Decision No. 419-R-1993

June 28, 1993

June 28, 1993

IN THE MATTER OF complaints filed by the Thunder Bay Harbour Commission et al. in respect of improper and non-compensatory rates allegedly charged by the Canadian National Railway Company and Canadian Pacific Limited for the eastbound carriage of grain.


BACKGROUND

The Agency received, on March 30, 1993, two complaints, submitted by Lande & Associates on behalf of the eleven (11) following parties (hereinafter the Complainants):

  • The Thunder Bay Harbour Commission
  • The Transportation & Communications International Union (Lodge 650, Thunder Bay)
  • Servichem Limited
  • The Seafarer's International Union of Canada
  • The Thunder Bay Economic Development Corporation
  • The Canadian Shipowners Association
  • N.M. Paterson and Sons Limited
  • Great Lakes Bulk Carriers Inc.
  • Algoma Central Marine (a division of Algoma Central Corporation)
  • Canada Steamship Lines Inc.
  • Seaway Bulk Carriers

The Complainants allege that the Canadian National Railway Company (hereinafter CN) and Canadian Pacific Limited (hereinafter CP) are presently charging non-compensatory and unlawful rates for the eastbound carriage of grain and grain products and have done so since 1989.

The Complainants further contend that these rates have directly caused a significant diversion of grain traffic from traditional movements by vessels calling at the Port of Thunder Bay to eastbound all-rail carriage. This alleged modal shift, according to the Complainants, has caused severe hardship to the Port of Thunder Bay, the waterborne carriers and people whose livelihood depends upon the laker industry, as substantial losses in revenues and wages are reported.

The first complaint (hereinafter Application I) is made pursuant to subsection 113(1) of the National Transportation Act, 1987, R.S.C., 1985, c. 28 (3rd Supp.) (hereinafter the NTA, 1987) while the second complaint (hereinafter Application II) is made pursuant to subsection 53(1) of the Western Grain Transportation Act, R.S.C., 1985, c. W-8 (3rd Supp.) (hereinafter the WGTA) and/or subsection 35(1) of the NTA, 1987.

Subsection 113(1) of the NTA, 1987 states:

113(1) Where the Agency receives a complaint made by any person that a rate is not compensatory, the Agency shall conduct such investigation of the rate as, in its opinion, is warranted.

Subsection 113(5) of the NTA, 1987 states:

113(5) On completion of an investigation conducted pursuant to subsection (1) and within ninety days after the complaint is received,

(a) the Agency shall determine whether the rate in respect of which the complaint was made is compensatory; and

(b) where the Agency determines that the rate is not compensatory, unless the company establishes to the satisfaction of the Agency that the rate does not have the effect or tendency of substantially lessening competition or significantly harming a competitor and was not designed to have that effect, the Agency shall make an order disallowing that rate and requiring the company to substitute for that rate a rate that is compensatory.

Subsection 53(1) of the WGTA states:

53(1) The Commission [Agency] may, on its own motion or on receiving information by complaint or otherwise, conduct an investigation to determine whether anything included in a tariff contravenes any provision of this Part.

Subsection 5(1) of the NTA, 1987 states:

35(1) The Agency may inquire into, hear and determine a complaint concerning any act, matter or thing prohibited, sanctioned or required to be done under any Act of Parliament that is administered in whole or in part by the Agency.

POSITION OF THE COMPLAINANTS

Application I

Application I requests that the Agency determine whether or not CN and CP have charged, since 1989, and/or are presently charging non-compensatory rates for the carriage of wheat, barley and/or canola meal from Thunder Bay, Armstrong and/or origin points in the Prairiesto destinations in Quebec, Ontario, and/or Nova Scotia. The Complainants further request that, if the Agency determines that the rates are non-compensatory, the Agency disallow the rates from the time at which they came into effect and/or any other time deemed appropriate. The Agency is also requested, pursuant to subsection 113(5) of the NTA, 1987, to order CN and CP to replace any non-compensatory rates with compensatory rates.

The Complainants have categorized the rates into three general categories of movements:

Category 1

Rates applicable to movements of wheat and/or barley originating in Thunder Bay and terminating in Quebec, Ontario or Nova Scotia which are established from Thunder Bay to destination. Most movements are alleged to occur under confidential contract rates.

