Transport
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Rail Freight Service Review begins OTTAWA — The Honourable Lawrence Cannon, Minister of Transport, Infrastructure and Communities, today announced the start of the rail freight service review by inviting comments from interested parties on the draft terms of reference for the review. "Shippers need an effective, efficient, consistent, and reliable rail transportation supply chain to remain competitive in domestic, continental, and international markets," said Minister Cannon. "There is widespread support for this review because it will identify service problems and their impacts and make recommendations to improve Canada's rail freight logistics system." When the government tabled proposed amendments to the shipper protection provisions of the Canada Transportation Act (CTA) on May 30, 2007, it announced its commitment to begin a review of railway service within 30 days of the Bill receiving Royal Assent and to consult with shippers and railways on the scope and terms of reference for this review. Bill C-8 received Royal Assent on February 28, 2008. Draft terms of reference have already been reviewed by the Coalition of Rail Shippers, Canadian National Railway (CN) and Canadian Pacific Railway (CPR), and revised, based on their feedback. Stakeholders are invited to comment by May 11, 2008. It is expected that the terms of reference will be finalized in May 2008. The scope of the review is Canada's rail-based logistics chain (including shippers, terminal operators, ports and vessels). The review will focus on service provided to Canadian shippers and customers by CN and CPR within Canada, including to and from ports and border crossings. This is good news for shippers of a broad range of commodity groups such as agriculture; coal; fertilizers; forest products; fuel and chemicals; grain; intermodal including retail; machinery and automotive; manufactured products; and metals and minerals. It is proposed that the review be conducted in two stages that may take 12-18 months to complete. In the first stage (at least six months):
In the second stage (approximately six months), a panel of three eminent persons would:
For a complete description of the review process, refer to the attached backgrounder. - 30 -
The government tabled proposed amendments to the shipper protection provisions of the Canada Transportation Act (CTA) on May 30, 2007. At the same time, it announced a commitment to commence a review of railway service within 30 days of the passage of the amendments. The objective of this paper is to describe a proposed scope and approach for conducting the review of the rail freight transportation supply chain in order to solicit comments from interested parties. CONSIDERATIONS
ISSUES Shipper size – The review should address the needs of shippers of all sizes – small, medium, and large - across all sectors, including shippers w th particular needs, e.g. dangerous commodities. The review should consider how shipper size impacts supply chain efficiency and capacity. Car Supply – Good service means 1) providing reasonably consistent and reliable car supply, in terms of condition, type and numbers, to meet shipper demand; and 2) moving cars efficiently and effectively from origin to destination. Demand Forecasting – How do shippers and railways coordinate demand forecasting in both the short term (one year and less) and long term and the corresponding impact on service needs –fleet size, crews, locomotives – as well as infrastructure requirements, both railway and shipper? How are differences in demand forecasts and service/infrastructure needs addressed? Peak movements – Most shippers experience seasonal demand for their products and many experience cyclical demand. It is unreasonable for railways to provide sufficient resources to meet 100 percent of peak demand since it is expensive to "park" resources during off-peak or off-cycle periods. The challenge is to find a balance between the needs of shippers and railways that allows railways to provide effective service to shippers during peak periods while minimizing costs. Operating practices – There may be railway service and operating practices that adversely impact the effectiveness and reliability of service to shippers. The review should identify and assess which practices are effective and which are adversely impacting service to shippers (e.g. co-production and scheduled railway service). The review should also consider the operating practices of others that may have an adverse impact on the logistics chain. Shortline railways – Shortline railways originate approximately 25% of rail traffic in Canada. Where shippers served by shortlines are experiencing service problems, the review will examine the relationship between shortlines and the main line carriers to determine whether such problems are attributable to service, operating, or marketing practices of the main line carriers. Surge Capacity/Recovery – Changes or surges in demand for capacity stem from two distinct causes. One driver for surge capacity is market demand that impacts the dynamics and/or timing of trade flows. The review should identify how such surges are taken into consideration during the forecasting process and what is considered an acceptable amount of surge capacity to ensure adequate service is provided and maintained in the event of a market driven surge in demand. The second cause of a surge in demand for capacity is related to the interruption of the smooth flow of operations; alterations in capacity demand that come about because of system failures which may be attributable to a number of causes, some of which are within the railways' control and others which are not (weather, labour disruptions, marine vessel arrival schedules and poor performance by shippers or terminals). The management of regular capacity must take into account both causes of surges in demand for service so as to allow for adequate service during market-driven surges and a rapid return to normal service when the demand surge related to operational problems is over. The review should identify best practices that facilitate quick recovery as well as the contingency and recovery plans that are deployed by the railways, shippers, and terminal operators; the effectiveness and adequacy of these plans; and additional cost-effective measures and resources (i.e. people, equipment, and facilities) that could be considered. Communications - Good service requires effective communications so that shippers and railways are aware of issues that arise with respect to demand and traffic movement and can address them quickly. The review will need to survey stakeholders (shippers, railways and terminal operators) to identify best practices and flag where improvements may be required. Financial impacts – Unreliable service can have significant financial implications for shippers including costs related to demurrage, performance penalties paid by shippers and railways, lost revenues due to missed sales opportunities/discounting, avoidable labour costs when cars are not spotted on time, etc. Railways may also experience adverse financial impacts including performance penalties, lost customers, and increased operating costs (e.g. idle labour and equipment). The review should attempt to quantify these impacts, even for a selected sector or group of shippers, to help demonstrate the cost to shippers, terminal operators, and railways of unreliable service or poor performance. This information would be essential to address issues such as reciprocal penalties and the need for investment. Data Acquisition and Confidentiality – To conduct an objective review, significant amounts of confidential data will need to be collected from shippers, railways, and terminal operators. Transport Canada will need to assure all stakeholders that confidential data will be protected as part of the contracting process and that information released will be aggregated to protect the identity of shippers and carriers. This will be essential to ensure the full cooperation of all parties. Dual railway/shipper accountability for poor performance – The review will assess the degree to which performance penalties and incentives exist today for both shippers and railways and whether they are effective in ensuring reliable and consistent service. Other issues – Are there other issues that should be addressed in the review?
