Letter Decision No. CONF-9-2019

This is a public redacted version of Confidential Decision No. CONF-9-2019 that issued on April 15, 2019 which cannot be made publicly available.

April 15, 2019

INVESTIGATION by the Canadian Transportation Agency (Agency) into possible freight rail service issues in the Vancouver area, pursuant to subsection 116(1.11) of the Canada Transportation Act, S.C., 1996, c. 10, as amended (CTA).

Case number: 
19-00189

SUMMARY

[1] On January 14, 2019, the Agency, on its own motion and with the authorization of the Minister of Transport, initiated an investigation under subsection 116(1.1) of the CTA into possible freight rail service issues in the Vancouver area during the period from October 2018 to January 2019 (investigation period).

[2] The issues to be addressed in this determination are:

  1. Did the BNSF Railway Company (BNSF) breach its level of obligations under sections 113 to 115 of the CTA; that is, did it provide the highest level of service that it could reasonably provide in the circumstances, having regard to considerations listed in subsection 116(1.2) of the CTA?
  2. Did the Canadian Pacific Railway Company (CP) breach its level of obligations under sections 113 to 115 of the CTA; that is, did it provide the highest level of service that it could reasonably provide in the circumstances, having regard to considerations listed in subsection 116(1.2) of the CTA?
  3. Did the Canadian National Railway Company (CN) breach its level of obligations under sections 113 to 115 of the CTA; that is, did it provide the highest level of service that it could reasonably provide in the circumstances, having regard to considerations listed in subsection 116(1.2) of the CTA?

[3] For the reasons outlined below, the Agency finds that:

  1. BNSF did not breach its level of service obligations.
  2. CP did not breach its level of service obligations.
  3. CN breached its level of service obligations when it announced its intention to impose embargoes on wood pulp shipments in September 2018, several months before rail transportation challenges emerged in the Vancouver area, and then imposed those embargoes in December 2018, rather than making every reasonable effort to deal with those challenges before unilaterally restricting the receipt, carriage, and delivery of traffic.

[4] The Agency therefore orders CN, in respect of its operations in the Vancouver area, to:

  1. Develop a detailed plan, each year for the next three years, to respond to surges in traffic that occur in the Vancouver area towards the end of the calendar year with a view to avoiding or minimizing the use of embargoes and maintaining the highest level of service reasonably possible, as required by the CTA. The plan is to be submitted to the Agency’s Chief Compliance Officer by August 1 of each calendar year, beginning on August 1, 2019,  and should include a list of all embargos imposed by CN for traffic within, or destined to, their Vancouver area rail network in the preceding year;
  2. Only resort to embargoes on an exceptional basis where factors beyond its control make the timely carriage and delivery of traffic difficult and all reasonable alternatives to address those challenges have been attempted and found to be insufficient; and
  3. Only implement embargoes that are targeted to address specific and actual challenges, are designed to minimize impacts on traffic carriage and delivery while in place, and are temporary and lifted at the earliest reasonable opportunity.

BACKGROUND

[5] Vancouver is one of Canada’s most important trade gateways. In 2018, traffic moving through the Port of Vancouver (Port) was worth $200 billion, roughly equivalent to 10 percent of Canada’s GDP, and included containers, break-bulk shipments such as forest products, and bulk commodities such as grain, potash, and coal. In addition, the Port receives containerized goods from overseas, which are then distributed by rail across Canada and to the United States of America (U.S.).

[6] The freight rail network is critical to the functioning of the Vancouver gateway, and Vancouver‑area operations are a significant part of the business of Canada’s two largest railway companies. There are 680 km of rail lines in the Vancouver area. Nearly 40 percent of all CP loaded carloads and 20 percent of all CN loaded carloads arrive or terminate in Vancouver.

[7] BNSF owns and operates a railway line consisting of 30 km of track between Vancouver and the border at Blaine, Washington. Its yard in the New Westminster Subdivision is the main location for sorting and building trains for delivery to the Vancouver area, the U.S., and interchange points with CN and CP. CP’s Port Coquitlam Yard is the main point for sorting CP‑handled traffic in and out of the Vancouver area. CN’s Thornton Yard in Surrey is CN’s primary processing yard in the Vancouver area, and one of the largest railway yards in Canada.

[8] Over the years, CN and CP have made arrangements that increase freight rail traffic efficiency in the Vancouver area. In 1999, for example, they signed a directional running rights agreement that allows all CN and CP traffic to travel west over CN’s track and east over CP’s track for approximately 156 miles between a point 57 miles west of Kamloops, British Columbia, and Mission, British Columbia, and a point approximately 25 miles east of Thornton Yard and Port Coquitlam Yard.

[9] In 2006, CN and CP signed a co-production agreement that allows them to exchange trains at Boston Bar, British Columbia, approximately 125 miles east of Vancouver, and transport these trains to the North Shore and the South Shore of the Burrard Inlet via the most direct routing. As a result, CN moves traffic to the North Shore through its network, and CP moves traffic to the South Shore through its network.

[10] More recently, there has been an increase in the number of trains—notably unit trains with 100 cars or more—that move continuously from a point of origin to destination with few or no yard stops. In Vancouver, some containerized and bulk traffic bypasses the main processing yards. However, when trains are made up of cars for more than one customer or terminal, they require switching or processing in yard facilities. A single train coming into Vancouver can have more than 35 distinct blocks of traffic.

[11] Historically, freight rail traffic levels have typically tended to rise in the Vancouver area late in the calendar year. Sometimes when this has happened, railway companies have used measures such as embargoes to restrict and manage traffic volumes and flows.

[12] In December 2018 and January 2019, the Agency received information from shipper associations that raised concerns about possible freight service issues in the Vancouver area, including with respect to the imposition of embargoes. The Agency determined that an investigation on its own motion was warranted and, with the authorization of the Minister of Transport, initiated the investigation on January 14, 2019.

THE INVESTIGATION PROCESS

[13] This investigation is the Agency’s first use of its authority under subsection 116(1.11) of the CTA.

[14] An investigation undertaken by the Agency on its own motion is similar in some ways to an investigation into specific allegations by an individual applicant claiming that a federally-regulated entity has breached its statutory obligations—a dispute adjudication—but, depending on the circumstances, can be different in other respects. Like a dispute adjudication, an own motion investigation ultimately results in a determination by the Agency, based on the evidentiary record before it, of whether a federally-regulated entity has met its obligations under the law. However, in contrast to a dispute adjudication, an own motion investigation can be launched without the need for any party to formally submit allegations against the federally-regulated entity.

[15] Own motion investigation powers are particularly well-suited to examining possible breaches of statutory requirements that are broad-based or systemic in nature. This was, at least in part, the intent of including subsection 116(1.11) in the CTA. The Transportation Modernization Act, S.C. 2018, c. 10 (TMA), which came into force on May 23, 2018, made a series of amendments to the CTA. As noted by the Minister of Transport, the Honourable Marc Garneau, appearing before the Standing Senate Committee on Transport and Communications during its hearings into the proposedAct on December 12, 2017:

The bill reflects the extensive consultations that my department and I conducted to hear the views of Canadians on the future of transportation. It also takes into account the recommendations of the Canadian Transportation Act Review Panel, led by the Honourable David Emerson…

[16] The CTA review was launched on June 25, 2014, and concluded on December 21, 2015, with the submission of a two-volume report to the Minister of Transport, entitled Pathways: Connecting Canada’s Transportation System to the World. The report included a recommendation that the Agency be given the power to initiate investigations into freight rail matters, and explained as follows:

… the Agency’s lack of own motion powers prevents it from examining overall network failures and issues. This can be frustrating when the Agency is aware of a widespread problem but can do nothing to address it. Even when a complaint is filed … the Agency can address only the specifics of that particular case. The benefits of conferring own motion and ex parte powers on the Agency are especially evident in the context of freight rail transportation. Insight into the freight rail transportation network solely from the perspective of an individual complaint may not provide the Agency with enough information on the operations of the network as a whole as it arrives at its decisions and directives. Rulings based on having examined an issue through the narrow lens of a single complaint may have undesirable or unintended consequences for the parties operating on the rest of the network….