Category 2

Rates applicable to movements of wheat, barley and/or canola meal originating west of Thunder Bay or Armstrong which are carried through Thunder Bay or Armstrong by rail and terminating in Quebec, Ontario or Nova Scotia. The rates are the sum of:

  1. the WGTA statutory rate from the origin point to Thunder Bay or Armstrong; and
  2. a commercially established rate from Thunder Bay or Armstrong to the unloading point in eastern Canada.

Contract rates are alleged to be applicable to most movements.

Category 3

Rates applicable to movements of wheat, barley and/or canola meal originating west of Thunder Bay or Armstrong and terminating in Quebec, Ontario or Nova Scotia which move on a single rate established from the origin loading point in the Prairies to the unloading point in eastern Canada. The bulk of traffic is allegedly carried under contract rates.

The Complainants state that there are reasonable grounds to believe that the three categories of grain movements have, since 1989, been carried by CN and CP at rate levels which appear to be non-compensatory, in violation of subsection 112(2) of the NTA, 1987. The rates, which the Complainants allege to be non-compensatory, apply from Prairie origins to eastern Canada destinations.

The Complainants assert that the rates charged by CN and CP are, in general, contained in confidential contracts concluded between each of the two railway companies and various grain shippers. Consequently, the Complainants recognize that they are unable to adduce absolute evidence to support their claims. However, they have attempted, through an analytical data survey conducted by Mr. John Edsforth, President of Travacon Research Ltd., to approximate the actual rates (hereinafter the Travacon Study).

The Complainants further submit that, although paragraph 113(5)(b) of the NTA, 1987 places the burden to establish that rates determined by the Agency to be non-compensatory do not have the effect or tendency of harming competitors or substantially lessening competition upon CN and CP, the Complainants believe that the Travacon Study demonstrates the harmful consequences of these rates on CN and CP marine competitors.

In support of their position, the Complainants rely on the Travacon Study traffic data which indicate that the volumes of wheat railed from Ontario to Quebec increased from 191,927 tons in 1989, to 830,540 tons in 1990 to 1,251,175 tons in 1991. The Travacon Study also reports an alleged unprecedented growth of Category 3 movements respecting wheat and barley from Manitoba and Saskatchewan to Quebec and Nova Scotia. The relevant railed tonnage increased from 30,679 tons in 1989, to 185,685 tons in 1990 to 492,089 tons in 1991. The Complainants contend that such a dramatic increase in grain rail traffic flows induced a converse and proportional reduction in the volume of waterborne wheat, barley and/or canola meal. According to the Complainants, a modal shift has occurred, causing a continued erosion of waterborne grain movements.

The Complainants further contend that "the ... diversion of wheat, barley and canola meal has not only resulted in over twenty-five million dollars in economic and market harm ..., but this traffic erosion has also weakened the Applicants' [sic] financial viability and has lessenned [sic] their structural ability to compete for future waterborne grain movements and was designed to have that effect.". Purported evidence of lost sailing days, lay-ups, permanent redundancy of vessels and lessening of competitive structural capacity suffered by the Complainants is given in various affidavits.

Application II

Application II is comprised of two parts. First, the Complainants request that the Agency conduct an investigation, pursuant to section 53 of the WGTA and/or subsection 35(1) of the NTA, 1987, to determine whether Category 3 shipments of wheat, barley and/or canola meal from points west of Thunder Bay or Armstrong to points in eastern Canada, and moving without showing a specific statutory rate for the portion of the movement to Thunder Bay or Armstrong, have improperly received, or are improperly receiving, subsidy payments prescribed by section 56 of the WGTA. The Complainants also request that the Agency discontinue any improper payment and/or order a reimbursement.

The Complainants allege that CN and CP are unlawfully receiving WGTA subsidy payments for the carriage of Category 3 shipments because those movements are not terminating at Thunder Bay or Armstrong as required by the WGTA. It is the Complainants' position that termination at Thunder Bay or Armstrong and subsequent rebilling to a final destination would be required to comply with the WGTA. Since sections 43 and 44 of the WGTA require that the shippers establish a tariff which must be filed and published, it is, in the view of the Complainants, unlawful to receive WGTA subsidy payments while moving grain under confidential contracts. The Complainants also believe that the Railway Companies Payments Regulations, SOR/84-290 provide additional support for this proposition.

