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Railway Reform Impeded By Preconceived Bias

In the Interim Report (October 2010), the Rail Freight Service Review Panel provides a clear, consistent, and convincing analysis of the lack of competition in the rail transportation industry and the preponderance of power possessed by the railways in the marketplace. When the panel applied the Competition Bureau’s methodology to determine if there was competition in the rail transportation industry, it concluded: “An assessment based on these criteria would confirm that CN and CP possess market power over their customers.”

Indeed, the panel acknowledges that a lack of competition in the industry is the problem: “In the panel’s view, the major cause of rail service problems is railway market power, which leads to an imbalance in the commercial relationships between the railways and other stakeholders. This, in turn, reduces the railways’ accountability for performance. As a result, railways do not always face the consequences that come from offering poor service that occur in other sectors in which competition is more prevalent.”

The interim report makes a few things very clear:

That there is no competition in the industry;

The railways have all the market power;

The panel asserts that “there are no practical ways to directly increase rail competition.”

Yet, the report lists five competition-creating ideas it received, recommendations that are commercial solutions;

The majority of non-railway stakeholders, especially shippers, are calling for regulatory protection;

The railways are basically the only parties saying that no regulatory change is needed.

It is surprising that the panel chose to recommend neither immediate regulatory intervention – clearly called for by the market environment and stakeholder submissions – nor the commercial solutions that are readily identified and clearly available.

The question arises – does this service review function only to provide a rationale for a predetermined outcome rather than follow the evidence to more logical conclusions? If so, it is an unfortunate use of a democratic process in which grain producers had high hopes for results that would improve service to their farms.

The panel does say that there is a chance that regulatory intervention will be needed. It recommends the railways be given three years to improve service. According to the panel’s interim report, if it is determined at the end of those three years that service has not improved, only then regulations should be enacted to require improvements.

But improvements to rail service have been long overdue.

Seven years in the making, the current service review, itself, is taking three years. The result? Recommending the status quo for another three years. Thirteen years of hurt without action. Thirteen years that farmers and shippers have absorbed the impact of poor service on their bottom lines. Thirteen years with no guarantee that things will change.

The possibility of action sometime after 2013 clearly does not address the needs of shippers and grain producers.

Perhaps the panel really isn’t recommending the status quo – since it suggests the federal government begin drafting regulations that could be “triggered” if service levels are deemed inadequate in three years. But, given the trajectory toward deregulation in grain transportation over the past several decades, and the continuing inaction on inadequate service during that time, this really isn’t a credible recommendation.

Indeed, the panel makes a special note in the interim report to identify a bias in favour of the railways within the panel itself: One panel member supported a regulatory package, but believes that advanced legislative drafting will be a disincentive for many stakeholders, particularly shippers, to enter into meaningful negotiations with the railroads prior to the 2013 assessment … these stakeholders will simply wait for the 2013 assessment in the expectation that the governor-in-council will trigger the amendments that are sitting on the shelf … he does not believe there is sufficient incentive for these stakeholders to expend the time, effort or money to reach commercial agreements relating to service agreements and a dispute resolution process … (he) believes that many stakeholders are seeking a return to railroad regulations and this recommendation would work in their favour.

What reason is given by the panel member to oppose simply drafting stronger regulations that might not even be implemented in three years? Because it is the shippers who have been and will be bad actors in the marketplace. The question is inescapable – why are we spending taxpayers’ money to blame the victim(s)?

At least, that’s how it looks from this side of the tracks.

Doug Faller is policy manager for Agricultural Producers

Association of Saskatchewan (APAS)

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