Agriculture minister Gerry Ritz wants to improve rail service for western Canadian farmers and has a simple solution – make the system more commercial.
In principle, it sounds like a decent concept. A more commercial system with fewer regulations would, theoretically, enable rail companies to become more efficient and deliver better service to farmers at competitive prices.
But in the real world of grain transportation in Western Canada, the railways compete very little for farmers’ business. Canadian Pacific Railway holds a near monopoly on grain movement in the south and Canadian National Railway dominates the central and northern grain belts.
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And what competitive factors the Canadian Wheat Board supplied to the system, serving as an intermediary between farmers and the railways, may soon be a thing of the past.
If the government wants to move to a strictly commercial rail shipping environment, it first will have to introduce radical alterations.
One step was included in the federal rail service review with a recommendation suggesting that shippers should be entitled to long-term service contracts with railways. These would presumably set out shipping costs and service expectations, with penalties built in for poor performance.
We should point out that transportation minister Denis Lebel will be in charge of this file, but expect Ritz to have plenty of input.
And since Ritz doesn’t like the revenue cap, which limits how much railways can earn from western grain movement, we can expect changes around it as well.
The revenue cap generated controversy in the past, particularly when the railways were caught overcharging farmers in 2008 by the Canadian Transportation Agency.
The agency ordered the railways to repay $59.8 million for overcharging on car maintenance, plus a 15 percent penalty, money that was eventually paid to the Western Grain Research Foundation.
However, even if the revenue cap has restrained freight costs overall, it has done little to address service problems.
The Rail Freight Service Review Panel, in drawing up last year’s review, heard from the Coalition of Rail Shippers representing 80 percent of Canadian National Railway and Canadian Pacific Railway customers. It reported that the railways delivered 90 percent of the cars requested only about half the time. Many of those clients were not grain shippers and so already operated outside of the revenue cap system.
Clearly, deregulation and eliminating the revenue cap form only one side of the equation. Rail competition, or the lack thereof, must also be addressed.
Willard Estey, who conducted an extensive review of rail competition in the 1990s in the wake of the end of the Crow Benefit transportation subsidy, recommended joint running rights. These would permit any railway, the two major operators and shortlines included, to run trains on one another’s tracks.
Joint running rights were important enough to Estey that he detailed a plan for how the system would work.
In addition, producer car loading rights must be protected. Ottawa should set out a clear policy that encourages loading sites. If the government is serious about a more commercial system, what is more in keeping with the spirit of competition than allowing farmers to order, load and ship their own rail cars?
Farmers have already waited through years of study and reports. Minister Lebel must move quickly.
However, Ottawa must ensure that all shippers have equal opportunities to share in the profits that can grow out of a true free market system. With the near monopolies that dominate rail service in Western Canada, a more commercial system, without proper counter measures, may not be possible.
Bruce Dyck, Terry Fries, Barb Glen, D’Arce McMillan and Joanne Paulson collaborate in the writing of Western Producer editorials.
