Reuters: Regulatory News: UPDATE 1-Canada government may act on rail shipment dispute

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UPDATE 1-Canada government may act on rail shipment dispute Jun 22nd 2012, 21:10 Fri Jun 22, 2012 5:10pm EDT By Randall Palmer and Alex Paterson OTTAWA, June 22 (Reuters) - The Canadian government will probably have to impose new rules on railways and their customers after four months of negotiations failed to find a formula to get grain shippers and other customers the service levels they demand. At issue are complaints from customers that the railways fine them if their shipments are not ready on time, but the railways themselves don't face penalties if they don't get rail cars to the customers on time. The two sides spent four months discussing the issue in a government-sponsored committee. But documents obtained by Reuters under Canadian access-to-information legislation show they failed to meet their goal of developing both a template for service agreements and a dispute resolution process. "Despite the effort of all involved, the committee did not agree on several key issues. We are disappointed in this outcome, as are railways and shippers," the Transport Department said in an internal memo. Canada's two main railways, Canadian National Railway Co and Canadian Pacific Railway Ltd, haul about 30 million tonnes combined of Western Canada grain annually, according to the Canadian Transportation Agency, as well as large volumes of coal, fertilizer and industrial and consumer goods. Railways impose fines for late shipments as part of their efforts to keep tightly managed rolling stock running efficiently across their networks and provide cars where needed. The shippers are seeking agreements on a specified level of service. Rail transportation has long been a sensitive issue for farmers, since Western Canada has no river freight system to move grain the long distances between the Prairies and ports. POOR RECORD In their arguments, the shippers point to a March 2011 rail freight review panel finding that said the railways provided grain shippers with at least 90 percent of the cars they ordered only 54 percent of time on a week-to-week basis. The record was even worse on a day-to-day basis. The panel found grain shippers received 90 percent of the planned car supply on the planned day only 12 to 28 percent of the time. The railways say they have worked hard to improve their services, and that new regulations will just stifle innovation. "That dealt with years past, and we have moved ahead," said CN spokesman Mark Hallman. He said CN has now achieved an 85 percent success rate in delivering cars ordered to specific elevators on the scheduled day. "There's no question that the railroads are spending a lot of time and effort on trying to manage the process and work with customers to prevent increased legislative handicaps to their business," said Raymond James analyst Steve Hansen. The shippers are not satisfied, according to a summary of the committee discussions sent to the government and obtained by Reuters under access to information. "After four months of meetings, the railways have not agreed to mandatory elements that would form the framework of a service level agreement," the shippers said. "Further, railways have stated they will not discuss a dispute resolution process that would help close a negotiation and establish an agreement," they added. "Railway customers expect more than 'best intentions' and inadequate dispute resolution alternatives when billions of dollars of rail freight services are purchased every year." EFFORTS MADE CN says it made significant efforts to achieve a mutually acceptable template and an effective commercially focused dispute resolution process at the committee, which was headed by former Alberta Treasurer Jim Dinning. "CN is prepared to reach such agreements with all customers, large and small," said Hallman. "Through the Dinning facilitation process, however, it became clear that the shippers associations involved in the process were not interested in achieving a commercial consensus." CP spokesman Ed Greenberg said any agreement must be based on a balance in the level of commitment each party is ready to bring to the table. "Shippers preferring to imbalance this relationship and force significant commitments from railways without making any commitments themselves is not a position that any commercial participant in any industry would consider reasonable," he said. Dinning, who has been in and out of both politics and industry, ended his consultations in mid-April, submitting a report to federal Transport Minister Denis Lebel. Lebel has committed to introduce legislation this autumn, which is expected to set out basic service agreements that shippers can fall back on when direct negotiations with railways fail. The agreements could detail the obligations of each party and performance standards, possibly with penalties against railways for poor service. "The railways include penalties for shippers, but do not put in any commensurate obligations on themselves," Wade Sobkowich, Western Grain Elevators Association executive director, told Reuters. "Why would they? Nothing (is) forcing them. That's why we need the service level agreement legislation." A political caveat is that a cabinet shuffle is widely expected for this summer. If Lebel is moved, it may take time for his successor to get up to speed and introduce the bill. Link this Share this Digg this Email Reprints

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