Decision No. 298-R-1993

May 27, 1993

May 27, 1993

APPLICATION by the Rail-Bridge Corporation dated June 30, 1992 pursuant to subsection 35(1) of the National Transportation Act, 1987, R.S.C., 1985, c. 28 (3rd Supp.), for a determination as to whether an articulated five-platform flat car is a "car" within the meaning of that word as set out in the Schedule pursuant to section 8 of the Railway Interswitching Regulations, SOR/88-41.

File No. D 3231/R2


INTRODUCTION

On June 30, 1992, Lande and Associates, on behalf of the Rail-Bridge Corporation (hereinafter the applicant), filed an application with the National Transportation Agency (hereinafter the Agency) pursuant to subsection 35(1) of the National Transportation Act, 1987 (hereinafter the NTA, 1987) for a determination as to whether an articulated five-platform flat car is a "car" within the meaning of that word as set out in the Schedule pursuant to section 8 of the Railway Interswitching Regulations and as to whether any rate per car for interswitching to or from a siding above the prescribed rate is in violation of subsection 152(2) of the NTA, 1987.

BACKGROUND

The applicant, which operates an exclusive intermodal container on flat car train service for the transport of containers throughout North America, is a subsidiary of "K" Line (Kawasaki Kisen Kaisha, Ltd.). Its train service is made up of a number of five-platform articulated 100-ton well flat cars (hereinafter articulated flat cars), capable of accommodating either single stacking or double stacking of containers. The applicant wishes to move articulated flat cars from the U.S. border at Buffalo, via the Norfolk Southern Corporation (hereinafter Norfolk Southern), to Tillsonburg, Ontario, for transfer to Canadian Pacific Limited (hereinafter CP) for their delivery to a private rail siding in Ingersoll, Ontario.

Norfolk Southern, by virtue of a running rights agreement dated December 10, 1919 (as amended and most recently renewed by the Fifth Renewal Agreement, dated November 1, 1983), operates on the Cayuga Subdivision of the Canadian National Railway Company (hereinafter CN). This agreement was reached between the Grand Trunk Railway Company (a predecessor of CN) and Wabash Railway Company (a predecessor of Norfolk and Western Railway Co. (hereinafter Norfolk), which is now a wholly owned subsidiary of Norfolk Southern). Tillsonburg is located on the Cayuga Subdivision where there is currently a CN/CP interchange at Tillsonburg.

In its letter dated July 27, 1992, CP submitted that the one or five car determination would affect the rights of other parties and, in particular, other railway companies. In that context, CP requested that all railway companies subject to federal jurisdiction be served with a copy of the application and be invited to intervene in the matter.

For these reasons, the Agency solicited comments on this application in its letter dated August 7, 1992 to approximately 120 shippers, shipper organizations, governments and railway companies. Responses were received from only three other parties: Abitibi-Price Inc., Nova Scotia Department of Transportation and Communications, and Ports Canada. In each case, further information was requested.

By letter dated September 4, 1992, the applicant filed further arguments in respect to the interchange and subsection 152(1) of the NTA, 1987, and the differences between this application and the Celgar application resulting in the Agency Decision No. 439-R-1989 dated September 5, 1989. The applicant also provided the Agency with a letter from CN to CP dated September 3, 1992 indicating that the Cayuga Subdivision is 100 percent owned by CN. The Agency accepted both letters as filed and they accordingly form part of the record.

SUMMARY OF SUBMISSIONS

The Application

In its application of June 30, 1992, the applicant states that Tillsonburg is an interchange, as defined in section 110 of the NTA, 1987, between CN and CP for the purpose of subsection 152(2) of the NTA, 1987. An interchange is defined in section 110 of the NTA, 1987 as:

a place where the line of a railway company connects with the line of another railway company and where loaded or empty cars may be stored until delivered or received by that other company.

The applicant contends that Norfolk Southern, by virtue of its running rights agreement with CN, enjoys "joint and equal use" of the CN Cayuga Subdivision and can be said to operate a line of railway accessing the Tillsonburg interchange. Norfolk Southern is thereby entitled to apply for interswitching rights over that interchange.

In addition, the applicant submits that an articulated flat car is treated and identified in many ways as a typical single railway car. Such similarities noted in the application are: this type of equipment can not be uncoupled or physically separated into stand-alone segments; each platform shares the axles and brake system; it constitutes one inseverable car with one car number; it is treated as one car by CP for railway accounting purposes; the Interstate Commerce Commission, in consideration of a specific complaint, treated these cars as a single car; the car hire rates for this equipment are assessed as one car when interchanged between railway companies; it is treated as one car by manufacturers; and it is treated as one car in the Official Railway company Equipment Register.