Providing the Agency with the authority to act on its own motionand on an ex parte basis, and to address systemic issues and issue general orders will be a significant step toward ensuring the ongoing fluidity of the Canadian transportation supply chain…

[17] On May 3, 2018, when speaking to the proposed legislative amendments to the CTA during the House of Commons Debates, the Minister of Transport confirmed the ’government’s intention as it related to own motion investigation powers, including specifically that such powers be used for addressing systemic service issues:

… we are proposing an amendment that would expand the agency’s existing complaint‑based authority to investigate rail service issues by providing it with a new authority to investigate systemic rail service issues without a formal complaint, subject to the authorization of the Minister of Transport. This would give the agency new powers to investigate and address service issues for multiple shippers at once, while retaining an appropriate level of oversight by the government. [Canada, Parliament, House of Commons Debates 42nd Parl, 1st Session, Vol 148 , No 291 (3 May 2018)]

[18] Subsection 116(1.11) of the CTA gives the Agency broad discretion to decide when to initiate an own motion investigation, what matters that investigation will examine, and the manner in which the investigation will be pursued. That broad discretion, combined with the fact that own motion investigations are largely intended to address broad-based or systemic issues, has several implications for the investigation process.

[19] The first is that, in contrast to a dispute adjudication, an own motion investigation may include an information-gathering phase before specific questions related to statutory compliance are identified. In some instances, the information available to the Agency before an own motion investigation is started may be sufficient for the Agency to immediately formulate specific issues to which the federally-regulated entity must respond. In other instances, the Agency will determine that there is sufficient reason to look into a possible statutory breach—based on the information available to it and the impacts that such a breach could have on transportation service users or, more generally, the regional or national economy—but not enough evidence to arrive at preliminary findings. When this is the case, the information-gathering phase will be extensive and factual in nature, providing the Agency with a more complete evidentiary record that allows it to determine whether specific matters should be examined more closely or, alternatively, the investigation discontinued.

[20] The second implication is that when the Agency decides to initiate an own motion investigation pursuant to information provided by parties who believe a federally‑regulated entity may not have met its legal obligations, those parties will be expected to submit evidence during the investigation itself. Information submitted prior to the launch of an investigation is used solely to decide whether to undertake it; it does not form part of the investigation record, nor affect the rights of any party. The investigation is an active but neutral fact-finding exercise that establishes an evidentiary record to support decision-making. To the extent that the parties whose concerns contributed to the initiation of an own motion investigation are unwilling to provide information once it is under way, the Agency’s ability to intervene will inevitably be limited to breaches that its own information gathering uncovers during the course of the investigation.

[21] The third implication relates to the nature of the evidence. In dispute adjudications, the evidence will typically relate to a limited number of factors and circumstances and be comparatively deep and detailed, while in an own motion investigation with a more systemic orientation, the evidence is more likely to be broad—related to multiple shippers, dates, and issues—but may not be as detailed in respect of each incident.

[22] A final implication is that if the own motion investigation results in a finding that the federally‑regulated entity breached a statutory obligation, any remedies the Agency orders may be of a relatively broad nature, provided that they are related to the breach identified.

[23] This investigation’s information-gathering phase began on January 14, 2019, with the appointment of an Inquiry Officer and the issuance of letter decisions to the three railway companies named in this determination along with five shipper associations, informing them of the investigation and directing them to provide the Inquiry Officer with certain information. The Inquiry Officer prepared an Inquiry Report, dated January 24, 2019, and revised on February 6, 2019 (First Report), based on the information collected and data submitted in response to the letter decisions. The Agency gathered additional information during an oral hearing, which was held in Vancouver on January 29 and 30, 2019 (Oral Hearing), and through subsequent submissions from participants and information gathered by the Inquiry Officer. This additional information was summarized by the Inquiry Officer in a second report, dated March 6, 2019 (Second Report). The issuance of the Second Report concluded the information-gathering phase of the investigation.

[24] The second phase of the investigation began on March 6, 2019, with the issuance of Decision No. LET-R-29-2019 (March Decision). It focused on matters identified by the Agency as warranting further examination based on the record before it at the time; that is, the documents and data submitted by participants (some of which are subject to confidentiality orders by the Agency), the First Report, the Second Report, and the transcripts from the Oral Hearing. In the March Decision, the Agency directed CN and CP to answer specific questions within 20 days. Other participants in the investigation—mainly, shipper associations—were also provided an opportunity to respond to the Agency’s questions during the same time period, after which all participants were provided an opportunity, for a period of 10 days, to reply to one another’s answers.

[25] CP and, especially, CN raised concerns regarding procedural fairness and deadlines during the investigation. In this regard, it is important to note that the structure and timelines of the investigative process are informed by the text of subsection 116(1.11) of the CTA, which states that “[t]he Agency shall conduct the investigation as expeditiously as possible and make its determination within 90 days after the investigation begins.” Further, an own motion investigation, by its nature, can be incremental, with some lines of inquiry abandoned and others actively pursued as evidence accumulates. Step by step, the investigation grows more focused.

[26] In an own motion investigation, the specific issues a participant must address may only crystallize as the investigation proceeds, which, in this case was reflected in the specific questions posed in the March Decision. The process that was followed was consistent with the information provided to the railway companies and other participants about the investigation from the outset.

[27] At the beginning of this investigation, the Agency requested essentially the same data of all three railway companies and at the Oral Hearing, gave all three the same opportunity to present evidence. However, based on the record before it, the Agency chose not to pose any questions to BNSF in its March Decision. In the current determination, for the reasons provided below, the Agency does not find that BNSF or CP breached their level of service obligations, but finds that CN did, in one respect.

THE LAW

The National Transportation Policy

[28] The National Transportation Policy articulated in section 5 of the CTA—which informs the Agency’s decision-making, including the manner in which it employs its own motion investigation authority—declares, in part that:

a competitive, economic and efficient national transportation system … 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….

Level of Service Obligations

[29] Sections 113 to 115 of the CTA, which set out railway companies’ service obligations, state in part that:

113(1) A railway company shall, according to its powers, in respect of a railway owned or operated by it,

(a) furnish, at the point of origin, at the point of junction of the railway with another railway, and at all points of stopping established for that purpose, adequate and suitable accommodation for the receiving and loading of all traffic offered for carriage on the railway;

(b) furnish adequate and suitable accommodation for the carriage, unloading and delivering of the traffic;

(c) without delay, and with due care and diligence, receive, carry and deliver the traffic;

(d) furnish and use all proper appliances, accommodation and means necessary for receiving, loading, carrying, unloading and delivering the traffic; and

(e) furnish any other service incidental to transportation that is customary or usual in connection with the business of a railway company.

113(2) Traffic must be taken, carried to and from, and delivered at the points referred to in paragraph (1)(a) on the payment of the lawfully payable rate….

113(4) A shipper and a railway company may, by means of a confidential contract or other written agreement, agree on the manner in which the obligations under this section are to be fulfilled by the company.

Considerations

[30] Subsection 116(1.2) of the CTA states that:

The Agency shall determine that a company is fulfilling its service obligations if it is satisfied that the company provides the highest level of service in respect of those obligations that it can reasonably provide in the circumstances, having regard to the following considerations:

(a) the traffic to which the service obligations relate;

(b) the reasonableness of the shipper’s requests with respect to the traffic;

(c) the service that the shipper requires with respect to the traffic;

(d) any undertaking with respect to the traffic given by the shipper to the company;

(e) the company’s and the shipper’s operational requirements and restrictions;

(f) the company’s obligations, if any, with respect to a public passenger service provider;

(g) the company’s obligations in respect of the operation of the railway under this Act;

(h) the company’s contingency plans to allow it to fulfil its service obligations when faced with foreseeable or cyclical events; and

(i) any information that the Agency considers relevant.

