Canada chemicals warn on power of rail carriers, urge better service

26 March 2014 17:37  [Source: ICIS news]

TORONTO (ICIS)--Canada’s chemical producers’ trade group CIAC and two other associations on Wednesday raised concerns about the market power of the country’s rail carriers, and they issued a call for better freight rail services.

In an article they contributed to the country’s National Post newspaper, the presidents of Chemistry Industry Association of Canada (CIAC), the Canadian Fertilizer Institute and the Mining Association of Canada said that the country’s rail services did "not operate on normal market conditions."

Canada’s rail sector is dominated by two big carriers, Canadian National (CN) and Canadian Pacific (CP).

The groups said the railway companies wield significant market power over their customers, many of whom are captive to either CN or CP. In Canada's chemical industry, producers rely on rail to ship more than 70% of their products, with many relying exclusively on rail.

The groups said that the rail carriers were not investing enough to maintain service levels.

"Investment - or non-investment - decisions ultimately establish a service-level baseline," they said.

"Permitting railway companies to establish service levels to their customers based on investment decisions that assure inadequate service has created an economically inefficient system and is detrimental to individual rail customers’ ability to access world markets," the groups said.

They also noted Canada needed "a robust transportation policy" that lays out railways companies’ obligations to the customers.

"Without addressing this foundational element, the federal government’s key trade, resource development and employment initiatives will not bear their intended fruit," they said.

In their article, the groups suggested that the government requires railway companies to make information and data available to the government and to shippers to enhance transparency in the transportation system.

This measure would solve two key issues, they said. First, it would allow the government to see the current state of rail capacity, and how well it is positioned to address shippers’ needs to get goods to market and expand into new markets, the groups said.

Second, more transparency, especially regarding network and sector-based data, would allow shippers to effectively use remedies provided for in the Canada Transportation Act.

"We predict that increased data-sharing would lead to more efficient bargaining between shippers and railway companies, thereby inspiring greater commercial collaboration," the groups said.

"A railway company in a given relationship with a customer would be less confident in its ability to impose unfavourable terms knowing that the customer could make a persuasive case to an adjudicator, if negotiations should fail," they added.

The groups also urged the government to amend the Act to better define the "suitable and adequate level of service" a railway is required to provide under the legislation.

"Simply, a railway should meet the customer’s needs. Railway companies are the main arteries of Canada’s economy, but shippers are its lifeblood," the groups said.

In related industry news, CN announced late Tuesday that it will over the coming four years phase out its fleet of DOT 111 tank railcars.

The safety of the DOT 111 tank railcars was an issue in a string of recent rail accidents, including a catastrophe in July 2013 in Quebec where 47 people were killed when a train carrying oil derailed and exploded in the centre of the small town of Lac-Megantic.

"For CN, tank car design is one of the most important systemic issues arising from the Lac-Megantic accident," said CN's CEO Claude Mongeau.

"The question of tank car robustness is central, and that question is being addressed by the AAR [American Association of Railroads], to which CN belongs, in recent recommendations calling for the retrofitting or phase-out of the old DOT-111 cars used to transport flammable liquids and a reinforced standard for new tank cars built in the future," Mongeau added.

By: Stefan Baumgarten
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