In respect to the costs incurred by the interswitching railway company, the applicant submits that an articulated flat car differs only in respect of length, being between 260 feet and 300 feet versus 40 feet to 90 feet for conventional cars. The length of cars has little impact on the interswitching cost.

The applicant further submits that the word "car" as set out in the Railway Interswitching Regulations is not different than its usual grammatical sense. If the Railway Interswitching Regulations are read in conjunction with subsection 152(2) of the NTA, 1987, a car can be said to include "every description of car...designed for movement on its wheels, over or on the rails or track" (section 2 of the Railway Act definition of rolling stock) of a railway company.

The applicant requests that the Agency determine that a double-stack car is a car within the meaning of the Railway Interswitching Regulations and that any rate charged above the prescribed rate is in violation of subsection 152(2) of the NTA, 1987.

CP Answer

CP submits in its answer of August 18, 1992, that since no such movement of traffic has yet occurred, the Agency does not have the power by virtue of section 35 of the NTA, 1987, or any other section, to issue legal opinions in vacuo.

CP states that Norfolk Southern cannot be said to own or operate a railway because Norfolk Southern makes use of the facilities of the CN Cayuga Subdivision under a running rights agreement. That right and obligation remains with CN. CN is the owner of the line of railway and has responsibility for all traffic running over that line. Consequently, CP contends that Tillsonburg cannot be designated as an interchange between CP and Norfolk Southern as defined under sections 110 and 152 of the NTA, 1987 for regulated interswitching purposes.

CP contends that although Norfolk Southern has an agreement with CN, this does not mean that it has a line of railway. As noted in the Agency Decision No. 439-R-1989, notwithstanding the fact that the Burlington Northern Railway Co. (hereinafter Burlington Northern) had running rights over trackage owned and operated by CP, it does not have a "line of railway" at Nelson merely by virtue of its agreement with CP.

CP states that the development of the Railway Interswitching Regulations was the result of extensive consultations between the railway companies and shipper interests. Various issues were deferred for future evaluation such as the interswitching rates for specialized equipment or traffic.

CP notes that any piece of equipment in excess of 300 feet in length with a gross weight of 400 tons is materially and substantially different in all respects from the conventional 89-foot flatcar with a maximum gross weight of 131 tons. The most significant determinant in the cost to move a car is the weight of the car. A 400-ton piece of equipment would consume more fuel, require more diesel horsepower and cause greater damage to the track. Accordingly the cost to switch this equipment would be materially and substantially higher than the cost to switch a conventional car.

CP also notes that not all multi-platform equipment bears a single reporting number and not all multi-platform cars are inseverable.

CP states that the economic benefits of this equipment is the perceived lower cost per container and not the cost to move the equipment. Therefore, if the interswitching rates for multi-platform equipment are to bear any resemblance to economic reality, they should be expressed on a "per platform" basis because it is the rate per container that is the relevant consideration.

CP submits that the application should be rejected or, in the alternative, that the Agency stay the application. CP requests that the matter of separate interswitching rates for the movement of specialized equipment used for the carriage of container or trailers be included during the Agency review of the Railway Interswitching Regulations under subsection 152(7) of the NTA, 1987.

CN Answer

In its answer of August 27, 1992, CN claims that the articulated flat cars do not circulate on the CN Cayuga Subdivision and finds it quite improper that the applicant is seeking a legal opinion from the Agency on a theoretical situation.

CN notes that the applicant has submitted that this equipment is a combination of five traditional platform flat cars by its use of the words five platform, multi-unit, and five unit.

CN adds that common sense would dictate that the "five units" are equivalent to five times the concept of a "car" as defined in the Railway Interswitching Regulations.

CN concludes that the application should be dismissed as no determination is warranted since there is yet to be an issue to be considered. The matter should be resolved by negotiations between the railway companies and users, whereby the parties would be at liberty to negotiate lower than the maximum rates arrived at in respect of each component of the articulated flat cars.

The Applicant's Reply to the CP Answer

The applicant denies the allegation of CP that it is requesting the Agency to give an opinion in vacuo and it believes that section 35 of the NTA, 1987 provides for Agency consideration of its application.

The applicant argues that both Norfolk Southern and CN have "joint and equal use" of the railway line between Windsor and Fort Erie and that Norfolk Southern by virtue of its running rights agreement with CN also has a line of railway at Tillsonburg. The applicant contends that this situation is quite different from the Celgar application where Burlington Northern merely had running rights over the line of railway from Nelson to Troup Junction. The line itself belonged to CP. In the case at hand, two lines connect at Tillsonburg: one which is part of the CP rail network and the other one which is properly part of the Norfolk Southern rail network. Consequently, Tillsonburg is an interchange as defined in section 110 of the NTA, 1987, and traffic can be properly interswitched at this point.

