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The Panel believes the commercial measures need to be pursued through cooperation of all participants in the rail-based logistics system, with a common goal of continuous improvement in the supply chain. To this end, the Panel is recommending that facilitators be appointed by the government to help stakeholders negotiate some of the details of the commercial approach and report back upon completion of their processes.

The Panel has identified a number of additional complementary measures, over and above the railways’ initiatives, to improve service within the rail-based logistics system.

Since many non-railway stakeholders were skeptical about the commercial approach without a regulatory backstop in place, the Panel requested, in the Interim Report, that the railways provide a written commitment to the Panel that would specifically address the Panel’s recommendations identified in the commercial phase section. Commitment letters were received.

The Panel urges the government, should it accept its recommendations, to send a strong signal that it expects stakeholders to work together in good faith to develop the details of the commercial approach. The Panel urges the government to consider the willingness of parties to work in good faith when it decides whether or not to proceed with implementation of legislation after the proposed assessments of the reports of the facilitators.

The Panel notes that the existing shipper protection provisions of the CTA will remain in place and will be available to shippers who wish to use them.

3.3 THE RAILWAY COMMITMENT LETTERS

As noted above, the success of the Panel’s commercial approach contained in the Interim Report would be dependent to a large extent on a commitment from both railways to implement the Panel’s recommendations identified in the commercial approach section.

In this regard, the Panel asked the railways to provide commitment letters, and held discussions with both to deal with concerns and potential “gaps” in their original replies. Although this process did not result in the full commitment the Panel would have preferred, both railways have made significant commitments towards implementing the commercial package proposed by the Panel. On this basis, the Panel is encouraged that a commercial solution is possible, and therefore maintains its two-step approach. It is intended that the facilitation processes will address the railways’ concerns to the mutual satisfaction of all parties. However, the Panel took the possibility of failure into consideration in developing its final recommendations.

The railways’ concerns related to the commitment letters, and the Panel’s response to these concerns are addressed in the proposed regulatory dispute resolution process. Refer to section 3.5.3 (Regulated Dispute Resolution Process).

3.4 COMMERCIAL APPROACH

The Rail Freight Service Review Panel recommends four key elements that should be implemented commercially to complement current railway initiatives. The Panel’s recommendations would be implemented by the railways in collaboration with supply- chain stakeholders. These recommendations are largely unchanged from the Interim Report.

Recommendation 1 The Panel recommends that railways, in collaboration with their stakeholders, continue to develop commercial measures to improve rail service. These commercial initiatives would include the four key elements related to service changes, service agreements, dispute resolution and enhanced reporting.

3.4.1 Notification of Service Changes

Prior to implementing changes in local train service from established practice, the Panel encourages the railways to commit voluntarily to a minimum notice period of 10 working days in order to provide a minimum period for stakeholders to raise any comments or concerns with the proposed change. The Panel encourages the railways to include this notification commitment in appropriate tariffs.

In addition, the Panel believes the railways should commit to resolving disputes related to the changed service through an appropriate dispute resolution process such as the one described in section 3.4.3.

Some stakeholders commented that 10 days may not be sufficient, particularly if capital or labour changes are required to accommodate the new service. The Panel is satisfied these issues can be identified within the 10 days and suitable short-term solutions agreed upon, particularly given the stakeholders’ access to commercial dispute resolution.

Notice should be provided to those stakeholders with operational and commercial relationships with railways at locations that will be impacted by the proposed change in service. Notice should be subject to force majeure. The notice period would be subject to change only upon mutual consent.

Recommendation 2 Prior to implementing changes in local train service, railways should provide a minimum notification period of 10 working days. Railways should commit to resolving disputes related to the changed service through an appropriate dispute resolution mechanism such as the commercial process described in Recommendation 4.