Confidential Contracts Binding on the Agency

[31] Subsection 116(2) of the CTA states that:

If a company and a shipper agree, by means of a confidential contract, on the manner in which service obligations under section 113 are to be fulfilled by the company, the terms of that agreement are binding on the Agency in making its determination.

Inquiry Officer

[32] Under section 38 of the CTA, the Agency “may appoint a member, or an employee of the Agency, to make any inquiry that the Agency is authorized to conduct and report to the Agency” and that the Agency “may adopt the report as a decision or order of the Agency or otherwise deal with it as it considers advisable.”

[33] Furthermore, section 39 of the CTA sets out the powers of the Inquiry Officer to, among other things, “exercise the same powers as are vested in a superior court to summon witnesses,” and to:

39(b) exercise the same powers as are vested in a superior court to summon witnesses, enforce their attendance and compel them to give evidence and produce any materials, books, papers, plans, specifications, drawings and other documents that the inquirer thinks necessary.

Own Motion Powers

[34] Subsection 116(1.11) of the CTA sets out the Agency’s own motions powers with respect to the level of service provisions and states that:

The Agency may, with the authorization of the Minister and subject to any terms and conditions that the Minister considers appropriate, of its own motion, conduct an investigation to determine whether a railway company is fulfilling its service obligations. The Agency shall conduct the investigation as expeditiously as possible and make its determination within 90 days after the investigation begins.

Order of the Agency

[35] Subsection 116(4) of the CTA sets out the remedies the Agency may order if it determines that a railway company is not fulfilling any of its service obligations. Specifically, the Agency may order the railway company, among other things:

  • to construct or carry out specific works;
  • to acquire property;
  • to allot, distribute, use or move, as specified by the Agency, cars, motive power or other equipment;
  • to take or follow any specified steps, systems or methods; and
  • to fulfil its level of service obligations in any manner and within any time or during any period that the Agency deems expedient.

LEVEL OF SERVICE OBLIGATIONS

[36] The Supreme Court of Canada’s decision in Patchett & Sons Ltd v. Pacific Great Eastern Railway Co., [1959] S.C.R. 271(Patchett) is the leading case on a railway company’s level of service obligations and establishes the key elements of the interpretation to be given to the level of service provisions of the CTA (see Canadian Pacific Railway Company v. Univar Canada Ltd., 2019 FCA 24). Following, and building, on Patchett, the Agency has rendered dozens of decisions applying and clarifying the relevant principles established in that decision, and the Federal Court of Appeal (FCA), in reviewing the Agency’s decisions, has offered further clarification and guidance.

[37] Patchettestablishes that the “statutory duty imposed upon the [railway company] is not an absolute duty but is only a relative one to provide service so far as it is reasonably possible to do so,” that the duty is “permeated with reasonableness”, and that “how each situation is to met depends on its total circumstances.” In Canadian National Railway Company v. Northgate Terminals Ltd., 2010 FCA 147 (Northgate), the Federal Court of Appeal explained that the “propositions” laid out in Patchett “are guidelines that must inform any determination by the Agency of a service complaint, but they do not necessarily compel a particular outcome. That is because the determination of a service complaint requires the Agency to balance the interests of the railway company with those of the complainant in the context of the particular facts of the case.”

[38] In Decision No. 2014-10-03 (Louis Dreyfus Commodities Canada Ltd. v. CN) [LDC], the Agency stated:

It is clear that Patchett and the reasonableness test do not stand for the proposition that the level of service obligations only impose a soft obligation on railway companies. Railway companies must furnish adequate and suitable accommodation for the carriage, unloading and delivering of traffic that meets the requirements of the shipper, as long as the shipper has properly triggered the level of service obligations. In this regard, the railway company must comply with those obligations unless it demonstrates that it cannot reasonably do so.

[39] The same decision made it clear that the efforts required of a railway company include taking measures in anticipation of a service request that the railway company will receive:

The Agency is of the opinion that the CTA establishes a legal requirement on railway companies to make necessary arrangements to respond to the request of a shipper, and collectively all shippers, within the parameters of section 113 of the CTA, unless it is not reasonably possible to do so.

The statutory level of service obligations placed on a railway company imply that it must make an effort to identify measures in advance of the course of events and to consider necessary arrangements that can address the needs of its customers.

[40] In Canadian National Railway Company v. Viterra Inc., 2017 FCA 6 (Viterra and Richardson), the FCA also acknowledged the need to determine compliance with level of service obligations based on an assessment of what is reasonable in the circumstances:

… whether a railway company has provided or failed to provide adequate and suitable accommodation in respect of the traffic offered to it for carriage will depend on an assessment of all the relevant circumstances. The measure of that assessment is reasonableness. Consequently, in conducting the inquiry which paragraph 116(1)(a) of the CTA requires it to perform, the Agency must make its determination in light of all of the surrounding circumstances, keeping in mind that the railway company’s obligations are not absolute.

[41] The key principles that emerge from these six decades of jurisprudence in respect of a railway company’s level of service obligations as a common carrier are that those obligations are neither absolute nor soft; a railway company is required to make every reasonable effort to receive, carry, deliver, and unload traffic offered without delay, even in the face of challenges beyond its control, but it is not asked to do the impossible; and this obligation can only be determined or particularized in light of the specific circumstances of each situation.

[42] In determining whether a railway company has fulfilled its level of service obligations, the Agency has, in recent years, used an evaluation approach that starts with an assessment of whether there is a gap between a shipper’s reasonable request for service and the service provided and, if such a gap is identified, assesses if there are reasons that justify the gap. The consistency of this evaluation approach with the legislative scheme has been confirmed by the FCA in Viterra and Richardson, and LDC. The FCA stated in Canadian National Railway Company v. Emerson Milling Inc., 2017 FCA 79 (EMI):

The Agency’s evaluation approach is reasonable. It is a practical, useable test that captures both the essence of and much of the detail in subsection 113(1) of the Act. Far from imposing impossible burdens upon carriers like CN, as CN suggests, it suitably reflects the Supreme Court’s holding in Patchett that the carrier’s duty “is permeated with reasonableness in all aspects of what is undertaken.”

[43] At the same time, this decision noted that the evaluation approach may need to be adjusted when the Agency examines some types of level of service issues and that, for example, the evidentiary basis upon which to decide if there is a level of service breach may in some cases be “global” in nature:

… if a party wishes to submit before the Agency in a particular case that subsection 113(1) requires that the evaluation approach needs to be tweaked, modified, followed or applied differently, the Agency must consider the submission in an open-minded way….

The Agency’s approach to subsection 113(1) was to look at the situation globally, alive to all the circumstances of the case, and to assess overall whether CN had fulfilled its obligations under the Act over a period of time, bearing in mind that, in the words of Patchett, those obligations are “permeated with reasonableness.” This approach is supportable on the wording of subsection 113(1) as understood under the Patchett standard. The wording of subsection 113(1) does not require the sort of week-by-week examination that CN has urged upon us. A global examination of whether the carrier has fulfilled its obligations may have much to commend it where, as here, cars are being ordered and delivered every week and shortfalls are periodically occurring.

[44] In Decision No. CONF-4-2017 (Univar v. CP) [Univar], a case that dealt with a situation in which rail service ceased completely subsequent to a force majeure event, the Agency did not require a strict car count to assess whether the railway company breached its level of service obligations. In that decision, the Agency stated:

A careful review of the relevant statutory provisions and jurisprudence outlined in the “Law” section above makes it clear that, on the one hand, shippers are entitled to ongoing rail transportation services for their traffic on an existing line, barring extraordinary circumstances and until such time as the operation of that line is properly transferred or discontinued, and, on the other hand, a railway company is not required to provide service that it previously provided when factors beyond its control make it impossible or clearly unreasonable for it to do so. How these considerations are balanced will depend on the specific circumstances of each case. As a rule, any interruption in the obligation that would otherwise exist to provide rail service on the line should be as limited as possible, consistent with the purposes of the level of service provisions.

