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Alberta Wheat Commission calls for Reciprocal Penalties in Transportation Reforms

(Calgary, Alberta) – The Alberta Wheat Commission (AWC) says measures to improve railway accountability are needed to restore confidence in Canada’s grain transportation system.

In its preliminary recommendations to the Canada Transportation Act (CTA) Review Panel, AWC calls for the mandatory inclusion of reciprocal penalties in Service Level Agreements to ensure rail companies meet their service obligations or face immediate financial consequences.

"AWC has made a conscious decision to focus our lobbying efforts on this issue because we believe it is fundamental to the success of the review process," says AWC Chair Kent Erickson. "We believe that reciprocal penalties will reduce the need for regulatory interventions and will provide meaningful, long-term solutions to the issues that grain transportation has historically faced."

Without mandatory reciprocal penalties, Erickson says there is no reason for a shipper to attempt to conclude a Service Level Agreement.

"Railway tariffs impose set penalties on shippers if they fail to meet their contractual obligations, for example loading and unloading of cars within a specified time," he says."To ensure balance and equity in the supply chain, it is critical that penalties are also in place for railway non-performance."

To be effective, AWC recommends that reciprocal penalties be accompanied by expanded powers for the Canadian Transportation Agency to ensure the agency has the ability to enforce adequate levels of service that meet the commercial needs of system users. The current definition of "adequate and suitable accommodation" in the Act is vague. AWC recommends the definition be amended to state that "a railway company shall fulfill its service obligations in a manner that meets the rail transportation needs of the shipper."

AWC looks forward to its continued involvement in the CTA Review and to working with industry partners to ensure that the growing demand for quality Canadian products, as well as increased market access, is supported by a reliable and responsive rail transportation system.

The Alberta Wheat Commission is a producer-directed organization representing the interests of and serving as a single voice for all of Alberta’s 14,000 wheat producers.

www.albertawheat.com

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Victoria Russell
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Backgrounder

Murad Al-Katib
Canada Transportation Act Review Secretariat
350 Albert Street, Suite 330
Ottawa, ON K1A 0N5

December 18, 2014

Dear Mr. Al-Katib,

The Alberta Wheat Commission (AWC) is pleased to have received an invitation from the Canada Transportation Act (CTA) Review Panel to attend a consultation in Calgary on October 21, 2014. We enjoyed the opportunity to join our industry partners in a fulsome discussion lead by you and your colleague, Ms. Szel. It is our understanding that this initial consultation will be followed by a second, more in depth analysis in the spring of 2015. We look forward to every opportunity to work with the Panel as they prepare their recommendations to the Minister.

Rail transportation remains one of AWC’s priority issues. We are pleased with the announcement from Agriculture and Agri-Food Canada (AAFC) and Transport Canada that the minimum volume requirements for the movement of grain by rail will be extended until March 28, 2015 under the Order-In-Council. The extension will help avoid a repeat of the transportation backlog of last winter that cost prairie famers billions of dollars in lost profits and compromised Canada’s reputation as a reliable supplier of grain. AWC is also pleased that the railways will be required to submit formal winter contingency plans as well as efforts to improve railway movement by corridor and service to producer car loading sites and short-line railways.

AWC has lobbied to keep the order in place until such time as rail companies can be held accountable for their performance through mechanisms such as the mandatory inclusion of reciprocal penalties in service level agreements. Without these penalties there is no reason for a shipper to attempt to conclude a Service Level Agreement. Railway tariffs impose set penalties on shippers if they fail to meet their contractual obligations, for example loading and unloading of cars within a specific time. To ensure balance and equity in the supply chain, it is critical that penalties are also in place for railway non-performance.

The need for reciprocal penalties is further reinforced by the government’s recent decision to make mandatory,

the inclusion of penalties, as part of the contracts that exist between producers and grain companies. These penalties will ensure that grain companies honor their contractual commitments with producers, or face penalties as a result. If a grain company cannot accept a producer’s grain within the delivery window specified in the contract and that inability comes as a result of a rail company’s failure to provide the required service and/or capacity, under the new regulations, grain companies will be forced to pay a penalty to producers. In the absence of reciprocal penalties, grain companies do not have access to an effective and efficient mechanism to a) recoup any losses associated with inadequate rail service and b) incent the rail companies to honour their contractual commitments to grain companies.

We know that the negative impacts of a system that lacks accountability are ultimately borne by producers. When grain companies lose money as a result of their inability to effectively and efficiently recoup costs associated with inadequate rail service, such as scheduling staff to load a shipment when the expected rail cars were not delivered or unanticipated demurrage changes as a result of the railway’s failure to get an order to port on time; these costs are all passed on to the producer in basis levels. In the absence of penalty provisions in service level agreements grain companies will continue to pass these costs onto farmers through lower net returns.

We believe that reciprocal penalties will bring equity and accountability to all members of the supply chain and lessen the need for regulatory interventions.

AWC’s recommendation to the federal government is that Section 169.31 of the Canada Transportation Act allow the Agency to determine the "operational terms" that will be included in a Service Level Agreement between shippers and carriers. Regulations relating to this amendment must be very clear that Dzoperational termsdz should include financial accountability for railway performance.

To be effective, mandatory reciprocal penalties must be accompanied by expanded powers for the Canadian Transportation Agency to ensure the Agency has the ability to enforce adequate levels of service that meet the commercial needs of system users. The current definition of "adequate and suitable accommodationd" in the current Act is vague. Adjustments are required to remove the potential for subjective interpretation. The definition should be, "For the purposes of sections 113 and 114, a railway company shall fulfill its service obligations in a manner that meets the rail transportation needs of the shipper."

We commend you for your leadership on this file Mr. Al-Katib, and look forward to working with you and your colleagues on the Canada Transportation Act Review Panel as we work towards the development of meaningful long-terms solutions for all Canadian sectors that rely on rail shipping.

I invite you to contact me should you have any questions about our submission.

Sincerely,

Kent Erickson

Chairman of the Board
Alberta Wheat Commission