3.4.2 Implementation of Service Agreements

The Panel encourages the railways to negotiate service agreements at the request of stakeholders that have an operational or commercial relationship with them, including shippers, terminal operators, transloaders, short line railways and customers located on short line railways. Elements of service agreements may include:

• services and obligations of the railway and obligations of the other party;

• communication protocols and escalation;

• traffic volumes;

• key performance metrics;

• performance standards;

• consequences of non-performance (including penalties);

• dispute resolution; and

• force majeure.

For clarity, the Panel believes it is essential that disputes related to the initial establishment or renewal of service agreements, i.e. failure to reach agreement on the terms and conditions of service agreements or renewals, should be eligible for dispute resolution. Matters related to the terms and conditions of service that are covered explicitly in a confidential contract should not be eligible for inclusion in a service agreement. The Panel encourages the railways to work with groups such as small shippers to develop acceptable “boiler plate” service agreements that could be used as a basis for individual members of the group to negotiate respective service agreements reflective of their unique needs.

Recommendation 3 Railways should enter into good faith negotiations to establish service agreements upon request by stakeholders who have an operational or commercial relationship with them, including the establishment of “boiler plate” agreements with groups, such as small shippers. Disputes related to the initial establishment or renewal of service agreements, i.e. failure to reach agreement on the terms and conditions of service agreements or renewals, should be eligible for dispute resolution.

Based on feedback from the Interim Report, there is broad support in principle for the concept of service agreements.

Rationale

The Panel believes that agreements between railways and other parties that describe roles, clarify responsibilities and contain service elements would strengthen the relationships and contribute to better service within the rail-based logistics system.

3.4.3 Establishment of a Dispute Resolution Process

The Panel encourages the railways to engage in negotiations on a commercial dispute resolution process with stakeholders, including shortlines and customers located on shortlines, with whom they have an operational or commercial relationship. The objective would be to establish a process that is fair and balanced, timely and low-cost and, therefore, would be more effective in resolving rail service disputes. The Panel recommends that, upon the release of the Panel’s Final Report, the Minister appoint a facilitator to work with railways and interested stakeholders to develop mutually agreeable terms and conditions for a dispute resolution process.

The scope of the dispute resolution process should include disputes related to changes in local service and disputes related to the failure to establish or renew service agreements. The regulated dispute resolution process described in section 3. 5.3 should be used as a guide for the facilitated negotiations.

The Panel recommends that the facilitation process be conducted over a maximum period of six months from appointment of a facilitator. Given the existing commercial dispute resolution models (CFI, CN and CP) plus the guidelines outlined in section 6.5.3, the Panel feels six months is enough time to determine the intent of the parties. One Panel member dissents and is of the opinion that there should be no time limit on the facilitation process. He believes setting a firm timeline in the absence of the 2013 assessment, as explained in section 3.6, greatly reduces the opportunity for a successful commercial resolution.

Additionally, the Panel recommends that the United States portion of cross-border traffic that originates/terminates in Canada on CP and CN lines and originates/terminates or is inter-lined from respective CP and CN lines in the United States be covered by this process, unless a Transport Canada review identifies legal or policy issues that cannot be overcome. The Panel recommends that any agreement on a commercial dispute resolution process be filed with the Agency and include a provision for renewing or amending the agreement that is based on mutual consent or, if necessary, a facilitated process similar to the process used to establish the agreement.

Recommendation 4 The Panel recommends that railways, assisted by a facilitator appointed by Transport Canada, should engage in negotiations with stakeholders, including shortlines and customers located on shortline railways, with whom they have a commercial or operational relationship, on a fair and balanced commercial dispute resolution process. Parties should be given up to six months from appointment of a facilitator to reach an agreement. The Panel recommends that the regulated dispute resolution process described in section 3.5.3 be used as a guide for the facilitated negotiations. The Panel recommends that any agreement on a commercial dispute resolution process be filed with the Agency and include a provision for renewing or amending the agreement that is based on mutual consent or, if necessary, a facilitated process similar to the process used to establish the agreement. Note: One Panel member does not agree with the six-month time limit for the facilitation process. He believes setting a firm timeline in the absence of the 2013 assessment, as explained in section 3.6, greatly reduces the opportunity for a successful commercial resolution.