[45] Thus, a finding that there is a service issue that requires justification will not always rely on evidence such as a count of car numbers, service frequencies, or cycle times. In certain cases, justification may be needed when the record shows that a railway company’s action or inaction—such as a refusal to take steps to restore service after a force majeure event or a unilateral imposition of restrictions on the traffic the railway company will accept—amounts to a denial of service that one or more shippers have reasonably requested or expected. That does not mean the action or inaction will necessarily be found to be a breach of the railway company’s statutory obligations; that will only be the case if the action or inaction is found to be not justified in the circumstances, or in other words, that it was not reasonably possible for the railway company to provide that level of service in the circumstances.

[46] Recent amendments to the CTA are consistent with, and elaborate on, the principles around reasonableness and justification that have developed through the case law. On May 23, 2018, subsection 116(1.2) of the CTA, quoted above in the Law section, came into force. It does not change the statutory language in sections 113 to 115 of the CTA regarding a railway company’s obligations; rather, it offers interpretive guidance that is consistent with that case law by stating the threshold to be met for these obligations to have been satisfied—“the highest level of service in respect of [its service] obligations that [a railway company] can reasonably provide in the circumstances”—and provides a non-exhaustive list of factors to be considered by the Agency when assessing whether a railway company has met this bar.

INVESTIGATION RESULTS

Did the BNSF Railway Company (BNSF) breach its level of obligations under sections 113 to 115 of the CTA; that is, did it provide the highest level of service that it could reasonably provide in the circumstances, having regard to considerations listed in subsection 116(1.2) of the CTA?

BNSF’S POSITION

[47] BNSF submits that there is no evidence on the record that indicates any issues with respect to BNSF’s service in the Vancouver area during the relevant period. BNSF maintains that the record shows that BNSF “worked closely with its customers and connecting railways to address the Vancouver experienced congestion-related challenges from mid-November to mid-December 2018.” BNSF asserts that, as there is no evidence that “BNSF caused the delays and shortfalls that the Agency identified …, there is no legal basis for the Agency to grant any relief against BNSF.”

ANALYSIS AND DETERMINATIONS

[48] There is no evidence on the record quantifying a gap between the service requested of, and provided by, BNSF in the Vancouver area during the investigation period, nor any evidence that BNSF unilaterally restricted the transportation of traffic through measures such as embargoes.

[49] Accordingly, the Agency finds that BNSF provided the highest level of service with respect to its obligations under sections 113 to 115 of the CTA that it could reasonably provide in the circumstances and thus, did not breach its level of service obligations.

Did CP breach its level of obligations under sections 113 to 115 of the CTA; that is, did it provide the highest level of service that it could reasonably provide in the circumstances, having regard to considerations listed in subsection 116(1.2) of the CTA?

FINDINGS OF FACT

[50] During the investigation period, CP issued the following embargoes that affected traffic in the Vancouver area:

  • Embargo CPRS002318 was issued on December 10, 2018, with an effective date of December 13, 2018. It applied to wood pulp, newsprint paper and ground wood paper destined to North Vancouver, Sapperton, and New Westminster; identified the cause as “Congestion/Accumulation”; did not allow permits; and was cancelled on December 19, 2018.
  • Embargo CPRS002418 was issued on December 10, 2018, with an effective date of December 13, 2018. It applied to Fibreco Export Inc. and Fibreco Pulp Inc. traffic destined to Vancouver, North Vancouver, and New Westminster; identified the cause as “Congestion/Accumulation” to the North Shore of Vancouver; did not allow permits initially, but allowed them beginning on December 19, 2018; and was cancelled on January 10, 2019.
  • Embargo CPRS002518 was issued on December 21, 2018, with an effective date of December 24, 2018. It applied to all traffic destined to Columbia Containers Ltd. (Columbia) in Vancouver; identified the cause as “Congestion/Accumulation”; allowed permits; and was cancelled on January 14, 2019.

POSITIONS OF THE PARTICIPANTS

CP

[51] CP submits that during the period under investigation, it fulfilled its service obligations in the Vancouver area. CP argues that the information and data on the record “do not support any claim of a service failure on the part of CP.” CP highlights that, in the Second Inquiry Report, the Inquiry Officer refers to Alliance Grain Terminals, who reported “100% delivery fulfillment” and another South Shore terminal where “the average transit times declined by 25%.”

[52] CP submits that the service failures identified in the March Decision do not pertain to CP’s service. The Agency identified issues affecting terminals on the North Shore, which are not served by CP, and congestion in CN’s Thornton Yard. CP maintains that it did “not cause or contribute” to these issues, and further, that in order to reduce switching demand and thus congestion in the Thornton Yard, it blocked traffic on behalf of CN.

[53] According to CP, it only uses embargoes and permits as “a tool of last resort to control traffic movements when there is actual or threatened operational impairment that is temporary in nature.” It asserts that the three embargoes it issued in the Vancouver area over the investigation period were “necessary and reasonable under the circumstances”, and constituted a “proactive management of the network” to address issues outside of CP’s control. CP maintains that service to its customers and terminals on the South Shore “met or exceeded service level expectations”, and that it has not received any formal service complaints related to the embargoes. CP further argues that all its embargoes were necessary “to preserve network fluidity for all customers” and that there were no “targeted or discriminatory actions taken against specific customers”.

[54] Specifically, CP maintains that the imposition of Embargo CPRS002518 was “an effective and measured effort to control traffic for the benefit of the entire supply chain” and was only imposed after CP had “identified and isolated the affected traffic”. CP submits that Columbia was being impacted by large blocks of CN trains, that the congestion on the North Shore was “causing shippers to redirect traffic to Columbia” and that steps were therefore required “to control this pipeline.” CP submits that, at one point, there were 210 railcars destined for Columbia in the yard, whereas normally, there are less than 70 railcars destined for Columbia in the yard. According to CP, it was “in constant communication with Columbia throughout this period” and only imposed the embargo after other efforts had failed to manage the problem.

[55] CP submits that it considered a number of factors to determine whether it was “necessary, and thus reasonable, to issue an embargo with permits on Columbia”. Specifically, CP considered Columbia’s spot capacity, inventory on-hand, and communications. CP claims that over the investigation period, CP “met and in most cases, exceeded the requested railcars” to Columbia and cites a January 18, 2019 email to CP from Elvin Toews, Rail Planner for Columbia, stating that he had only “positive things to say about the service” provided by CP.

[56] For Embargoes CPRS002318 and CPRS002418, CP submits that it monitored the dwell time associated with interchanging traffic to CN and imposed these embargoes upon identifying a pattern of CN rejecting interchange traffic at the end of November 2018. CP submits that CN’s inability to accept CP cars directly affected CP’s Port Coquitlam Yard and reduced CP’s capacity to provide service to all its customers.

[57] Furthermore, with respect to Embargo CPRS002318, CP submits that this embargo “exactly replicated CN’s embargo that was in place first.” CP maintains that it cancelled this embargo once “dwell associated with the CN interchange” returned to acceptable levels, CN limited its permits to “align with unload capabilities”, and CN was able to accept CP’s cars at the interchange.

[58] CP maintains that it issued 100 percent of the permits sought by shippers for the two embargoes where permit requests were permitted, and therefore, “there was no shortfall or delays resulting from CP’s embargoes.” However, CP submits that it could not issue permits for Embargo CPRS002318, because this embargo was a direct result of CN’s embargo and CN was not allowing CP to interchange traffic during the embargo period.

Freight Management Association (FMA)

[59] FMA argues that by putting embargoes in place, CN and CP have “failed to meet the reasonable requests of shippers”, and that embargoes “limit business growth.” FMA asserts that the result of an embargo is that a shipper’s traffic is not delivered. FMA maintains that the “use of embargoes and permits to deny service and frustrate business growth is unlawful”, as it is inherently a breach of the railway company’s level of service obligations.

[60] FMA argues that CN and CP imposed embargoes to “differentiate among their customers and to target certain customers”. According to FMA, this demonstrates that the railway companies are “not going to work diligently to reduce service impacts on all of [their] customers; [they are] going to pick winners and losers from among [their] customers.”

