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Shippers want legal ‘hammer’ on Canada’s railways

Canadians will see more trucks on the road, will earn less abroad for their products and will lose import business…

By Sam Eifling , in Business , on November 29, 2010 Tags: , , , ,

The shipping companies that move 2 million containers a year through Vancouver's ports are taking aim at railways

Canadians will see more trucks on the road, will earn less abroad for their products and will lose import business to American ports, shippers say, if Canada doesn’t improve the way it runs its railways.

Groups representing shippers are lobbying Transport Canada to introduce new rules to compel railroads to offer better service.

In the coming weeks, the Rail Freight Review Panel that Transport Canada convened in 2008 to address shippers’ gripes will release its final findings.

The companies that move iPods from China and send coal to Japan contend that railways often fail to provide the cars they need at the right times.They want the review panel to marshal government force to shore up its recommendations on how to smooth out festering service disputes with Canadian Pacific Railway and Canadian National Railway.

“We have said we think the panel’s majority recommendation of quietly preparing legislation for 2013 is the way to go,” said Stephen Brown, the president of the Chamber of Shippers of British Columbia, which represents more than 150 shipping interests. “So why would we say that? Because it keeps the hammer on the railways to perform.”

Officials at both of Canada’s major railways disagreed with the notion of regulation, and let the panel know as much.

But after listening to hundreds of companies, trade groups and government bodies, the panel found that rail service has been “less than adequate” and that “most of the issues raised relate to railway behaviour.”

The preliminary review recommended that railways get until 2013 to work out a solution on their own. If the problems are not resolved, another federal assessment could lead to regulation.

A good enough Gateway?

The friction between shippers and railways comes as Canada is touting its ports as the best way to and from Asia.

The rails at Port Metro Vancouver are an essential artery for container shipping

In 2006 and 2007, Stephen Harper’s government committed more than $1 billion to the Asia-Pacific Gateway and Corridor Initiative.

The project aims to make the ports in Vancouver and Prince Rupert more attractive for imports destined for eastern Canada and the central United States.

Port Metro Vancouver handles about $75 billion in goods annually.

In a slow year like 2009, it handled more than 67,000 tons of bulk goods – most of which travels by rail – and more than 2 million shipping containers.

The 10 economies that moved the most tons of container freight to and from Vancouver were all in south and east Asia.

“When you look at both the Pacific Gateway and how things are moving today on the waterfront, it’s not the water that’s the problem,” said Jonathan Whitworth, the CEO of Washington Marine Group, which owns the largest tug and barge operation and the largest shipyard in western Canada.

“It’s the shoreside process of logistics.”

Related: Railway execs decry push for regulation

The railways would prefer to keep government at bay. They, and Port Metro Vancouver, went on record after the panel’s preliminary report in October to push for “commercial approaches” to the complaints.

The railways’ position was detailed by Canadian Pacific Railway Vice President for Government Affairs Michael Murphy in a Nov. 8 letter to the panel.

Murphy wrote that CP “vigorously objects” to the panel’s view that “the major cause of railway service problems is railway market power.” In his view, the railways face competition from trucking lines and waterways.

In a similar letter, Canadian National Railway President and CEO Claude Mongeau assured the panel that the company planned what he described as “customer-focused initiatives” that would preclude the need for regulation.

‘Nowhere else to go’

Shipping representatives argue that the country’s two dominant railways amounts to a duopoly, making normal commercial fixes unrealistic.

“We all appreciate that shareholder value is extremely important,” Brown said. “But like the airline industry, you can go full-force into shareholder value, but if your service sucks, [customers are] going to fly with somebody else.

“The problem with the railways, is when you’ve only got two of them, and they’re both sucking at the same time, you’ve got nowhere else to go.”

The Coalition of Rail Shippers, a industrial group that represents companies that account for some 80 percent of the railways’ revenue, shares Brown’s point of view.

Coalition president Bob Ballantyne said Transport Canada should keep the pressure on railways by at least writing regulations while the railways try to right ship.

“The shipper gang is basically saying, Don’t delay for three years in coming up with regulations,” Ballantyne said. “Come up with the regulations now.”

Cost of business

The concerns of shippers and producers go right to the bottom line. Disruptions threaten the prices that Canadian timber or coal or sulfur or grain will earn on the world market. Late goods are worth less.

Likewise, if ships making the 12-day journey from Shanghai can’t get into port and unload their cargo quickly, Vancouver and Prince Rupert risk losing business to ports on the U.S. West Coast.

“The good news about the shipping business is that it’s an extremely mobile business,” Whitworth said. “The bad news about the shipping business is that it’s an extremely mobile business.

“That ship with 2,000 containers on it isn’t on a rail going from China to Vancouver. It can move a few degrees and go to Tacoma easily.”

Snags in the supply chain get expensive fast. Union representative Peter Haines said a delay on a rail line can cost a grain elevator operator full pay for a day crew. Union workers summoned to a job, even one that’s called off, are guaranteed to be paid for an eight-hour workday.

“The rail lines have had their problems,” said Haines, secretary treasurer of International Longshore and Warehouse Union Local 500, which represents workers in Vancouver. “They’ve always had a rather high-handed attitude, very cavalier.”