Improving Rail Service

Long-awaited legislation aimed at improving rail service was announced in Winnipeg yesterday.

Federal Transport Minister Denis Lebel and Agriculture Minister Gerry Ritz unveiled the Fair Rail Service Act, which will give rail shippers the right to service agreements with railways. It will establish an arbitration process for when negotiations between shippers and rail companies fail. The provision also allows for railways to be fined up to $100 thousand for each confirmed violation of an arbitrated service agreement.

The legislation stems from the Rail Service Review, which started in 2008.

Ritz says shippers have reported that rail service has already improved since the review began.

"And if they continue to provide that level of service, these are tools in the toolkit that would not have to be used. That would be the ideal scenario, but we know that's a utopian idea," he says. "So this gives shippers of all sizes, whether it's one producer car or a large line company, the ability to hold railways to account if and when they can't get a contract, or that contract is not honoured."

Several farm groups are welcoming the legislation, saying it should improve accountability with rail service and address potential abuse of market power by railways.

On the other hand, the rail companies are denouncing the bill, saying it could hurt supply chain efficiency.

"We spoke intensively with the railways while this was being developed. Of course they didn't want any kind of hammer in the toolkit," says Ritz. "I recognize they have stepped up their game, but at the end of the day we want to make sure that game stays at that level, if not a little better."

Rail companies will be obligated to respond within 30 days of a shipper requesting a service contract. If an agreement cannot be reached, arbitration will be made available through the Canadian Transport Agency. The arbitrator's decision will be binding and non-appealable, and will have at least a one-year term.

The costs of the arbitration process will be split between the shipper and the railway, says Ritz.

He adds the timeline for passage and implementation of the legislation will depend on how the Opposition views the legislation in the House of Commons. The NDP has indicated it will likely seek amendments to the legislation.

Background (courtesy Agriculture and Agri-Food Canada)

To exercise the new right to a service contract, a shipper will first have to request one from the railway. The railway will then be obligated to respond within 30 days. If an agreement cannot be reached through commercial negotiations, service arbitration would be available to a shipper to establish the terms of service. To access the remedy, a shipper would have to satisfy the Agency that an attempt was made to resolve the matter with the railway.

The arbitration process will be interest-based (as opposed to final offer), with a 45-day timeline. This could be extended by the arbitrator, for up to 20 days, if needed. The arbitrator’s decision will be binding and non-appealable. The imposed contract would be akin to a confidential contract and have a one-year term (or longer, if both parties agree).

The new provision describes the elements that must be included in an arbitrated service agreement broadly, including the operational terms and conditions of service that a railway must comply with. These could include communication protocols and performance standards, and operational terms in the event of a performance failure (e.g., recovery plans). This broad definition of elements gives the arbitrator flexibility to impose comprehensive service contracts tailored to a shipper’s needs.

The Act currently requires that decisions rendered by the arbitrator be commercially fair and reasonable to both shippers and railways. The new provision provides guidance for the arbitrator to take into consideration the shipper’s transportation needs to maintain and grow its business, as well as the railway’s need to operate an efficient network for the benefit of all users. In rendering a decision the arbitrator will consider the specific circumstances of the situation, including any voluntary commitments made by the shipper to the railway.

The new provision allows for an Administrative Monetary Penalty (AMP) of up to $100,000 to be applied against a railway for each confirmed violation of an arbitrated service agreement.

~ Wednesday, December 12, 2012 ~

link to legislation:

photo captions: Gerry Ritz announcing the Fair Rail Service Act.

The ministers with rail shipping stakeholders. (l-r) Mark Thomson, General Manager of West Fraser Timber; Agriculture Minister Gerry Ritz; Transport Minister Denis Lebel; Jim Facett, CEO of the Canadian Propane Association; Gordon Bacon, CEO of Pulse Canada and co-chair of the federal government's Crop Logistics Working Group.

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