Should the Agency determine that Category 3 shipments may lawfully receive WGTA subsidy payments, the Complainants request as the second aspect of Application II, that the Agency investigate the "non-WGTA" (from Thunder Bay or Armstrong to eastern Canada) portion of those movements under section 113 of the NTA, 1987. It is the Complainants' position that the effect of a decision that Category 3 shipments may lawfully receive WGTA subsidy payments would convert Category 3 shipments to their Category 2 equivalent because the Agency would then be required to consider that those movements are, technically, occurring in two phases: the first phase would imply a Thunder Bay or Armstrong destination while the second phase would terminate in eastern Canada. In this event, the Complainants request, pursuant to subsection 113(1) of the NTA, 1987, a determination by the Agency that the WGTA subsidy payments have caused the "non-WGTA" portion of the movements to be carried under non-compensatory rates.

POSITION OF CN

CN filed an answer to both Applications I and II with the Agency on May 10, 1993. According to CN, the Complainants have oversimplified the competitive environment discussed in their complaints. In CN's view, the Complainants have "... considered the volumes of grain handled by each mode as a zero-sum game in which each tonnage increase by the railways is a direct erosion from a lake vessel operator....". In addition, no reference or consideration is given to the existence of intramodal competition between CN and CP. Further, the use by the Complainants of expressions such as "customarily transported", "quot;, ", "quot;traditionally carried" or "transported for many uninterrupted years" points, in CN's view, to a "pre-NTA, 1987 attitude" which is unfavorable to competition and which regards shippers as being captive to a single mode or carrier. In CN's opinion, the Complainants have also failed to take into consideration the many changes and trends currently affecting domestic and international markets which are forcing industries including carriers to reduce costs while improving service and flexibility.

CN also repeatedly denies all allegations that its rates are non-compensatory. CN notes that the Complainants admit that they "cannot adduce absolute evidence as to whether the rates for the three Categories of movements ... are set by one or both railway companies at non-compensatory levels." Furthermore, as it is unaware of the methodology used by Mr. J. Edsforth in preparing the Travacon Study, CN "... rejects any suggestion that their analysis is correct, accurate or determinative of anything whatsoever."

CN also asserts that the Complainants have not demonstrated that they have suffered "significant harm" as a consequence of rail competition or that CN rates have had the effect of substantially lessening competition. The traffic erosion reported by the Complainants is, in CN's view, unrelated to the alleged non-compensatory rates charged by CN.

With respect to Application II, CN denies the existence of Category 3 shipments as defined in the complaints as "Any CN grain shipment from Prairie origins destined to eastern Canada moves on a through rate composed of a WGTA portion and an Eastern [sic] Canadian portion whereby the latter can be used only in conjunction with the former. Movements originating in Thunder Bay or Armstrong destined to Eastern Canada are governed by tariff CN-4484-D...". CN refutes the Complainants' allegations that it is receiving unlawful subsidies under the WGTA and denies that its rates for the movements of wheat, barley and/or canola meal are generally contained in confidential contracts.

POSITION OF CP

CP filed an answer to both Applications I and II with the Agency on May 10, 1993, submitting that the Agency investigation must involve both a compensatory test and a competition test. With respect to compensatory rate levels, CP asserts that:

  1. The Agency is bound by the provisions of section 112 of the NTA, 1987 in investigating rates. More specifically, paragraph 112(4)(c) of the NTA, 1987 provides that costs specific to the movements subjected to these rates must be used whenever they are available.
  2. As there is no single through CP rate for movements originating in western Canada and terminating east of Thunder Bay, Category 3 traffic does not exist.
  3. The Complainants' estimates of the rates and the costs associated with them are, according to CP, incorrect. This statement refers in particular to the data derived by Mr. J. Edsforth and other consultants for the Complainants.

