On the right track?

by Array

MM&D MAGAZINE, MAY/JUNE 2011:

When a panel of independent consultants called for comments from industry stakeholders regarding Canada’s rail-based freight logistics service, no shortage of strong responses were sent their way. Recommendations—requested as part of Transport Canada’s Rail Freight Service Review—ranged from the need for a commercial dispute resolution process, to dealing with a perceived CN/CP duopoly, to establishing reciprocal penalties for service failures.

Phase I of the review included an assessment by a panel which developed an interim report with draft recommendations that were released for industry comment. Phase II saw 141 stakeholders provide recommendations. The panel released its final report in March 2011 with recommendations in four key areas:

• Consultation and notification of service changes;

• Implementation of service agreements;

• A timely and low-cost dispute resolution process; and

• Enhanced performance reporting.

Also in March, the federal government released a response to the panel’s recommendations, stating it would implement several steps:

• Negotiate over six months a template service agreement and commercial dispute resolution process;

• Table a bill giving shippers the right to a service agreement;

• Establish a commodity supply chain table, comprised of those shipping commodities by rail, to address concerns and develop performance metrics; and,

• Lead an analysis of the grain supply chain.

Devil’s in the details

So what do industry stakeholders think of the final report and government reaction? For the most part, members of the Canadian Industrial Transportation Association (CITA) were pleased with the panel’s recommendations and the government’s response, says Bob Ballantyne, CITA’s president.

“As one would expect, I don’t think we got everything we asked for but, by and large, the results were pretty good,” he says. “I think the fact that the government even commissioned the service review [shows] they believed shipper complaints warranted investigation.”

Details surrounding some of the government’s responses need to be hammered out, he notes. For example, while a bill giving shippers the right to service agreements is a step in the right direction, there’s no mention of what would be included in those agreements. As well, the rights and responsibilities of both sides in such agreements need to be addressed.

“We’re glad to see the government saying what their plans are but the devil will be in the details,” Ballantyne says. “There’s some cautious optimism but there is some concern the details—once they’re dealt with—will be difficult.”

Ruth Snowden, executive director of the Canadian International Freight Forwarders Association (CIFFA), says simply proceeding with a review has improved Canada’s rail freight service. When CIFFA surveyed its members in 2009, Snowden says, opinions were almost unanimous the country’s two national railways weren’t meeting the intermodal community’s needs. But that begun to change, she noted.

“Just one year later the change in approach and in rail freight service has been dramatic,” Snowden says. “The review shone a much-needed light on rail service, and the railroads responded.” The process has also prompted shippers, ports, terminal operators and others to voice concerns surrounding the issues, as well as offering a forum for potential solutions.

While CIFFA found interesting the interim report’s suggestion for draft legislation in the event that commercial solutions don’t work, any big-stick approach is a bad idea, Snowden notes. Railroads have already introduced new service agreements with major ports and terminal operators across the country.

“Canada’s rail freight service must be efficient and effective in meeting the needs of the marine cargo industry to ensure that Canadian traders are as competitive as any of our trading partners,” she says. “The Rail Freight Service Review has helped.”

A view from the rail industry

Aspects of the recommendations and government response have left the railways “somewhat disappointed”, says Cliff Mackay, president and CEO of the Railway Association of Canada (RAC). Specifically, using legislation to regulate commercial relationships poses dangers. For example, imposing solutions through dispute resolution could result in uncertainty, with an outcome unsatisfactory for one or both sides. While dispute resolution was welcome, government regulation of the process would likely slow things down, he notes. In the logistics world, such delays can be expensive.

“The name of the game is to be able to deal with disputes in a very efficient and quick way so they don’t sit there and burn up enormous amounts of time and money,” he says.

The Canadian Transportation Agency (CTA) could provide the authority to mediate disputes, Mackay notes. The industry needs arbitration from those who understand the field and can provide consistency, he says.

“If our transportation logistics systems are going to work, the commercial parties have to be comfortable with the relationships,” he says. “Forcing that issue strikes me as not very good public policy.”