WINNIPEG — Ottawa has bowed to demands from shippers and will bring in legislation to guarantee their right to service agreements with railways.
The announcement was made Friday by Agriculture Minister Gerry Ritz and Rob Merrifield, minister of state for transport, as they released the final report of a rail freight service review.
The decision runs contrary to a review panel suggestion that the government hold off on legislation to give shippers and the railways time to work things out on their own.
The government didn’t agree, although it accepted the panel’s recommendation that a commercial approach be followed.
“Railways, farmers and all shippers depend on one another for their survival and profitability, and we’re making sure they have the tools they need to capture efficiencies and strengthen that partnership,” Ritz said in releasing the report and his response in Winnipeg.
The government will give the parties six months to work out what a service agreement might look like. It will also table legislation to give shippers a right to those agreements.
That pleased at least one of the major bulk users of rail services.
“We’re pleased that the government has rejected the wait-and-see approach,” said executive director Wade Sobkowich of the Western Grain Elevator Association.
“The effectiveness of the proposed legislation will be determined as service level agreements are finalized and put into effect.”
Shippers want service agreements that set out what the railways must deliver and penalties if they fail to live up to those commitments.
The review panel agreed with shippers that their relationship with Canada’s two main railways is unbalanced and most of the power sits in the hands of the railways.
“On one hand this is much better than what the panel was recommending. On the other hand the government didn’t follow solutions put forward,” Sobkowich said.
But there is another reason for optimism, he added. The Canadian Transportation Agency will arbitrate disputes between shippers and railways.
“It will need to be a binding and cost-effective process that occurs under a reasonable timeline,” Sobkowich said.
“There will be more often than not a set of items that have not been resolved and it’s going to be important that there be a quick and easy way to have those ruled upon by an independent third party.”
CN (TSX:CNR) said it has serious concerns about the panel’s report and the federal government’s response to it.
The railroad said the legislation could stifle innovation and competitiveness in the industry and hurt Canada’s ability to compete in global markets.
“We are concerned that the panel’s recommendations are drifting backwards toward more regulation instead of encouraging the current momentum for positive change,” CN CEO Claude Mongeau said in a release.
The Canadian Wheat Board also said the government’s response was a step in the right direction.
“But the devil will be in the detail,” said Allen Oberg, chair of the board’s farmer-controlled board of directors.
“It will be crucial that a new process for dispute resolution between the railways and shippers has the teeth required to compel reasonable rail service — which has been a serious problem in our efforts to move farmers’ grain to port.”
The board had suggested a Rail Service Office, with the power to make binding decisions if there were disputes.