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Forest Products Association of Canada

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February 29, 2008

Canadian Transportation Agency
Ottawa, Ontario K1A 0N9

Attention: Mr. Michel Maisonneuve

VIA FAX:  819-953-5564

Dear Sir:

Re:  Consultations: Review of the Railway Interswitching Regulations - File No. 7360-6

The Forest Products Association of Canada (FPAC) is in receipt of LET-R-218-2007 dated December 20, 2007 and takes the opportunity to provide an initial response to the Agency's request for comments regarding the Railway Interswitching Regulations and its views on the proposed changes to the current interswitching rates.

FPAC is a national association that represents 20 of Canada's largest manufacturers of pulp, paper, paperboard and solid wood products.  Our members sell their products primarily in the international marketplace.  To access these markets they require competitive transportation services which, because of the lack of natural rail competition in Canada, can only be achieved through the existence of economic regulation to provide some measure of protection against the significant market power of the railways.  In the absence of such economic regulation, our ability to compete in export markets will be diminished. 

A number of our members' facilities do have access to a second railway company located within interswitching limits and are able to take advantage of regulated interswitching to obtain the benefits of railway competition.  FPAC has accordingly been a strong proponent of regulated interswitching rates and participated in the public proceedings giving rise to the development of interswitching rates in 1997 that were found by the Agency to be commercially fair and reasonable to all parties.  FPAC also participated in the Agency's review of the interswitching rates which resulted in the establishment in 2004 of the interswitching rates in use today.

FPAC believes that the Agency's findings respecting the need for regulated interswitching rates were correct in 1997 and remain correct today.  In 1997, the Agency rejected the position of the Canadian National Railway and the Canadian Pacific Railway that interswitching rates should be dealt with on a commercial basis and not through regulation.  While recognizing that interswitching rates were discretionary, the Agency found that market forces would likely not preserve the present level of competitive access to a second railway and that continued regulation of interswitching rates was required to maintain the effectiveness of this competitive access remedy.  FPAC submits that this finding is as relevant today as it was in 1997.

FPAC also supports the Agency's 1997 determination that a contribution of 7.5% over variable costs represents appropriate compensation for the rail fixed costs and constitutes a balance that ensures the maintenance of effective competitive access through interswitching while providing rail carriers with fair and reasonable compensation for services provided as an imposed public duty.  We strongly submit that this contribution level should continue to apply to the development of interswitching rates and are pleased that the Agency proposes to develop the new rates on this basis.

FPAC retained the services of John Edsforth, Travacon Research Ltd., a noted transportation economist to review the proposed interswitching rates contained on page 3 of Agency LET-R-218-2007.  His analysis led him to believe that the Zone 1 and Zone 2 interswitching rates should have declined from 2002 to 2007 rather than increased.  The railways' increased efficiencies and improved productivity as evidenced by their declining operating ratios in the past 5 years should have more than offset the increases in fuel and wages that they have incurred.  We do not have sufficient information from the Agency's document to provide an explanation for these apparently inconsistent results. 

Accordingly, FPAC believes that additional information on the publication/methodology used to arrive at the proposed interswitching rates is required in order to allow us to provide further comments.  While we recognize that much of the data is confidential, we would ask the Agency to give serious consideration to providing detailed information on the publication/methodology it used to justify increased rates for Zones 1 and 2 when public railway data would suggest that these rates should have declined.

Yours very truly,

David W. Church
Director - Transportation
& Recycling

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