3.4.4 Enhanced Performance Reporting

The Panel encourages the railways and others, where applicable, to expand performance reporting at two levels: confidential bilateral reporting and public reporting at a sector level. Reporting at both levels should begin as soon as practical in order to increase the visibility of the supply chain and provide a basis for railways and their stakeholders to address service issues.

Confidential bilateral reporting

The Panel encourages the railways to provide confidential performance measures, in real time, to individual shippers and receivers upon request. The railways should consult individual shippers and receivers to determine appropriate metrics (“scorecards,” for example) to be reported.

There is broad shipper and railway support for confidential bilateral reporting. CN has already taken steps to implement scorecards with its stakeholders and CP agrees to consult with customers, upon request, on confidential bilateral reporting.

Recommendation 5 Railways should provide improved supply chain visibility through enhanced bilateral reporting. The Panel encourages railways to work with stakeholders to develop acceptable and meaningful.

Public reporting at a sector level

The Panel encourages the railways and others, where appropriate, to report publicly on aggregated sector-level metrics. Enhanced public performance reporting is aimed at providing better visibility to individual shippers to help them in their preparation for negotiations with the railways by comparing railway performance for their own traffic against average system and sector performance. More generally, it will also provide better information for addressing systemic service and other public policy issues. For example, general fleet information combined with aggregated shipper demand information may help determine whether the railways are providing reasonably consistent supply relative to sector demand. Aggregate data on first mile, car movements, and last mile will permit a sector-to-sector comparison and may lead to early identification of issues. While focused on railways, public reporting should include metrics related to the performance of shippers and receivers at origin and destination as well as metrics related to terminal activities at port and inland terminals. The Panel notes that recent collaboration agreements between the railways and ports/terminals are a good step in this direction.

The Panel recommends that the metrics, including the frequency of reporting, be refined based on industry consultations led by a facilitator appointed by Transport Canada.

Public reporting metrics should be developed in a way that does not jeopardize the confidentiality of commercial information related to individual shippers/receivers or railways.

CP indicated it was prepared to work with a facilitator appointed by Transport Canada in consultation with other stakeholders to develop a set of non-commercially sensitive metrics for public reporting. CN supports aggregated public reporting “of end-to-end supply chain performance metrics.” 

Although both railways have committed to enhanced public reporting of non-confidential performance metrics, they have indicated in discussions with the Panel that any public reporting process that is established must provide a connection between the various parts of the logistics chain so that the focus is not exclusively on the railways. Some of the indicators in report on the performance of shippers and receivers and, therefore, address the railways’ concerns about connections between different parts of the system. Furthermore, the Panel is confident that facilitator-led discussions on public reporting will provide an opportunity to discuss and resolve this and other stakeholder issues that arise.

Some stakeholders expressed concern about the reliability of railway data that would be used for much of the performance reporting if responsibility for the public reporting was assigned to the railways. The Panel believes that the issue of the reliability of data, regardless of the source, can be addressed through the proposed facilitator-led consultations on performance reporting. The ability of existing stakeholder data/information systems to provide the type of information that is required, especially the railways’ systems, will need to be addressed during the consultative process. The Panel recommends that the facilitation process focus on initial reporting parameters that would yield the quickest and most meaningful results and be conducted over a maximum period of six months after appointment of a facilitator. It should be noted that one Panel member does not agree with the six-month time limit for the facilitation process. He believes setting a firm timeline in the absence of the 2013 assessment, as explained in section 3.6, greatly reduces the opportunity for a commercial resolution.

