Canadian Transportation Agency denies Ferroequus’s running rights application

by Canadian Shipper

The Canadian Transportation Agency yesterday issued a decision denying the application by the Ferroequus Railway Company running rights over lines of the Canadian National Railway.

Ferroequus was seeking seeking running rights for its trains to to haul grain, over CN lines between the Camrose, Alberta interchange and the Port of Prince Rupert, British Columbia. This decision follows a public hearing that was held by the Agency from April 29 to May 8, 2002, in Winnipeg, Manitoba.

The Agency, in its majority Decision No. 505-R-2002, concluded that a statutory running right is an “exceptional remedy” that requires actual evidence of market abuse or failure before an application under section 138 of the Canada Transportation Act may be granted.

In its decision, the Agency stated: “In the case at hand, Ferroequus has not established the existence of a rate or service problem in the relevant markets nor has it established that the granting of running rights would eliminate or alleviate any lack of adequate and effective competition.”

The Agency, in assessing the other elements relevant to the public interest, also determined that: 1) the granting of Ferroequus’s application would have a negative impact on many of the participants in the grain handling and transportation system; 2) Ferroequus’s Business Plan is overly optimistic; 3) the proposed interchange of traffic at Camrose, Alberta is physically possible but cannot be performed without creating inefficiencies in the current grain handling system and to the pipe-manufacturing companies in that area; and 4) the inefficiencies that would be imposed on the grain handling and transportation system participants other than Ferroequus would not be offset by Ferroequus’s operating efficiency.

The Agency considered the impact of its decision on grain producers. It stated: “The issue of the efficiency of the grain handling and transportation system is important because it affects the competitiveness of the Canadian grain industry in world markets and ultimately affects grain producers and other system participants, who pay for inefficiencies in the system through lower net returns, lost sales, or both.”

Four of the five members on the Agency panel considering the application concluded that running rights are “an intrusive regulatory intervention (that) is not warranted in this case”.

“There has to be more than simply the enhancement of competition in a market for the section to apply. Section 138 of the Canada Transportation Act does not promote competition for competition’s sake,” the Agency said in its decision, although, in general, “the greater the problem, the more favourably inclined the Agency will be in its consideration of a particular running right proposal.”

A panel member supporting the majority decision went further in his reasons, describing running rights as “an extreme remedy for an extreme situation” requiring “convincing evidence to prove that a carrier was, in a blatant and outrageous manner, abusing its market power”.

Another panel member dissented. In her view, ” …the essence or purpose of section 138 of the Canada Transportation Act is the enhancement of competition. (…) the financial benefits to the Canadian Wheat Board and its producers brought about by the enhancement of competition to Prince Rupert far outweigh any inconveniences that the non-Canadian Wheat Board producers may suffer as a result of Ferroequus’s application being granted.”

Running rights allow one railway to operate using the tracks and facilities of another railway. They may be voluntary commercial agreements between two railway companies to allow more efficient operations (e.g. to avoid constructing a bridge), or they may be involuntary and imposed by the Canadian Transportation Agency, which takes into consideration the public interest.
The Canadian Transportation Agency is an independent federal quasi-judicial tribunal whose procedures are governed by the rules of natural justice.

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