Western Grain Elevator Association (WGEA)

[61] WGEA submits that, although there were some service issues with CP on the South Shore, it “believe[s] many of these challenges were consequences related to interchanges from CN to CP.”

[62] With respect to embargoes, WGEA submits that an “embargo is the denial of service access, and the permit is the permission to have access notwithstanding of the embargo.” WGEA argues that this denial of service is “a violation by the railway companies of their common carrier obligations under the Canada Transportation Act, and is inconsistent with jurisprudence that has been established by the Agency and the Courts.” According to WGEA, “the embargo process is not transparent”. WGEA submits that the issues with CN were the reason CP imposed an embargo on traffic destined to Columbia’s facility.

ANALYSIS AND DETERMINATIONS

[63] There is no evidence on the record quantifying a gap between the service requested of, and provided by, CP in the Vancouver area during the investigation period.

[64] The question, then, is whether any or all of the embargoes imposed by CP constituted a breach of CP’s service obligations because they were not justified in the circumstances.  

[65] Embargoes are issued by railways through a system managed by the Association of American Railroads (AAR), which is used by both American and Canadian railway companies.

[66] Although embargoes are an established practice, it is clear that such a measure is not something that railway companies can use arbitrarily. Some embargoes will be lawful, but others will not, depending on what is reasonable in the circumstances. As indicated in the Level of Service Obligations section of this determination, the Agency considers that embargoes amount to a denial of service that one or more affected shipper have reasonably requested or should reasonably expect. The issuance of an embargo is fundamentally an action taken by a railway company that is contrary to the requirements of subsection 113(1)(c) of the CTA, which requires the railway company to “without delay, and with due care and diligence, receive, carry and deliver the traffic”.

[67] The evidence shows that Embargoes CPRS002318 and CPRS002418 were applied on December 13, 2018, as a result of CN refusing to accept CP’s interchange traffic destined for the North Shore, and the former was a direct response to an embargo imposed by CN. After six days, Embargo CPRS002318 was cancelled and permits began to be issued for traffic covered by Embargo CPRS002418. All permits requested were granted and on January 10, 2019, Embargo CPRS002418 was cancelled.

[68] The evidence further shows that Embargo CPRS002518 was applied on December 24, 2018 to traffic destined to the Columbia facility and was aimed at addressing congestion there. CP had worked with Columbia to deal with the congestion prior to resorting to an embargo; however, as the congestion resulted from the inflow of CN traffic into Columbia’s facility, CP ultimately concluded that an embargo was its only option. Permits were allowed under this embargo, and all permits requested were granted. Furthermore, CP communicated regularly with Columbia, and Columbia specifically requested CP’s help “to control this pipeline.”

[69] Taken together, the record demonstrates that all three embargoes were imposed as a result of factors beyond CP’s control; were exceptional measures rather than steps that were planned in advance or routine in nature; were carefully targeted to address specific and actual challenges; were designed to minimize impacts on traffic carriage and delivery while in place; and were temporary in nature and lifted at the earliest reasonable opportunity. 

[70] For these reasons, the Agency finds that the manner in which CP used embargoes did not breach  its level of service obligations under sections 113 to 115 of the CTA; that is, CP provided the highest level of service it could reasonably provide in the circumstances.

Did CN breach its level of obligations under sections 113 to 115 of the CTA; that is, did it provide the highest level of service that it could reasonably provide in the circumstances, having regard to considerations listed in subsection 116(1.2) of the CTA?

FINDING OF FACT

[71] During the investigation period, CN’s Vancouver area operations were marked by significant congestion and by some delays and shortfalls in the delivery of traffic to facilities on the North Shore.

[72] On September 21, 2018, CN informed wood pulp shippers that CN would be imposing embargos with permits on boxcar shipments to various Vancouver and surrounding area terminals starting December 1, 2018.  

[73] During the investigation period, the following embargoes were issued by CN:

  • Embargo CN004318 was issued on November 21, 2018, with an effective date of November 24, 2018. It applied to wood pulp, newsprint paper and ground wood paper destined to Vancouver, North Vancouver, Sapperton, and New Westminster; identified the cause as “Congestions/Accumulation”; allowed permits except between [REDACTED]; and was cancelled on February 21, 2019.
  • Embargo CN004418 was issued on November 28, 2018, with an effective date of December 1, 2018. It applied to wood pulp, newsprint paper and ground wood paper destined to Squamish Terminals Ltd. through North Vancouver and Squamish; identified the cause as “Congestions/Accumulation”; allowed permits except between [REDACTED]; and was cancelled on February 21, 2019.
  • Embargo CN004518 was issued on November 28, 2018, with an effective date of December 1, 2018. It applied to wood pulp, newsprint paper and ground wood paper destined to Westran Portside Terminal Ltd., Westran Services Ltd. and Westran Intermodal Ltd. through Vancouver Thornton Yard, Fraser Surrey, Brownsville Branch, Lulu Island Yard, New Westminster and North Vancouver; identified the cause as “Congestions/Accumulation”; allowed permits except between [REDACTED]; and was cancelled on February 21, 2019.
  • Embargo CN004618 was issued on November 28, 2018, with an effective date of December 1, 2018. It applied to wood pulp, newsprint paper and ground wood paper destined to Olympia Transportation Ltd. and Olympia Transport Inc. through Burnaby, Lulu Island Yard and New Westminster; identified the cause as “Congestions/Accumulation”; allowed permits except between [REDACTED]; and was cancelled on February 21, 2019.
  • Embargo CN004718 was issued on November 28, 2018, with an effective date of December 1, 2018. It applied to wood pulp, newsprint paper and ground wood paper destined to Euro Asia Transload Inc. through South Fraser, Burnaby, Vancouver, North Vancouver, Lulu Island Yard and New Westminster; identified the cause as “Congestions/Accumulation”; allowed permits except between [REDACTED]; and was cancelled on February 21, 2019.
  • Embargo CN004818 was issued on November 28, 2018, with an effective date of December 1, 2018. It applied to wood pulp, newsprint paper and ground wood paper destined to Coast 2000 Terminals Ltd. through South Fraser, Vancouver, North Vancouver, Lulu Island Yard and New Westminster; identified the cause as “Congestions/Accumulation”; allowed permits except between [REDACTED]; and was cancelled on February 21, 2019.
  • Embargo CN004918 was issued on November 28, 2018, with an effective date of December 1, 2018. It applied to wood pulp, newsprint paper and ground wood paper destined to Portside Warehousing Inc., Portside Warehousing & Distribution, Western Canada Express and Western Canada Express Inc. through Lulu Island Yard; identified the cause as “Congestions/Accumulation”; allowed permits except between [REDACTED]; and was cancelled on February 21, 2019.
  • Embargo CN005018 was issued on November 29, 2018, with an effective date of December 2, 2018. It applied to all commodities except for sand, rapeseed oil, canola meal pellets, cake or meal, rapeseed or canola seed and petroleum crude oil interchanged with BNSF and UP at New Westminster; identified the cause as “Congestions/Accumulation”; allowed permits; and was cancelled on January 15, 2019.
  • Embargo CN005118 was issued on November 30, 2018, with an effective date of December 3, 2018. It applied to canola and cake or meal destined to Fibreco Export Inc. and Fibreco Pulp Inc. through North Vancouver and New Westminster; identified the cause as “Congestions/Accumulation”; allowed permits beginning on January 4, 2018; and was cancelled on January 29, 2019.
  • Embargo CN005218 was issued on December 6, 2018, with an effective date of December 9, 2018. It applied to traffic destined to Vancouver Thornton Yard; identified the cause as “Rail Congestion at Surrey Distribution Center”; allowed permits beginning on December 31, 2018; and was cancelled on January 18, 2019.
  • Embargo CN000119 was issued on January 3, 2019, with an effective date of January 6, 2019. It applied to all traffic destined to Ray-Mont Logistics Vancouver Inc. and Ray‑Mont Logistics Inc. in Richmond, BC; identified the cause as “Congestions/Accumulation”; allowed permits; and was cancelled on January 22, 2019.

