Rail Decisions in Canada – Part 3 of 3

October 24, 2014 - Policy decisions shaped Canada’s rail system and helped define northern Ontario’s development in the late 19th and early 20th centuries. Some were models of intelligent public policy.  Others were questionable, but ultimately bore fruit when subsequent decisions corrected their flaws.

Non-rail policy decisions later in the 20th century also affected our rail system. These include the legislation and public funding of commercial aviation facilities, a nationalized airline, the Trans-Canada Highway and the Great Lakes St. Lawrence Seaway.  These decisions established and enabled rail’s competitors.

But the most fundamental policy decision following those that built and reshaped the rail system was enshrined in the National Transportation Act (NTA) of 1987.  The federal government billed it as “legislative change which will free Canada’s transportation system from the burden of excessive economic regulation.”

The NTA did, indeed, do that. But it went further by eliminating most of the public interest tests contained in the previous act of 1967, which had applied a combination of commercial and public policy requirements to all the federally-regulated modes. The NTA was based purely on profitability in the regulation and operation of our transportation system, particularly rail.

On the surface, that seems reasonable. It implies every operator within each mode shall compete fairly with the others; only the most efficient win the business by paying all their costs. The problem is our transportation system has always contained public investment, whether directly or indirectly through infrastructure and support services. It still does, but little goes to rail.

When public policy cuts off investment in one mode and not another, we’re not likely to get maximum utility from the mode lacking access to the public funding necessary to cover the full cost of its infrastructure and services. That inevitably leads to the disadvantaged mode slicing away unprofitable or marginal services. As stockholder-funded enterprises, they concentrate their available capital where it will produce the greatest revenue and dividends.

The CPR and CN have done this, as prescribed by the policy decisions reached in 1987 and escalated in subsequent national transportation acts.

We’re seeing the result of those decisions now. One recent example is our rail system’s inability to deal effectively with surges in grain and crude oil, complicated by harsh weather conditions. Network capacity and resilience have declined because it’s not cost-effective to have assets sitting idle pending unexpected demand changes. Adding them requires time and scarce capital.

Another example is service prioritization and differential pricing based on shipper volumes, service needs and profit margins. All traffic is not created equal under this system. Just ask northern Ontario’s forest products industry.

No nation operates in isolation. Canada’s major competitors have taken a different legislative and funding approach to their transportation systems. In every case, railways are treated the same as the other modes, or even favoured, to maximize their effectiveness for valid economic, social and environmental reasons. Where non-profitable services are deemed necessary in the public interest – including global competitiveness – there is public investment.

After years of applying the same skewed policies as Canada, the U.S. has changed tracks. We should be concerned that our largest competitor and trading partner is doing so. Interlocking U.S. federal and state policies now recognize the public benefits of rail investment that’s in synch with the other modes. Using the public-private partnership approach that built the CPR more than a century ago, the U.S. is rebalancing its system to expand and improve rail capacity, flexibility, fluidity and utility. That will affect Canada’s railways and our competitiveness.

The opportunity to reassess the course Canada has steered since 1987 is here. The current Canadian Transportation Act of 1996, which boosted the NTA’s reliance on the profitability test, is undergoing a legislative review. A major public policy decision needs to be made.

Will Canada continue a policy that applies one yardstick to the railways, but not the other modes? Or do we, as a nation, want to rebalance the system and take greater advantage of railroading’s untapped potential?

The recent decision to restructure provincially-owned Ontario Northland provides a more regional opportunity to determine rail’s future role. The choices in the mode and funding mechanisms to support the Ring of Fire demand similar questions be asked – and answered.

History proves the looming policy decisions will reverberate for decades, reshaping rail services, coverage and impact. Regions heavily dependent on long-haul freight and passenger links, such as northern Ontario, must choose carefully. Some economic opportunities, especially in mining, can’t be tapped effectively without a robust rail system.

With our global competitors leaning heavily on improved, sustainable rail service, our choices should be clear.

Authored by Greg Gormick, a Toronto transportation writer and policy adviser. His clients have included CN, CP, VIA and numerous elected officials and government transportation agencies.

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