With respect to competition, CP submits that, should a rate be determined by the Agency to be non-compensatory, the investigation would then enter a second stage requiring the Agency to determine whether the rate is predatory. In the event of a determination that some CP rates are non-compensatory, CP contends that all rates which would be subsequently investigated for competition would be found neither to be lessening competition nor significantly harming a competitor and were not designed to have that effect because, in CP's view, only predatory rates would achieve these results. CP further asserts that the rates cannot be regarded as predatory for the following reasons:

  1. Far from being a dominant carrier in this market, CP hauls less than 10 percent of eastbound grain traffic. The lakers, carrying over 85 percent of this grain, are dominant in this market.
  2. During the Seaway winter closure, rail carriage of grain does not sustain intermodal competition and must be largely regarded as a supplement to waterborne movements.
  3. CP rates for the carriage of wheat, barley and canola are all higher than the laker rates disclosed in the complaints and attached Affidavits. Each rate is, according to CP, profitable to the extent that these rates allow the railway company to operate an otherwise underutilized rail network more efficiently east of Thunder Bay.
  4. In light of CP's current position in this particular market, it is unreasonable and unrealistic to expect that CP could assess rates which would:
    • Drive competitors such as government-owned CN or the lakers out of the grain market.
    • Deter competitors from entering this market. Water carriers do not bear the cost of a significant portion of their "right of way" (marine infrastructures) and are not subjected to the same statutory requirements pertaining to compensatory rates as the rail carriers.
  5. CP submits that it is contributing to competition instead of lessening it as the rail mode often provides a more efficient service featuring several "non-price advantages." In this context, it would be unreasonable for a carrier to take its market share for granted since a market shift in favor of the most successful competitor must be expected.
  6. The Complainants, in CP's view, have provided no evidence of significant harm.
  7. CP submits that it has not engaged in any of the acts generally associated with attempts to monopolize traffic. It has not created excess capacity. It has not attempted to buy out its rivals and it has not engaged in price discrimination.

INTERVENTIONS

The following parties filed interventions with the Agency in respect of these proceedings.

  • Robin Hood Multifoods Inc.
  • Agri-Marché Ltée
  • CanAmera Foods
  • The Canadian Wheat Board
  • Leblanc & Lafrance Inc.
  • Maple Leaf Mills Inc.
  • L'Association professionnelle des meuniers du Québec
  • The Quebec Grain Traders Association
  • Bunge of Canada Ltd. and the Port of Quebec Corporation
  • Archer Daniels Midland (ADM) Company
  • Primo Foods Limited
  • The Canadian Oilseed Processors Association (COPA)
  • AgPro Grain Inc.

All of the interventions supported CN and CP positions and generally expressed the following position.

  1. The railway companies have introduced intramodal and intermodal competition based on service as well as on rates into the grain market. This has proven to be beneficial to the entire Canadian grain industry which must itself address the challenge of a very competitive market.
  2. The erosion of waterborne grain traffic is unrelated to rail rates and is due mostly to other market driven factors such as service; client purchasing and storage considerations; developing west coast exports to Asian countries; and seasonal restrictions respecting waterborne traffic.
  3. The grain market is obviously price-sensitive and regulatory increases in the level of the impugned rail rates could induce structural changes in grain sourcing. This could result in western Canadian grain being replaced by American grain as the primary supply to Canadian millers if the carriage of U.S. grain becomes more competitive following a rail rate escalation generated by a Canadian regulatory intervention.

The Complainants replied to the CN and CP answers and to all of the interventions.

PROCEDURAL MATTERS

Notices of Motion

CN and CP filed three Notices of Motion pursuant to section 28 of the National Transportation Agency General Rules, SOR/88-23 during the course of the proceedings. The Agency was notified, on April 2, 1993 by CP and on April 7 and 19, 1993 by CN, that the railway companies sought orders to strike out the Applications, stay the proceedings, sever the Applications between CN and CP and sever Application I from Application II. On April 21, 1993, CN subsequently requested an order limiting Application I to rates currently in effect. The Complainants opposed all of the railway companies' motions.

On May 10, 1993, the Agency advised all parties that CP's April 2, 1993 motion and CN's motions of April 7 and 19, 1993 were denied in their entirety. The Agency determined that Application I was a proper complaint pursuant to section 113 of the NTA, 1987 and that the Complainants had identified the rates complained of to the best of their knowledge. The Agency further determined that there was no reason to dismiss the complaints, in whole or in part, or to stay the proceedings. It was also determined that a severance of the two Applications from each other or between CN and CP would induce unnecessary costs and time delays and would not result in any change to the Agency's methodology used to determine whether or not the rates in question are compensatory. The Agency also advised that the CN and CP rates would be investigated and ruled upon separately.

Agency Investigative Process

Pursuant to subsection 113(1) of the NTA, 1987, the Agency has the power to conduct such investigation of rates complained of as, in its opinion, is warranted.