The applicant states that the Railway Interswitching Regulations do not distinguish between cars used for the movement of containers and those used for other purposes. This articulated flat car equipment was not specifically addressed in the course of the interswitching discussions; if this is the case, should this equipment not be subject to the legislative provisions which govern all cars?

The applicant states that the only factor to be considered in establishing interswitching rates is railway-incurred costs. However, it is not necessary that each and every interswitching movement be compensatory to the switching railway company. It is only necessary that the total revenues for a given rate be greater than total costs.

The applicant also objects to the request by CP that the Agency review and determine adequate rates for the movement of specialized equipment of the type contemplated by the application since the request has little, or no relation, to its application.

The applicant further argues that nothing in the answer of CP supports that the cost of switching a five-unit car is materially different from that of switching a single unit car and, therefore, the handling of the multipleunit equipment would not be materially different from the handling of conventional cars, but would merely reflect the economic reality of the cost advantages of this equipment.

The Applicant's Reply to the CN Answer

The applicant contends that the Agency does have the authority to render a decision by virtue of subsection 35(1) of the NTA, 1987 and it would not be improper to do so.

The applicant states that CN did not offer any evidence which could raise doubts that an articulated flat car is not a single car. Furthermore, CN offered no argument on the physical and cost differences between the two types of equipment.

The applicant states that CN alleges that rate proposed by the applicant would constitute a "contradictory result", relative to regulatory intent. The position of the applicant is that interswitching rates should be based upon costs with a small margin of contribution to the switching carrier. Nowhere in the CN submission is there any discussion about cost and, therefore, little weight can be given to the submission of CN with respect to regulatory intent.

In respect to the arguments of CP which were supported in the CN answer, the applicant restated its arguments and position which were set out in its reply to the answer of CP.

The applicant concludes by countering the argument of CN that matters such as this should be resolved between the rail carriers and users. It contends that the reason it was obliged to go before the Agency was because it was unable to resolve this matter by negotiations with CP. The applicant is of the view that it is the interswitching rates which are currently in effect which should apply to this specific type of equipment and if the Agency determines a rate structure for an articulated flat car, there would be an entirely new set of regulations. This application, however, only pertains to one specific type of railway equipment which would move over one particular interchange.

AGENCY ANALYSIS

A. Interswitching between CP and Norfolk Southern

As a preliminary question, the Agency considers it appropriate to address the issue of whether Norfolk Southern has an interchange at Tillsonburg and is eligible for regulated interswitching services at that location.

In reviewing the legislation in respect to interswitching, subsection 152(1) of the NTA, 1987 stipulates that:

Where a line of railway of one railway company connects with a line of railway of another railway company, the Agency may, on the application of the company owning or operating either of those railways, or of a municipal corporation or other public body or of any person interested, order the companies that operate those lines to afford, subject to any requirements imposed by or under the Railway Safety Act, all reasonable and proper facilities for the convenient interswitching at an interchange, by means of those lines, of traffic, between those lines, in both directions, and between the lines of either railway and those of other railways connecting therewith.

Section 110 of the NTA, 1987 states that:

"interchange" means a place where the line of a railway company connects with the line of another railway company and where loaded or empty cars may be stored until delivered or received by that other company.

In the Celgar Decision No. 439-R-1989, which CP submits was the same situation as this case, the Agency found that a railway company does not have a line of railway by virtue of a running rights agreement. The findings set out in this Decision were, in part, that:

In this case, the Agency finds that there is only one railway line from Troup Junction to Nelson, that of CP. BN does not have a "line of railway" at Nelson merely by virtue of its agreement with CP. Therefore, Nelson does not meet the definition of an interchange as described in the NTA, 1987.

In the present case, however, the Agency notes there is clearly an interchange between CN and CP at Tillsonburg because two lines of railway meet. Furthermore, interswitching pursuant to section 152 of the NTA, 1987 is available to both companies. In fact, after a review of the Rail Freight Database submitted to the Agency pursuant to sections 345 and 346 of the Railway Act, R.S.C., 1985, c. R-3, it should be noted that traffic has actually been interchanged between CP and Norfolk Southern at Tillsonburg in the past.

The Agency notes, from evidence presented by the parties, that CN owns and operates the Cayuga Subdivision on which Tillsonburg is located. CN also has a running rights agreement with Norfolk Southern. Section 2, as shown below, of the Fourth Renewal Agreement, dated November 1, 1965, of the original agreement dated December 10, 1919 between CN and Norfolk (renewed by the Fifth Renewal Agreement, dated November 1, 1983) indicates that Norfolk Southern can interchange traffic on the line.