POSITIONS OF THE PARTICIPANTS

CN

[74] With respect to the shortfalls and delays identified by the Agency in the March Decision related to service to the Cargill Ltd. (Cargill) and Richardson International Limited (RIL) terminals on the North Shore, CN submits that both are parties to confidential contracts with CN that prescribe the level of service CN is required to provide to their terminals. According to CN, it met its obligations under these contracts during the investigation period and, because the Agency is required to respect the terms of confidential contracts, the observations in the March Decision in respect of these terminals cannot inform the Agency’s determination.

[75] With respect to the observations in the March Decision regarding the level of service provided to Chemtrade Logistics Inc. (Chemtrade), CN argues that it is “not clear how the Agency reached this conclusion from … the information submitted by Chemtrade.” According to CN, Chemtrade identified its “maximum daily railcar loading” as 29 cars per day, and during the investigation period, CN spotted an average of 30 cars per day.

[76] Finally, with respect to the level of service provided by CN for traffic destined to Lynnterm, CN maintains that wood pulp shippers only utilized 70 percent of the permits issued by CN, many of which ship to Lynnterm. CN also argues that the market for wood pulp “dropped significantly” in December 2018, and that this is a reason for Lynnterm under-utilizing railcar unloading capacity; CN argues “their terminals were full and product was not moving due to market conditions.”

[77] CN submits that during November and December 2018, there was a 10 percent increase in rail traffic in the Vancouver area and that this increase resulted in “some temporary congestion.” CN argues that, if no action had been taken to address this congestion, the result would have been a “significant slowing of traffic across the Greater Vancouver supply chain, and possibly into other parts of the Canadian and US supply chain.”

[78] According to CN, the embargo and permit process is “a tool that ensures there is capacity at the destination terminal or at the interchange before the shipment is put in motion.” CN submits that it implemented two embargo and permitting processes: the purpose of the first, as in the preceding year, was to “proactively control the flow of traffic destined into pulp unloading terminals” (pulp embargoes). The purpose of the second was to manage interchange traffic with BNSF (BNSF embargo). CN argues that these processes did not cause congestion, but were put in place to “avoid a potentially worsening situation.”

[79] For the BNSF embargo, according to CN, there was a 20 percent increase in BNSF interchange traffic coming into Thornton Yard as compared to the same period a year earlier, and there was no “advanced warning or forecast of this volume.” CN argues that, at the same time, there were issues with heavy rain causing slides and washouts. According to CN, it worked with BNSF and the embargo was cancelled on January 15, 2019.

[80] With respect to the pulp embargoes, CN submits that for commodities such as grain and unit train shipments of coal, potash, frac sand, and crude, customers place a unit train request with origin and destination information—including when the unit trains are required to be delivered at the destination—and the destination terminals provide advance authorization. However, for pulp, paper, lumber, propane, chemicals, and aluminum, customers do not take the same steps to ensure that inbound flows match unload capacity before they release their traffic. According to CN, this can result in traffic waiting to be unloaded in the yard, which affects its ability to serve other traffic and reduces the number of empty cars available for loading. CN argues that the only mechanism to manage this issue is the use of embargoes with permits. CN further submits that 30 percent of the permits that were issued to pulp shippers were not used and therefore, it was not the cause of “pulp shippers not getting their product to market”.

[81] CN asserts that despite its efforts to “encourage better coordination between other players in the supply chain, namely our customers and the terminals,” embargoes are required because “some of our customers and the terminals are not managing the supply chain to maintain a balance between origin volumes and destination capacity.” CN states that when it applies embargoes with permits, its intention is to enable traffic flow, not impede it.

[82] Finally, CN submits that it had 16 percent more crews and 18 percent more locomotives in the Vancouver area over the investigation period as compared to the same period the previous year.

Freight Management Association (FMA)

[83] As noted in the CP section above, FMA argues that by putting embargoes in place, CN and CP have “failed to meet the reasonable requests of shippers” and that embargoes “limit business growth.” FMA asserts that the results of an embargo is that a shipper’s traffic is not delivered. FMA maintains that the “use of embargoes and permits to deny service and frustrate business growth is unlawful”.

[84] FMA argues that CN and CP have imposed embargoes to “differentiate among their customers and to target certain customers” and that CN’s actions in this regard targeted manifest traffic. According to FMA, this demonstrates that the railway companies are “not going to work diligently to reduce service impacts on all of [their] customers; [they are] going to pick winners and losers from among [their] customers.”

Ray-Mont Logistics (Ray-Mont)

[85] Ray-Mont submits that during the investigation period, trains were moving more slowly than normal; that said, its primary challenge was not related to rail service but rather, to finding the correct empty containers for specific sea vessels.

WGEA

[86] According to WGEA, from the end of October 2018, “rail service to the North Shore and Vancouver [was] problematic” worsening until late December 2018 and early January 2019. WGEA asserts that the shippers most impacted were those served by CN on the North Shore, and that issues with CP appeared “related to interchanges from CN to CP.” WGEA also states that “the Vancouver service issues were because of a CN failure.”

[87] WGEA submits that, beginning in mid-November 2018, there were cases where grain cars were sitting in Thornton yard for “up to 20 or more days” before being delivered to the terminal for unloading; however, depending on where an elevator is located in the Prairies, a shipper expects cars to be spotted at the terminal for unloading with three to five days after being picked up by the railway company. Furthermore, WGEA alleges that for crop weeks 18 to 24 during 2018-19, “out of car time” at one terminal on the North Shore was close to 20 percent and as high as 33 percent. WGEA states that this means “time where they are staffed, they are waiting for railcars, and the railcars are not arriving.”

[88] With respect to embargoes, WGEA submits that an “embargo is the denial of service access, and the permit is the permission to have access notwithstanding of the embargo.” WGEA argues that this denial of service is “a violation by the railway companies of their common carrier obligations under the Canada Transportation Act, and is inconsistent with jurisprudence that has been established by the Agency and the Courts.” According to WGEA, “the embargo process is not transparent.” WGEA submits that it believes that the issues with CN were the reason CP imposed an embargo on traffic destined to Columbia’s facility.

Canadian Oilseed Processors Association (COPA)

[89] COPA alleges that there was inconsistent rail service in November and December 2018, with the most serious problems caused by congestion at interchanges where traffic originating on CN’s line is switched with other railway companies to be unloaded in the Vancouver area or transported to the U.S. COPA submits that service in the Vancouver area improved in January 2019, but that there are still concerns, particularly because “this is the second year in a row that service has been reported by shippers as being insufficient”.

Pulse Canada

[90] Pulse Canada submits that in mid to late November 2018, based on key measures like origin dwell time and number of loaded cars not moving for 48 hours, congestion was building.

[91] Pulse Canada argues that embargoes add “an extra layer of unpredictability” for shippers that already have to deal with the terminal authorization process.

Forest Products Association of Canada (FPAC)

[92] FPAC argues that CN’s claims that there was a 10 percent “unexpected” increase in traffic in the Vancouver area over the investigation period is unsubstantiated by CN, and therefore cannot be tested by shippers. FPAC asserts that in light of this, “no conclusions should be drawn from the fact that shippers have not submitted comprehensive evidence to challenge CN’s claim”. Furthermore, FPAC argues that CN’s September notice to pulp customers about embargoes to be implemented in December 2018 was “not a response to anything that occurred unexpectedly in the period from October to December 2019 [sic].”

[93] With respect to CN’s comparison of the pulp supply chain to the grain supply chain, FPAC submits that pulp moves in manifest trains, whereas 80 to 90 percent of grain moves in 100-car unit trains. FPAC maintains that it is unreasonable for terminals or shippers to have “unqualified unloading commitments without reciprocal railway commitments on time and frequency of delivery …” FPAC submits that formal agreements were previously used at some terminals but that CN recently has “declined to enter into or renew such agreements.” FPAC argues that CN is looking for ways to “transition responsibility for allocating permits to terminals, which would impose a de facto ‘terminal authorization’ system without making any commitments as to its own performance.”

