CN’s Mongeau charges regulation would damage Canada’s rail system; CITA’s Ballantyne says concerns are overblown

MONTREAL, Que. – Initial reaction to the final report from the facilitation process to produce a template for rail service-level agreements and enhanced commercial dispute resolution mechanisms reveals railways and their customers remain at odds.

Claude Mongeau, president and chief executive officer of CN, said that although CN actively supported the facilitation process, shipper representatives, or the associations they represent, chose to advocate a regulatory agenda rather than work within the commercial approached encouraged by facilitator Jim Dinning to reach for the next level in supply chain collaboration and service agreements.”

“They continually demanded new intrusive, regulatory intervention,” Mongeau said in a company release shortly after the facilitator’s report was made public. “Shippers’ demands for greater government intervention in rail service are clearly misguided. This regulatory stance represents a missed opportunity to take supply chain collaboration to the next level.”

In response, Bob Ballantyne head of the Canadian Industrial Transportation Association, countered that the Stakeholder Facilitation Committee, comprising of 15 industry members from both the railway and shipper side and tasked with coming up with acceptable rail service agreement and commercial dispute resolutions mechanisms, could not reach agreement because “essentially what the railways offered was the status quo.”

Ballantyne’s association is also part of the Coalition of Rail Shippers, which he says represents about 80% of CN and CP’s revenues.

Ballantyne called Mongeau’s comments as “very strident and very aggressive.” He also accused Mongeau of needlessly adopting a “sky is falling” approach in his opposition to legislation and added that any shipper recommendations would “only affect railway revenues at the margins.”

That’s definitely not how Mongeau sees things. He believes the “intrusive” regulatory-based approach to service demanded by shippers would be “unprecedented in a market-based economy.”

“Such an approach would send mixed signals to customers and suppliers around the world about the government’s approach to commercial markets for rail transportation in Canada,” he said.

Mongeau provided the following examples of what CN considered “intrusive tools” recommended by shippers:

• Legislate service parameters and outcomes;
• Give individual shippers effective veto power over service standards and to enforce service standards through financial penalties on railways, and
• Require the imposition of third-party service-level agreements if a railway and customers cannot agree on the terms of a service agreement.

Mongeau said: “The shippers’ regulatory stance would, if legislated, deter railways’ willingness to innovate and to work collaboratively with customers to develop more ambitious service standards. It would chill the current service improvement momentum and would damage the supply chains that CN serves in the Canadian economy.”

He argued a legislative approach is not necessary because CN has achieved significant improvements in customer service in the past three years and has initiated supply chain collaboration agreements and service-level agreements with a wide array of stakeholders and customers, both large and small.

“These agreements already cover a significant proportion of CN’s revenue base, in forest products, grain, metals, coal and intermodal traffic. The launch of the Service Review was a large factor in CN stepping up its game,” he said.

Ballantyne agreed that what would be best is if a shipper could sit down with his rail carrier on a “equal basis.”

“That’s really difficult though because of the Class 1 railways’ market dominance,” Ballantyne countered.

Dinning’s report also recommended that the railways publicize their commercial dispute resolution policies. CN has a commercial dispute resolution process available on its website, and invites its customers to use the process to resolve disputes, Mongeau pointed out.

Mongeau asked the federal government, now that the facilitation process is complete, to carefully weigh the future regulatory environment for Canada’s rail industry.

“CN strongly urges the federal government to favour commercial solutions to rail service issues. Canadian railways are widely known internationally for their efficiency and reliability – which is a key asset for a trading nation like Canada. The nation should not put such an asset at risk through additional burdensome and unnecessary rail regulation.”