case, and CP is appealing, to the Federal Court of Appeal, the CTA's finding that CP owes Univar compensation for extra expenses outside the reasonable pause periods. CN appealed the CTA's decision in its dispute with EMI to the Federal Court of Appeal, which upheld the decision. CN has now sought leave to appeal to the Supreme Court.
Service level adjudications typically involve copious and complicated evidence and arguments around legal interpretation, the supply of cars and locomotive power, and expenses. To try to make these adjudications as straightforward and predictable as possible, the CTA has taken two steps. First, we're organizing case management calls with lawyers for both sides soon after applications are received, to establish clear timelines and agreed limits on the size of submissions. Second, after a nine-year hiatus, we've returned to holding oral hearings for selected cases, in part because such hearings can be a highly efficient way of receiving, comparing, and weighing large amounts of conflicting evidence and arguments.
Bill C-49 makes some changes around service level adjudications: it reduces the timeframe for getting to a decision from 120 to 90 days, and it lists factors that the CTA should consider when determining if the service provided by a railway company meets the "adequate and suitable" standard.
Service levels are not the only matter that shippers can bring for adjudication by the CTA. They can also request CTA orders related to interswitching.
Interswitching, as some of you will know, is an arrangement where a railway company that provides a shipper with direct service moves that shipper's cargo to an interchange. At the interchange, the cargo is transferred to another railway company, which does the long haul to destination. The purpose of the Canada Transportation Act's interswitching provisions is to give shippers more choice and to create more competitive tension in the freight rail sector.
The CTA establishes the rate for the movement of cargo to the interchange point under an interswitching arrangement, and resolves disputes around matters such as whether a particular rail yard should be considered an interchange for the purposes of interswitching.
Currently, the legislation allows for interswitching at interchanges up to 30 km from a shipper's loading point, unless the CTA sets a longer interswitching distance. The law also contains a number of other options aimed at increasing shipper choice, such as the competitive line rate provisions, which have never or only rarely been used.
Bill C-49 will replace both the CTA's authority to set general interswitching distances beyond 30 km and the competitive line rate provisions with a new option, called long-haul interswitching. Under this option, a shipper served by only one Class 1 railway company will be able to request interswitching to the nearest interchange, which can be up to 1200 km away, or as far away as 50 per cent of the total haul distance in Canada, whichever is greater. The CTA's role will be to order that the requested service be provided, if certain conditions are met, and to establish the rate for that service, based on an analysis of the rates for comparable traffic. We'll have 30 business days to make these determinations – a tight timeline that will require a well-managed process with firm deadlines for all parties. We're currently sketching out what such a process will look like, and will be consulting stakeholders as Bill C-49 progresses through Parliament.
If and when Bill C-49 is passed into law by Parliament, it will be interesting to see how many shippers request long-haul interswitching orders. Regardless, we at the CTA are working hard to ensure that all the pieces are in place to adjudicate such applications, starting 30 days after the legislation receives Royal Assent.
Some of the provisions proposed under Bill C-49 will require regulatory amendments. As it happens, the CTA is already in the midst of a major, soup-to-nuts review of all its regulations. The purpose of our Regulatory Modernization Initiative, or RMI, is to update regulations that have fallen behind current business models, user expectations, and best practices in the regulatory field. One of its key results in the area of rail-related requirements is expected to be the integration of six separate regulations into a single, integrated, streamlined regulation.
The RMI is already well-advanced in the areas of accessible transportation and air licencing and charters. Consultations on the modernization of rail-related regulations will begin shortly after passage of Bill C-49. We encourage shippers and railway companies to provide input on all aspects of those regulations that have implications for their businesses.
Information and data provision
This brings me to the last of the five items I'd like to cover today: the provision of information and data by the CTA.
This is something to which we, as an organization, are committed. We believe it's important that the people who are supposed to benefit from the law's recourse mechanisms know those mechanisms exist. In fact, we've made raising stakeholder and public awareness one of our four strategic priorities for the 2017-2020 period.
That's part of the reason why I'm here today.
It's also why, more broadly, we've redoubled efforts over the last year to inform shippers and railway companies about the CTA's mediation and arbitration processes.
And it's why we've committed to regulatory modernization consultations that are meaningful, transparent, and timely.
If passed, Bill C-49 will reinforce these efforts. It directs the CTA to post information on railway companies' legal obligations on its website and to offer guidance to interested parties on shipper's remedies. And it requires railway companies to submit performance data to the CTA which we, in turn, will publish on line.
Information may not always be power. But it can help markets function better, and even out unequal bargaining relationships.
As you can tell from my remarks, we're in the midst of a lot of activity related to rail-shipper dynamics – from legislative amendments to regulatory modernization, from improvements in how we administer recourse processes to efforts to ensure that stakeholders know we're here to help.
All this activity is, in the end, grounded in the objectives that I described earlier: encouraging sound commercial relations, and providing fair, timely dispute resolution services and remedies if parties are unable to reach an agreement.
These outcomes are, of course, in the interests of shippers and railway companies. But they're also in the interests of Canadians more generally. Because a smoothly-running national transportation system is a foundation of Canada's prosperity.
As the CTA delivers its current responsibilities and, potentially, takes on new ones, it will always keep these goals in mind. We draw on the deep wells of expertise, commitment, and impartiality that come with 113 years of experience as an independent tribunal and regulator. At the same time, our attention is focused on the shifting realities of the sectors whose prospects we affect – including yours – and how we can respond effectively to those realities.
The fertilizer industry makes possible the agricultural production that feeds the world's 7.5 billion people – and provides employment and investment income for thousands of Canadians. At the CTA, we help ensure that the industry can get its products to its customers efficiently.
I wish you a successful conference, and look forward to your questions.