[94] Finally, with respect to Lynnterm and CN’s claim that the market for pulp dropped in December 2018, FPAC asserts that CN did not provide any evidence that Lynnterm’s efforts to receive cars in CN’s yards let up during December 2018 or January 2019.

ANALYSIS AND DETERMINATIONS

[95] There is some evidence on the record quantifying a gap between the service requested of, and provided by, CN in the Vancouver area during the investigation period.

[96] That gap appears to be related to congestion, which CN acknowledges existed in the Vancouver area, and specifically in Thornton Yard, over the investigation period. For example, during the Oral Hearing, CN stated there was “temporary congestion” and referred to the “congestion in Vancouver in November and December”. Similarly, in its answer to the March Decision, CN referred to “temporary congestion in the Vancouver supply chain that needed to be managed” and submitted that it “undertook a number of steps to respond to rising congestion in Thornton Yard.”

[97] As the March Decision stated, the record shows that the main facilities affected by service delays and shortfalls were on the North Shore. The Agency agrees with CN, however, that if the service provided to the Cargill and RIL terminals, two of the terminals cited in the March Decision, had to be consistent with the terms of confidential contracts, any evidence of potential service delays cannot be taken as evidence of a breach of CN’s level of service obligations. Given that the Agency does not have any submissions or evidence that contradicts CN’s assertions, the Agency accepts those assertions and will not take into consideration any service level information related to Cargill and RIL in this determination. The Agency therefore sets aside the preliminary observations contained in the March Decision in respect of the Cargill and RIL terminals.

[98] With respect to Chemtrade, based on the data it provided, CN delivered 76.4 percent of the empty cars Chemtrade ordered over the investigation period. Although Chemtrade submitted that it can produce and load up to a maximum of 29 railcars per day, the Agency notes, contrary to what CN suggests, that this does not reflect the maximum daily number of empty railcars Chemtrade can receive. In fact, Chemtrade submits that it can receive 42 railcars per shunt. Furthermore, it has a maximum capacity of 285 railcars, working capacity of 270 railcars, and that its operating target is 250 railcars to allow for onsite movement. According to Chemtrade, during the period under investigation, it was in “a sold out state”, meaning that “it could have sold essentially every tonne produced and shipped.” Finally, using the waybill data submitted by CN, over the investigation period, CN spotted on average, 24 empty railcars, not 30 as it submitted.

[99] For Lynnterm, based on the data submitted by Western Stevedoring, it had under-utilized railcar unloading capacity during the investigation period. Lynnterm’s average daily unloading capacity is [REDACTED] railcars (which is consistent with the unloading capacity submitted by CN) and the average number of railcars unloaded daily per month were: [REDACTED] in October 2018, [REDACTED] in November 2018, [REDACTED] in December 2018, and [REDACTED] in January 2019, which results in an average daily excess railcar capacity of: [REDACTED] in October 2018, [REDACTED] in November 2018, [REDACTED] in December 2018, and [REDACTED] in January 2019.

[100] The average daily number of railcars destined for Lynnterm at CN yards in Vancouver per month were: [REDACTED] in October 2018, [REDACTED] in November 2018, [REDACTED] in December 2018, and [REDACTED] in January 2019, which shows that the unused capacity in Lynnterm calculated above could have been used, had railcars been delivered.

[101] Based on the above, the Agency concludes that there is some evidence indicating that the service provided by CN to shippers seeking the delivery of traffic to Chemtrade and Lynnterm fell short of the service those shippers requested.

[102] This is cause for concern. However, given that the purpose of this own motion investigation is to examine systemic matters, that evidence is not sufficient to support a finding of a breach of a systemic nature or require further justification from CN. It is possible, though by no means certain, that the results might have been different if those shippers and shipper associations who displayed a reluctance to provide more extensive and detailed information during the investigation had done so. At the same time, it is important to note that this own motion investigation does not preclude shippers from bringing forward individual complaints pertaining to matters that have been raised in this investigation.

[103] This leaves the question of whether any or all of the embargoes imposed by CN constituted a breach of CN’s level of service obligations, given that embargoes are, by their nature, unilateral restrictions on current or future traffic.

[104] In deciding whether CN breached its level of service obligations in relation to embargoes, the Agency examined all facts pertaining to the factors listed in subsection 116(1.2) of the CTA. Nothing on the record indicates that factors 116(1.2)(d) and (f) were engaged. With respect to the other factors, the facts and conclusions below have been taken into account in deciding if CN provided the highest level of service it could reasonably provide in the circumstances. 

[105] CN’s announcement and issuance of embargoes was one way it chose to address operational challenges it anticipated, and eventually experienced, in relation to traffic volumes and congestion in the Vancouver area during the investigation period. As noted in the analysis of the embargoes issued by CP, embargoes may be justified if they are imposed as a result of factors beyond a railway company’s control; are exceptional measures adopted after all reasonable alternatives are exhausted rather than routine in nature; are targeted to address specific and actual challenges; are designed to minimize impacts on traffic carriage and delivery while in place; and are temporary and lifted at the earliest reasonable opportunity. 

[106] These justification criteria ensure, on the one hand, that railway companies do not quickly or easily default to unilaterally refusing traffic or delaying its carriage and, on the other hand, that they have the option of temporarily restricting traffic, if that is the only practical alternative left after all reasonable measures to deal with challenges beyond their control have been taken and have proven insufficient. This balance reflects the reasonableness principles of the case law on level of service obligations and respects the requirement for the Agency to assess “the highest level of service in respect of those obligations that (a railway company) can reasonably provide in the circumstances” in subsection 116(1.2) of the CTA.

[107] One way a railway company can avoid using unilateral traffic-curbing measures like embargoes except as a temporary, targeted measure of last resort in the face of factors beyond its control— and thereby fulfil its level of service obligations—is to have detailed plans in place to deal with the challenges such factors may create. Such plans are critical where past experience indicates that challenges can be expected to emerge in a particular area during a particular time period. They help ensure that when presented with challenges, a railway company takes, and can demonstrate that it has taken, all reasonable measures to receive, carry, and deliver traffic offered without delay, as is its statutory obligation.

[108] CN’s answer to the question regarding contingency plans in the March Decision stated that “CN undertook a number of steps to respond to rising congestion” and that “CN imposed embargoes on traffic destined for the BNSF interchange and an embargo permit system for pulp terminals … CN also took steps at origin and before trains arrived in the Vancouver area”. The absence of any actual document, CN’s emphasis on reactive steps rather than proactive plans, and its further description of embargoes in explaining the nature of these steps, all indicate that CN did not engage in effective planning to ensure that as much traffic as possible would continue to be carried and delivered when, predictably, volumes rose late in the calendar year.

Pulp embargoes

[109] There were six CN embargoes that had an effective date of December 1, 2018 and applied to wood pulp, newsprint paper, and ground wood paper destined to various locations in the Vancouver area (Embargoes CN004418 to CN004918). In addition, Embargo CN004318 applied to the same commodities but had an effective date of November 24, 2018.

[110] The intention to impose such embargoes was communicated by CN to wood pulp shippers on September 21, 2018. In its notice, CN stated that the purpose of the “Vancouver and Surrounding Area Terminal Pipeline Management Program” was to “assist in the proactive management of boxcar shipments from origin mills to the various Vancouver and surrounding area ... by avoiding a buildup of railcars in the area during the Terminal’s holiday shutdown”.

[111] CN stated that the program would be applied to all paper and wood pulp railcars destined to Vancouver transload terminals between December 1, 2018 and January 31, 2019. CN further stated that permits would be allocated “based on the current pipeline to each terminal, terminal unload capacity, transit times and vessel cutoffs.”

[112] On November 20, 2018, CN communicated by conference call to wood pulp terminals and shippers that embargoes with permits would be imposed starting December 1, 2018. In addition, CN notified Lynnterm terminal on November 21, 2018, that it would be imposing embargoes with permits on traffic destined to that facility starting November 24, 2018.

