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Railways wants the taxpayer to subsidize shipping rates

The vastness of Canada has meant that the country's economic development has always been based on the existence of an efficient transportation system. From the middle of the 19th Century to the first ...


DAVID BRADLEY: Lobby leader
DAVID BRADLEY: Lobby leader

The vastness of Canada has meant that the country’s economic development has always been based on the existence of an efficient transportation system. From the middle of the 19th Century to the first half of the 20th Century, Canada’s railways largely met that need.

But our economy has changed over the last 50 years. Today, our economy is much more diverse, reflecting the growth in value-added manufacturing. Canada must now compete in an environment driven by global trade, characterized by synchronous manufacturing and just-in-time inventory systems.

Because of its flexibility and ability to service today’s shippers’ rapidly changing needs, trucking has replaced rail as the dominant mode of freight transportation. Currently, over 90 per cent, by value, of land freight in Canada and 70 per cent of Canada-U.S. trade moves over the road. Not surprisingly, this does not sit well with Canada’s railway barons who are sometimes heard waxing nostalgic for the days of captive shippers and railway subsidies.

But let’s give them credit. They’re not prone to inaction or lack of initiative when it comes to devising schemes to try and turn back the clock.

Earlier in the week, Paul Tellier, Canadian National Railway’s president and chief executive officer, was in Ottawa speaking to the Canadian Club. He urged federal and provincial governments to subsidize rail shipments; under his proposal, $160 million would be transferred from taxpayers to companies that use rail to ship their goods.

According to Tellier, such a move would divert about 100 million tonnes of freight from highway to rail; reduce shipper rates by hundreds of millions of dollars; and save even more in road repair costs – all while reducing greenhouse-gas emissions. The best part is that the money would go to the shippers, not the railroads, he says.

But if bureaucrats at Transport Canada and Finance are not slapping their heads today saying, “why didn’t I think of that?” it’s probably because the proposal makes no sense. Let’s look at it closely.

Tellier says railroads enjoy a 10-to-15 per cent price advantage over trucks. It follows that trucks are not winning the competitive battle on price but on service, reliability and general efficiency. In the context of a $7.5 billion domestic rail market, a $160 million subsidy to rail shippers would be more a taxpayer-funded loyalty award program than an incentive to switch for those who currently favor truck over rail.

So if this proposal weren’t really going to cause a shift of traffic from trucks to rail, why would the railways be proposing it at all? If you guessed that it would allow the rail companies to increase their rates by a comparable amount, you’d be right.

Under the initiative, Canada’s railroads would, over time, be able to increase their rates to match the taxpayer-funded subsidy, while keeping their competitive position intact.

Since the Government of Canada discontinued most transportation subsidies in the mid-’90s, this proposal is really a disingenuous attempt to turn back the clock by dressing up a rail subsidy as “a green tax credit,” to borrow Tellier’s words.

But just as it fails the grade on the economic front, so too does it fall short as an environmental measure.

In his speech, Tellier dismissed a report on the impact of increased trade on emissions by the North American Commission for Environmental Cooperation – a body reporting to the three NAFTA ministers of the environment. The report concluded that with the strict regulation of engine and fuel particulate, combined with the trucking industry’s ability to quickly assimilate new technology, truck emissions would decline rapidly between now and 2020.

As a result, the report predicted, a shift of freight from truck to rail would lead to more pollution – particularly of nitrous oxide and particulate matter, substances respectively linked to respiratory ailments and cancer. Notwithstanding the fact that regulation of rail emissions is much less stringent – non-existent in Canada – than for trucking, and the average age of CN’s locomotives is around 20 years, Tellier claims his plan would have an immediate impact on harmful emissions.

If Canada’s rail companies were serious about the environment, they would accept being bound by the U.S. Environmental Protection Agency limits for locomotive emissions, rather than arguing for continued exemptions. For years, Canada’s rail companies thrived in a regulated, subsidized and anti-competitive environment.

Deregulation, both in rail and trucking, globalization and runaway government deficits changed the environment in which transportation companies today operate. The marketplace has simply determined that trucking is a more advantageous mode of freight transport in this business environment. n

– David Bradley is president of the Ontario Trucking Association and chief executive officer of the Canadian Trucking Alliance.


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