In its May 10, 1993 decision on the motions, the Agency notified the parties that the Agency intended to limit its inquiry under section 113 of the NTA, 1987 to rates in effect for the current crop year and that the investigation would proceed using a sample of movements based on actual traffic flows from western Canada origins, including Thunder Bay, to eastern destinations.

Following completion of its investigation, the Agency described its investigative process to the parties in its letter of June 11, 1993. All parties were given the opportunity to comment on the process. Comments were received from the Complainants, CN, CP and COPA and have been considered by the Agency in this Decision. The matters raised in those submissions are discussed in this Decision wherever relevant or necessary.

ANALYSIS

Movements Chosen for Cost/Rate Comparison

The Agency costed a sample of movements in this investigation in view of the large number of origin/destination pairs for movements of wheat, barley and canola meal. As indicated by the Rail Freight Traffic Data Base submitted to the Agency pursuant to sections 345 and 346 of the Railway Act, R.S.C., 1985, c. R-3, there are, for the total of the three commodities complained of, approximately 300 origins for each railway company. Many of these origins are paired with more than one destination.

The methodology employed by the Agency encompassed a sample of origins and destinations which, in the opinion of the Agency, represented the highest possible percentage of wheat, barley and canola meal shipped and received in 1992.

Movements from Origins West of Thunder Bay to Eastern Canada Destinations

The parameters chosen for movements originating west of Thunder Bay and destined to eastern Canada are as follows:

Parameter 1:
Destinations receiving the highest percentage of the commodities outlined in Applications I and II.
Parameter 2:
Origins which shipped the highest percentage to those destinations. Each of the origins was studied to determine if it was representative of a particular area or cluster of grain shipping origins. Examples of these are Newdale and Norman, Manitoba which represent barley producing areas.
Parameter 3:
Destinations which have relatively high grain percentage deliveries, but are within regions that are not represented by the first and second parameters (such as Truro, Nova Scotia; and Port Colbourne, Ontario)

Movements from Thunder Bay to Eastern Canada Destinations

Movements were sampled in the same manner as above, however, with Thunder Bay being the only origin.

Using parameter 2, the movements sampled represent the following percentages of traffic moving from western to eastern Canada:

Commodity CN CP
Wheat (%) 54 67
Barley (%) 54 23
Canola (%) 7 82

The Complainants, in their letter of June 16, 1993 commenting on the Agency's investigative process, questioned the exclusion of a number of movements from the sample. The Agency has reviewed its parameters for selecting the sample movements and has concluded that the sample movements are representative of major traffic flows for the traffic under investigation.

Costing Methodology

  1. Agency-derived costs were established for the year 1992 using 1991 unit costs and workloads (the latest available) indexed to 1992. In determining the cost of capital, the Agency used the 1993-1994 (Agency approved) WGTA cost of capital rate.
  2. All costs reflected 1992 train movements.
  3. Where traffic was identified as having a rate showing Thunder Bay as origin (i.e. a rate separately defined as having a Thunder Bay origin and a destination in eastern Canada), the traffic was costed as a new movement from Thunder Bay, with Thunder Bay "originating" yard switching minutes applied to both the CN and CP costs. In order to capture traffic that did not originate in Thunder Bay or Armstrong, but that may have been rebilled at those points, traffic was costed as a through movement. For Thunder Bay, one half of the "through" yard switching minutes was applied, since the other half is captured under WGTA costing.
  4. Where traffic was identified as having a rate showing Thunder Bay as origin, but moving under a rate from Thunder Bay to eastern Canada contingent upon usage in combination with a WGTA rate west of Thunder Bay (commonly referred to as a "proportional" rate), the movement was costed from its Prairie origin to its eastern Canada destination. At Thunder Bay, full "through" yard switching minutes were applied.
  5. Cost data was developed for one of three types of train movements, depending on the type of movement specified either in a confidential contract or in a published tariff as follows:
    solid block train
    where the train is completely assembled at origin and moves as a solid block to its destination.
    typical train
    which reflects normal patterns and operations for cars travelling toward their destination; cars may be reassembled into different trains at certain locations.
    combination run
    where cars move on typical trains to a certain location after which they move as a solid block of cars.
  6. All costs were determined for movements in government hopper cars. If the confidential contract or published tariff applicable to the movement in question indicated a different type of equipment being used (i.e. shipper supplied cars and/or railway company owned cars), appropriate adjustments were made to reflect the higher or lower costs. The Complainants, in their June 16, 1993 comments on the Agency's investigative process, raised the issue of whether or not the Agency had included rental costs for government owned hopper cars when used outside of WGTA service. The Agency's costing includes such rental costs.
  7. The Agency reviewed contracts and tariffs to determine the average number of cars required for a solid block train.
  8. Actual weights per car moved were not specifically identified in the confidential contracts or published tariffs. Therefore the Agency used the average weight per car as calculated for each train run from the Rail Freight Traffic Data Base. Total tonnage was divided by the number of cars. In the Complainants' June 16 letter commenting on the Agency's investigative process, the Complainants stated that "...It is our belief that the Agency may have factored average weights for Canola seed, which is approximately 185,000 pounds per car, instead of the average weights for Canola meal, which are only 160,000 pounds....". In fact, the Agency had used the Canola meal weight factor in costing Canola meal movements.