OBJECTIVES OF THE REVIEW
The review will examine the full logistics cycle from customer/railway demand forecasting; customer demand for service (e.g. car or train orders); to the spotting, loading, and pickup of cars at origin; the movement of loaded cars to destination (including the switching of cars between CN, CPR and shortlines); the spotting, emptying, release and pickup of cars at destination; and the return of empty cars for loading at origin. It will examine the interaction between railways and other logistics stakeholders (e.g. shippers, terminal operators, ports, and vessels). PROPOSED APPROACH PHASE 1: ANALYTICAL WORK
Consultants would be engaged to conduct the work under the first three projects. Transport Canada would undertake the work on the fourth one. This work is expected to take a minimum of six months, depending on the availability of required data and the extent of cooperation from railways, shippers, and terminal operators in providing such data. 1) Data Project The intention is to assess historical information over a three year period for a broad range of commodities (see proposed commodity list in Annex 1). Sampling techniques will be used as appropriate to minimize costs, ensure data reliability, and address biases. It is assumed that, from a shipper's perspective, good service consists of two main components: i) providing sufficient and consistent supply (track capacity, cars, locomotives, and crews) to meet shipper demand in a reasonable manner; and ii) moving traffic in an efficient, timely, orderly and reliable manner. With respect to demand, key indicators include: number of cars required by shippers (i.e. car orders), number of cars committed by the railway, and number of cars actually delivered. The review will assess whether car order and allocation systems impact the railways' ability to meet shipper demand in a reasonable manner. There are a couple of demand-related issues that need to be addressed – "phantom" orders (ordering more cars than required in anticipation that less than 100 percent of the orders will be filled) and the availability of reliable and verifiable demand information. Movement indicators are more readily available and will answer questions such as:
The analysis will indicate that problems occur from time to time. It would be unfair to assume that the railways are responsible for all problems in transit or that shippers or terminal operators are similarly responsible for all problems at the facilities where goods are loaded or unloaded. The analysis will have to include an assessment of the cause of the problems. This may be challenging since determining cause can be very subjective. However, it should be possible to identify disruption factors such as derailments, accidents, weather events, strikes, and system outages that would have severe impacts on system performance. A final report will indicate where there were service problems (nature, frequency and magnitude), causes (railway performance, weather, other stakeholder performance, etc.) and how they were addressed by the various parties. The report will also describe the types of financial impacts that are experienced as the result of poor performance, including impacts on shippers, terminal operators, railways and others. Selective examples may be provided for illustrative purposes. This information should be helpful in developing recommendations as part of the second phase related to the effectiveness of system recovery procedures. This work will be conducted by consultants with experience in collecting and analyzing complex data from shippers and carriers and a thorough understanding of the supply chain from origin to destination. 2) Operational Issues The fact that CN and CP operate different lengths and configurations of trains can create problems in ensuring equitable treatment under their co-production agreements. This also creates operational problems at the port. However, co-production appears to have improved some operating efficiencies. How can these problems be addressed? Could this concept be expanded elsewhere? Are there labour implications associated with changing operational practices? Railway and shipper/consignee resource levels have been changing over time, e.g. number of locomotives, storage capacity at destination, number of cars by category, and number of employees by category. How has this affected railway service? Other questions that will be examined include:
This project will be conducted by consultants familiar with railway operations. The consultants will identify potential adverse impacts of operational practices within the logistics chain, in particular railway practices, on service to shippers and consult with shippers, railways, and terminals on the impacts and possible solutions. A report on findings and recommendations will be prepared for Transport Canada. 3) Shipper Survey Work will be done by a consultant and a report prepared for Transport Canada. The consultant will be asked to propose the best approach for obtaining this information. This information will be instrumental for Phase 2 to help narrow down the key system issues that need to be addressed. 4) Service Issues in Other Regulated Industries This study will be done by Transport Canada officials unless workload pressures require that a consultant be engaged. PHASE 2: RECOMMENDATIONS STAGE Draft recommendations would be developed based on the results of the analytical projects. In addition, interested parties would be invited to submit comments on railway service and other logistics chain issues, which the panel could also take into consideration. The draft recommendations and reports from the analytical stage would be circulated to interested parties. The Panel would consult with stakeholders after these documents were circulated. A final report would be submitted to the Minister after the consultations were completed. NOTE: Parties interested in submitting comments on these draft Terms of Reference are asked to do so in writing or by e-mail by May 11, 2008. Comments should be mailed to: Ms. Helena Borges Or sent by e-mail to:
ANNEX 1 |