Shippers hope railway regulation ahoy

By Scott Deveau, Financial PostApril 6, 2010

Canadian shippers are heralding a new report as further evidence that some sort of added regulation is required from Ottawa to improve service levels at the country’s largest railways.

The report is the fourth and final one prepared for Ottawa as part of its Rail Freight Service Review that could potentially lead to greater oversight of Canada’s freight rail sector when the recommendations of the commission are submitted to Parliament this fall.

The first three reports have painted a damning picture of customer service in the sector. About 45% of the shippers surveyed during the review complained that service levels at Canadian National Railway Co. and Canadian Pacific Railway Ltd. has deteriorated in the past three years.

More than 60% also said they had suffered a “significant” financial loss, often in the millions, as a result of the poor service.

The final paper, prepared by QGI Consulting Inc., submitted last week examines car supply levels and transit times over the past two years.

It found that both railways managed to meet roughly 98% the annual demands of their grain shippers on average over the past two years.

In the merchandise segment that figure dropped to 86% at CN, and 73% for CP on average over the past two years.

But those figures hide the real issues facing rail shippers, said Bob Ballantyne, Canadian Industrial Transportation Association president.

“What happens on an annual basis is of no value at all,” Mr. Ballantyne said. “For shippers and receivers it’s what happens on a daily and a weekly basis that really counts. If a shipper says they need three cars, five days a week, that’s what he needs. He doesn’t need 15 cars once a week.”

A weekly breakdown of the figures shows a significant drop off in service, he noted. Grain traffic shippers only received 90% of the cars they needed on a weekly basis, 50% of the time.

In the merchandise segment, shippers only received 90% of the cars ordered 68% of the time from CN and 50% from CP, according to the QGI report.

There were also large fluctuations in transit times for hauling shipments similar distances, the report states.

Shippers have been pushing for some sort of regulations that would force railways to meet specific performance objectives, or risk fines.

While unpredictable service may cause a shipper to incur demurrage fees from the railway, there are not similar repercussions for the railways if a shipment or rail cars arrive late, Mr. Ballantyne said.

But Mark Hallman, CN spokesman, said not all of the blame rests on the railways. He noted the report states all stakeholders, including shippers and receivers, play a part in fluidity of the railroads.

He noted shipments and cars can just as easily be impacted by weather as they can by last minute changes by customers, or if a receiver is closed on a weekend.

“CN’s supports the view that each party within the logistics systems needs to execute to ensure a fluid system,” he said. “CN will continue to work with its customers to improve processes and performance of the entire logistics chain.”

CP said it would reserve its comments for the commission.