Rates Investigated

The Agency reviewed published tariffs and confidential contracts applicable to traffic moving from Thunder Bay to eastern destinations for wheat, barley and canola meal. This review was limited to rates in effect for the current (1992-93) crop year. Traffic was identified as moving in one of the two following ways:

  1. originating west of Thunder Bay and moving to a destination in eastern Canada as a through movement and moving at a combination of a WGTA rate to Thunder Bay and a commercial rate beyond (proportional rate) or;
  2. originating and loaded at Thunder Bay and moving at a commercial rate to destination.

The Complainants rely heavily on the notion that the Agency should investigate rates east of Thunder Bay in isolation of WGTA rates to Thunder Bay. In their comments on the Agency's investigative process, the Complainants note that "...The Agency's job would have been much simpler and less time consuming had they focused on Category 2 movements....". The Complainants argue that "...Because all grain movements under the WGTA terminate at Thunder Bay or Armstrong, the review of three hundred or more Prairie loading points is not necessary....". Instead, the Complainants note that "...A review of contracts which cover grain movements from Armstrong or Thunder Bay to the destinations previously identified in the Applications would have sufficed.". In their comments, the Complainants also request that the Agency "...elaborate its definition of the term "proportional" rate..." and asked if "...the movements costed from Thunder Bay eastward require that the rail car stop in Thunder Bay for it to be designated a "proportional" rate?...".

The Agency has concluded that the application of any rate to a movement of traffic is contingent upon complying with the conditions specified in the relevant tariff or contract. A proportional rate includes, as a sine qua non condition of its applicability, the requirement that it be combined with another rate. It cannot stand on its own. The requirement that it be used with another rate is what distinguishes a proportional rate from all other types of rates. Therefore, it would have been inappropriate for the Agency, in comparing rates and costs, to have ignored the tariff or contract condition that a rate for a movement east of Thunder Bay be used in conjunction with a WGTA rate to Thunder Bay.

The Complainants imply that a proportional rate (in this case, a rate from Thunder Bay or Armstrong to a destination in eastern Canada) can exist in isolation and that WGTA rates are not relevant to the process of costing such traffic. The Agency has concluded, however, that if a rate requires that it be used in conjunction with a WGTA rate to Thunder Bay or Armstrong, the resulting combination is a lawful rate.

Rate/Cost Comparison

Once costs were developed in accordance with the actual identified movements, they were compared to the applicable rates for the movements concerned. In the case of "through" movements as defined in 1) above, total costs were compared to total revenues over the two rated segments of the movement (Shipper and government portions of the WGTA rate were added to the commercial rate for a comparison to total movement cost).

In the case of movements originating at Thunder Bay as defined in 2) above, the costs from Thunder Bay to destination were compared to the rates from Thunder Bay.

Where the confidential contract or published tariff stipulated a rate for a single car or a block of cars, the rates were compared to the appropriate cost as developed above.

FINDINGS

In its investigation into the complaints, the Agency has considered all of the pleadings filed and the contents of relevant confidential contracts on file with it. The Agency has also conducted an analysis of costs in accordance with the investigative process set out in its letter of June 11, 1993 which was distributed to all parties, and has also considered all of the comments received thereon.

Application I

1. Movements Originating in Western Canada Destined for Points in Eastern Canada

As was stated by the Agency in its letter to the parties dated June 11, 1993, traffic originating in western Canada and moving through Thunder Bay to eastern Canada without stopping was costed as the traffic actually moved. The costs were then compared to the total of the WGTA (shipper and government portions) and commercial rates applicable to the different segments of the total movement.