[113] On December 12, 2018, CN released a Network Update, stating that:

… due to the unprecedented volume of railcars in Vancouver, we have to implement a permit process to control the flow of traffic to this highly congested area.

We will be limiting the number of permits issued over the next 24-72 hours for merchandise traffic. Unit train traffic will be regulated by CN’s Bulk Operations team. There will be no impact on Intermodal business in Vancouver with this process.

[114] CN’s assertion during the investigation that the embargoes it imposed were in response to unforeseen events cannot be reconciled with the evidence that the intention to "re-start  the Vancouver and Surrounding Area Terminal Pipeline Management Program" was announced months before congestion emerged in the Vancouver area.

[115] In addition, CN’s claim that not all permits issued to the shippers of pulp products were used is evidence that any demand for service was met, does not hold up to scrutiny. A shipper that receives advance notice of a likely future refusal by a railway company to transport its traffic can be expected to take measures to mitigate the associated impacts by, for instance, accelerating or slowing down production to avoid shipping during the embargo period or arranging for alternative means of transportation. It would be inconsistent with the statutory scheme for a railway company to be relieved of its level of service obligations because there is no quantifiable evidence of service traffic demand left unfulfilled, if the absence of such demand has likely been caused by the railway company’s own action or inaction. Approaching the level of service provisions in such a way would force shippers to suffer prejudice, by not mitigating the impact of the denial of service or future service on them, in order to retain their access to recourse under the level of service provisions of the CTA.

[116] Finally, CN’s suggestion that the pulp embargoes were necessary because of issues around coordination between wood pulp shippers and the terminals with which they have contracts might have been be more persuasive if CN had adduced specific evidence of these issues and of the range of steps it had taken before opting for unilateral traffic-curbing. Indeed, CN declined to offer such evidence in its answer to the March Decision, despite the fact that a specific question on the matter was posed in that decision.

[117] Taken together, the record demonstrates that CN’s pulp embargoes satisfied some, but not all, of the justification criteria. The embargoes may have been imposed at least in part as a result of a factor beyond CN’s control; namely, issues around shipper-terminal coordination. Further, the availability of permits indicates that the embargoes were designed to minimize impacts on the transportation of traffic, and the embargoes were lifted as congestion cleared.

[118] However, traffic surges tend to materialize in the Vancouver area late each calendar year and embargoes announced months before challenges emerge do not meet the standard of being exceptional measures adopted after all reasonable alternatives have been exhausted. Indeed, the pulp embargoes were closer to being a first rather than a last resort. Moreover, the fact that the advance announcement was made only to wood pulp shippers indicates that rather than addressing specific and actual challenges, these embargoes singled out one group of shippers.

[119] On this basis, the Agency finds that the pulp embargoes were not justified in the circumstances.

[120] Having regard to all the considerations set out in subsection 116(1.2) of the CTA, the Agency finds that, on balance, CN did not provide the highest level of service it could reasonably provide in the circumstances. Although the record makes it clear that during the investigation period, CN faced operational challenges related in part to congestion in the Vancouver area, having signalled its intention to impose embargoes on pulp shipments in September, well in advance of these operational challenges, leads to the conclusion that CN was not prepared to take all reasonable measures to deal with issues that it anticipated in the Vancouver area and to provide pulp shippers with the reasonable service to which they are entitled under the CTA. Moreover, this premature announcement of their intention to deny service is likely to have had negative consequences for affected shippers, to the extent that they altered preferred business plans after it was communicated.

[121] The Agency therefore finds that CN breached its obligation to, without delay, and with due care and diligence, receive, carry and deliver the traffic.

Thornton Embargoes

[122] Embargo CN005018 had an effective date of December 2, 2018, was cancelled on January 15, 2019, and applied to all commodities, except sand, rapeseed oil, canola meal pellets, cake or meal, rapeseed or canola seed and petroleum crude oil, interchanged with BNSF and Union Pacific Railroad Company at New Westminster. Although this embargo refers to New Westminster as the interchange location, CN interchanges BNSF’s traffic at the Thornton Yard to avoid using the Fraser River Bridge. Embargo CN005218 had an effective date of December 9, 2018, was cancelled on January 18, 2019, and applied to traffic destined to Thornton Yard.

Both embargoes allowed permits.

[123] The record shows that traffic into and out of, and congestion in, Thornton Yard increased significantly during the investigation period, not only relative to earlier in 2018, but also relative to the same period in earlier years. In late 2018, traffic into Thornton Yard was 8 percent higher than in the corresponding period the previous year. In late 2017, traffic flow into the yard was slightly higher than in 2016, and in 2016, it was 6 percent higher than in 2015. In October to November 2018, there was an 18 percent increase in the number of cars carried by CN to Vancouver for interswitching with BNSF at Thornton Yard.

[124] CN states that as congestion in Thornton Yard rose, it deployed 18 percent more locomotives and 16 percent more crews as compared to the same period last year.

[125] The traffic increases and congestion issues that prompted the imposition of the two Thornton embargoes were beyond CN’s control. Given CN’s apparent efforts to reduce congestion through the deployment of extra crews and locomotive power, and the fact that the embargoes did not arbitrarily single out certain types of shippers or traffic, these embargoes were implemented as exceptional measures, targeted to addresses specific and actual challenges, and were adopted after all reasonable alternatives were exhausted. Given that both embargoes allowed permits and were lifted as yard congestion cleared, they were designed to minimize impacts on traffic carriage and delivery, were temporary in nature and removed at the earliest reasonable opportunity.

[126] On this basis, the Agency finds that the Thornton embargoes were justified in the circumstances.

Ray-Mont embargo

[127] Embargo CN000119 (Ray-Mont embargo) had an effective date of January 6, 2019, was cancelled on January 22, 2019, and applied to Ray-Mont Logistics in the Vancouver area.

[128] Ray-Mont states that the need for this embargo stemmed from issues related to obtaining ship containers, issues that are not within CN’s control and that CN has no practical tools at its disposal to address. CN’s imposition of the Ray-Mont embargo was targeted specifically to that terminal, not planned in advance, and only in place from January 6 to January 22, 2019.

[129] On this basis, the Agency finds that the Ray-Mont embargo was justified in the circumstances.

Fibreco embargo

[130] Embargo CN005118 (Fibreco embargo) had an effective date of December 3, 2018, was cancelled on January 29, 2019, allowed permits, and applied to canola products destined to Fibreco in the Vancouver area.

[131] All permits requested under this embargo were granted.

[132] The evidence in respect of this embargo is limited. Given that the Agency has already found that certain CN embargoes were not justified in the circumstances and that the remedies the Agency will order are systemic rather than facility-specific in nature, the Agency makes no finding in respect of the Fibreco embargo.

CONCLUSION

[133] The Agency finds that CN breached its level of service obligations when it announced its intention to impose embargoes on wood pulp shipments in September 2018, several months before rail transportation challenges emerged in the Vancouver area, and then imposed those embargoes in December 2018, rather than making every reasonable effort to deal with those challenges before unilaterally restricting the receipt, carriage, and delivery of traffic.

ORDER

[134] In respect of its  operations in the Vancouver area, the Agency orders CN to:

  1. Develop a detailed plan, each year for the next three years, to respond to surges in traffic that occur in the Vancouver area towards the end of the calendar year with a view to avoiding or minimizing the use of embargoes and maintaining the highest level of service reasonably possible, as required by the CTA. The plan is to be submitted to the Agency’s Chief Compliance Officer by August 1, of each calendar year beginning on August 1, 2019, and should include a list of all embargos imposed by CN for traffic within, or destined to, their Vancouver area rail network in the preceding year;
  2. Only resort to embargoes on an exceptional basis where factors beyond its control make the timely carriage and delivery of traffic difficult and all reasonable alternatives to address those challenges have been attempted and found to be insufficient; and
  3. Only implement embargoes that are targeted to address specific and actual challenges, are designed to minimize impacts on traffic carriage and delivery while in place, and are temporary and lifted at the earliest reasonable opportunity.

Member(s)

Scott Streiner
Gerald Dickie
Lenore Duff
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