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Montreal, Maine & Atlantic Railway

Robert C. Grindrod
Montreal, Maine & Atlantic Railway
Montreal Maine & Atlantic (Canada)

February 7, 2008

Canadian Transportation Agency
Ottawa, Ontario
K1A 0N9

Attention:   Michel Maisonneuve

Subject: Review of the Railway Interswitching Regulations

Dear Mr. Maisonneuve,

The following comments regarding the proposed modifications to the railway interswitching regulations are submitted on behalf of the Montreal, Maine & Atlantic Railway (MMA).

The Montreal, Maine & Atlantic Railway is a 745-mile regional freight railway with operations in the provinces of Quebec and New Brunswick and the states of Vermont and Maine. MMA has been in operation since January 2003, when it assumed operation of the lines formerly operated by the Iron Road group, which had fallen into bankruptcy. Because of its international operations, the MMA falls under the regulatory authority of the Canadian federal government.

Canadian interswitching regulations apply at the points of interchange between two federally-regulated railways. MMA has four such interchange points:

  • St Jean QC, Sainte Rosalie QC, and St Leonard NB, where it interchanges with  Canadian National
  • Sherbrooke QC, where it interchanges with the St. Lawrence & Atlantic (Quebec) Railway

(Note: MMA also interchanges with CPR at St Jean QC, but traffic exchanges between MMA and CPR at this location are governed by a bi-lateral agreement.)

Interswitched traffic represents a significant portion of the MMA's total traffic base. In 2007, MMA received approximately 5700 cars in interswitching service from connecting railways, and forwarded approximately 1200 cars to other railways in interswitching service. This traffic represented slightly less than 15% of MMA's total carload traffic for the year, but almost two-thirds of the business that MMA handles in Canada.

A detailed analysis of MMA's current interswitching activity is contained in Schedule A, which we wish to be held confidential.

It is our understanding that the Agency establishes interswitching rates based on an analysis of the variable cost of operations at major, Class I interchange points. Based on its study of Class I operations in 2002, the Agency reduced interswitching rates and these new, lower rates became effective in 2004.

This 2004 rate reduction was extremely onerous for MMA. Like most regional and shortline railways, MMA does not have the same economies of scale as (e.g.) CN or CPR, and had not been able to reduce its variable operating costs during the period leading up to 2002 in the same manner as the national railways. In addition, as demonstrated above, MMA is a net provider of interswitching service. The lower rates for interswitching services provided by MMA resulted in a significant loss of revenue,  during a period when the company was just beginning operations and in a fragile financial position.   

Since 2004, interswitching rates have been frozen, while many of MMA's operating costs have risen dramatically. For example, the average benchmark price for oil (West Texas intermediate) in 2004 was $US 41.44 per barrel, but this price had risen to $US 72.36 per barrel in 2007, an increase of almost 75%. 

Similar, though less dramatic, price increases have occurred in other categories such as rail and track material. The Association of American Railroads monitors changes in the cost of railway materials and publishes this data on a quarterly basis in the form of its Rail Cost Adjustment Factor. The "Materials & Supplies" component of this index represents a market basket of 38 individual items purchased by the six largest North American railways. This index rose by 28.7% between the fourth quarter of 2004 and the same period in 2007. 

The Canadian Transportation Agency has proposed to increase the interswitching rates for Zones 1, 2 and 3 by between $5 and $20 per car, and reduce the Zone 4 rate by $15 per car. Based on MMA's traffic profile, this proposal would result in virtually no net increase in revenue.

The management of the Montreal, Maine & Atlantic Railway believes that the new interswitching rates proposed by the Canadian Transportation Agency do not adequately reflect the increase in operating cost experienced by regional and shortline railways since 2004. We therefore request that the Agency consider increasing the Zone 1, 2 and 3 rates by a larger amount, and maintain the Zone 4 rate at is current level.



Robert C. Grindrod

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