2. (a) The Norfolk shall have the right to take to or from any point on the Joint Section traffic originating at or destined to any point on its own lines or lines of its connections in the United States.

(b) The local traffic originating and terminating on the Joint Section, including traffic to and from the Essex Terminal Railway, shall be carried upon joint freight trains, the employees on which shall be joint employees, and all revenue derived from the handling of such joint local business shall be the joint revenue of the parties hereto, provided, however, that the rates or tolls charged for the handling of such local traffic shall be those shown in the tariffs at such rates as are mutually agreed upon. Such joint revenue shall be divided and the expense of operating such joint trains shall be shared between the parties in the proportion which the number of cars assigned to each party bears to the total number of cars handled in such trains, such assignment being determined by taking into account:

1. The cars handled for each party on its own billing.

2. One half the cars handled on joint billing.

(c) Subject to the provisions of Paragraph (b) hereof, the Norfolk shall not participate in handling traffic between points on the Joint Section and points in Canada via routes wholly within Canada. However, the Norfolk shall be free to participate in handling traffic between points on the Joint Section and points in Western Canada via routes through the United States, and will include the National in the routing beyond the International Boundary, where possible, when the National can participate as a road haul carrier.

(d) The Norfolk may interchange on the Joint Section with railways other than the National traffic in which the National cannot participate as road haul carrier beyond the Joint Section, but traffic from United States points in which the National can participate as a road haul carrier beyond the Joint Section in Canada shall be interchanged with the National on the Joint Section at established interchange points.

Paragraphs 2(c) and 2(d) of this agreement place limitations on traffic solicitation rights of Norfolk Southern. Paragraph 2(b) of this agreement discusses joint freight trains and joint employees and joint revenue.

The Agency is of the opinion that pursuant to this agreement, Norfolk Southern can, in specific circumstances, access interchanges on the joint section and participate in the delivery and pick up of traffic. Whether the actual interswitching of the articulated flat car traffic at Tillsonburg is allowed under this running rights agreement is a matter to be dealt with by CN and Norfolk Southern and any dispute must be resolved between these two companies.

After consideration of this application and the evidence submitted, the Agency hereby determines that CN has given to Norfolk Southern, through this running rights agreement, the right to solicit traffic and interchange traffic on the joint section, including Tillsonburg, in specific circumstances, as set out by the terms and conditions of the agreement.

B. Interpretation of the Word "Car"

The next issue to be considered by the Agency is how an articulated flat car should be treated for the purpose of the Schedule pursuant to section 8 of the Railway Interswitching Regulations.

The articulated flat car is quite different from a typical rail car. Although these cars may have similarities to a typical railway car and do generate some savings compared to the handling of five individual cars, they are much larger and heavier than a typical car. These cars are slower to switch, longer (260 to 300 feet compared to 40 to 90 feet for conventional cars) and a great deal heavier (a gross weight of 400 tons compared to a maximum gross weight of approximately 131 tons). The result is increased switching costs and greater track maintenance costs. These increased costs fall outside of the range which could reasonably be expected to be absorbed by an interswitching railway company, in this case, CP. The Agency finds, therefore, that it would be unreasonable to find that "car" in this instance means a car requiring the car rate set out in the Schedule to the Railway Interswitching Regulations.

Based on the facts before it, the Agency is of the opinion that the definition of "car" should include in its consideration the cost of actually interswitching that type of car. The Agency estimates the cost of interswitching an articulated flat car to be three times the normal cost of interswitching cars of a size and weight typically handled by the railway companies. Therefore, when such traffic is interswitched by CP at Tillsonburg, the Agency finds that each articulated flat car shall be deemed to be three cars for the purpose of assessing interswitching rates.

The Agency notes that if traffic of this nature materializes and actual costs become available at this interchange which demonstrates that this determination is no longer reasonable, any party may raise this issue with the Agency at that time.

Since the Railway Interswitching Regulations have been in place, neither the annual interswitching rate reviews nor the five-year review have resulted in significant concern from any of the carriers or shippers to remove specialized moves from the cost base. The Agency is therefore of the opinion that until the volume of the multi-unit equipment is such as to warrant a review of the Railway Interswitching Regulations to account for any cost of interswitching this equipment, the Railway Interswitching Regulations will not be amended at this time.

CONCLUSION

The Agency finds that an articulated flat car for the purpose of interswitching at Tillsonburg is to be defined as the equivalent of three cars and an interswitching rate equal to three times the zone 1 rate indicated on the Schedule pursuant to section 8 of the Railway Interswitching Regulations will apply.

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