All CN and CP rates applicable to traffic originating in western Canada and destined to rail points in eastern Canada with respect to movements which do not stop in Thunder Bay were found to be compensatory. The Agency's finding in this regard is based on the rate and cost comparison outlined in its letter of June 11, 1993. The rates applicable to these movements are a combination of WGTA rates to Thunder Bay and commercial rates for the portion of the through movement east of Thunder Bay. The commercial rates in question, however, are not "stand alone" rates. They are established by the railway companies and filed and/or published as proportional rates to the extent that their usage is conditional on the traffic first moving to Thunder Bay on WGTA rates.

The Agency has concluded that the WGTA does not imply that a movement must terminate in Thunder Bay or Armstrong to be eligible for subsidy. The definition of "movement" found in subsection 2(1) of the WGTA and the wording in subsection 17(2) of the WGTA indicate that the WGTA does not require grain to be unloaded and reloaded in Thunder Bay or Armstrong for movements ultimately railed to eastern Canada locations. In fact, with respect to Armstrong, which is land-locked, the Agency is unaware of the existence of facilities for unloading or storing grain.

In their June 16, 1993 comments on the Agency's investigative process, the Complainants requested that the Agency re-evaluate its Canola meal calculation for CP movements from Thunder Bay to Quebec City. The Complainants allege that it is unreasonable to expect a contract rate set at half of the existing Agency-established Minimum Compensatory Rate (hereinafter MCR) to be compensatory.

The Agency compared rates and costs for movements of Canola meal from origins in western Canada to Quebec. It did not compare rates and costs from Thunder Bay to Quebec and, for the reasons set out above, it would have been inappropriate to compare a proportional rate from Thunder Bay to Quebec with costs incurred east of Thunder Bay. In addition, however, it should be noted that MCRs are established for single car movements, while the traffic reviewed moved in multiple car blocks, a significantly more economical means of handling the traffic.

2. Movements Originating at Thunder Bay and Destined for Points in Eastern Canada

The Agency examined rates for wheat, barley and canola meal which originated at Thunder Bay and moved at commercial rate levels to destinations in eastern Canada. These rates differ from those described in paragraph 1) above to the extent that they are not filed and/or published as "proportional" rates or contingent in any manner on rates applicable to traffic which originates at a point west of Thunder Bay. They are "stand alone" rates in the true sense and, as such, must have been established on the basis of traffic which was loaded at Thunder Bay or rebilled as new traffic at that point.

Application II

Application II alleges that wheat, barley and canola traffic is moving from western to eastern Canada using a single rate from origin to destination, without reference to Thunder Bay or Armstrong as destinations. The Complainants allege that such movements are not eligible for WGTA subsidy and are non-compensatory.

In its June 11, 1993 letter describing the investigative process, the Agency did not make reference to Application II. This prompted the Complainants to comment that they were concerned about "... the Agency's seeming disinterest in Application II.".

Application II is based on the assumption that there are line-haul movements of WGTA commodities from western to eastern Canada on single rail rates.

In its investigation of Application II, however, the Agency found no evidence of any such rates published in tariffs or in contracts on file with the Agency. Further, both CN and CP have categorically denied that any such rates exist.

Notwithstanding the fact that no single factor rates exist, traffic does move directly from western to eastern Canada under combinations of WGTA rates to Thunder Bay or Armstrong and proportional rates beyond. The issue of whether such rates are compensatory has been addressed under the heading Application I above.

DECISION

After consideration of all of the facts, evidence and submissions presented by the parties to the complaints, the Agency determines that 1) with respect to Application I, pursuant to section 113 of the NTA, 1987, certain of the rates in question are non-compensatory. The non-compensatory rates are set out in Attachment 1. CN and CP are, therefore, required to revise the non-compensatory rates, within fifteen (15) days from the date of this Decision. Alternatively, CN and CP must, within fifteen (15) days from the date of this Decision, satisfy the Agency in writing that those rates do not have the effect or tendency of substantially lessening competition or significantly harming a competitor and were not designed to have that effect; and that 2) with respect to Application II, no Category 3 rates exist. The Agency, therefore, dismisses Application II in its entirety.

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