Recommendation 6 The Panel recommends Transport Canada appoint a facilitator to consult with railways and their stakeholders to develop acceptable and meaningful public reporting on non-commercially sensitive metrics at a sector level. Parties should be given up to six months after appointment of a facilitator to arrive at an agreement on a core set of metrics. Note: One Panel member does not agree with the six-month time limit for the facilitation process. He believes setting a firm timeline in the absence of the 2013 assessment, as explained in section

3.6, greatly reduces the opportunity for a commercial resolution.

3.4.5 Sustainability

As previously mentioned, the Panel’s recommendations form a comprehensive package that provide significant new tools aimed at rebalancing the relationship between the railways and other stakeholders, especially shippers. The Panel believes the package is sustainable on a commercial basis, provided the four key elements are implemented and remain in place over the long term and further provided that all parties continue to work cooperatively in the interests of the overall system.

The Panel notes that enhanced reporting on an on-going basis will help stakeholders assess whether improvements are taking place, both at the bilateral shipper-railway level and an aggregated “public” level. The Panel also recommends that the 2015 statutory CTA review confirm whether or not the framework is achieving the desired results or if there are unintended consequences. Consideration could be given to including similar confirmations in subsequent statutory reviews.

If the key elements are successfully implemented on a commercial basis, the Panel believes it will be difficult for the railways to withdraw or weaken their commitment, a concern that many stakeholders have raised. Based on:

1. the fact that the government determined there was a need for the Review;

2. the Panel’s conclusion that there was a problem with service that needed to be addressed; and

3. the Panel’s specific recommendations on how to address the problem;

the Panel believes the level of both industry and public expectations regarding railway service has been raised and it will be difficult for rail service to deteriorate without attracting significant attention. Indeed, the Panel believes that its conclusions and recommendations should be a benchmark during the Panel’s proposed confirmation of results to be conducted as part of the 2015 review of the CTA and potentially subsequent reviews, ensuring that the bar remains at a high level over the long term.

3.5 RECOMMENDED REGULATORY FALLBACK PROVISIONS

The Panel’s recommendations for the regulatory “fallback”  provisions are based on the same principles underlying the four key elements from the commercial approach section (Section 3.4).

3.5.1 Notification of Service Changes

• Railways shall be required to provide in their ancillary tariffs, a minimum notice of 10 working days regarding changes to service.

• Service changes would be defined as changes to local train service from established practice.

• Notice is to be provided to those stakeholders with operational and commercial relationships with railways at locations that will be impacted by the proposed change in service.

• Service change can only be implemented within the notice period by mutual consent.

• Obligation to provide notice is to be subject to force majeure.

• Any disputes arising from the proposed change in service shall be subject to the regulatory dispute resolution process described in section 3.5.3.

3.5.2 Implementation of Service Agreements

• Stakeholders who have an operational or commercial relationship with railways shall have a statutory right to a service agreement with the railway.

• Elements of service agreements include:

»»services and obligations of the railway and obligations of the other party;

»»communication protocols and escalation;

»»traffic volumes;

»»key performance metrics;

»»performance standards;

»»consequences of non-performance (including penalties);

»»dispute resolution; and

»»force majeure.

• If parties cannot reach a commercial agreement, either party can refer the matter to the dispute resolution process described in section 3.5.3.

• Terms and conditions of service covered explicitly in a confidential contract shall not be eligible for inclusion in a regulated service agreement.

• The government should consult stakeholders prior to developing regulations to implement the details of this recommendation. 

3.5.3 Regulated Dispute Resolution Process

The Panel has made a number of refinements to the proposed regulated dispute resolution process relative to that contained in the Interim Report. These refinements stem largely from concerns raised by the railways, during discussions on their commitment letters, about the commercial dispute resolution process.

The railways raised two main concerns. The first was that the dispute resolution process did not take into consideration the relationship between rates and service and, therefore, could result in arbitration decisions that are unfair or impractical. It is the Panel’s intent that other terms and conditions applying to the traffic in question would be considered in service decisions made by the arbitrator. This has been clarified in the proposed new process.

The second concern the railways raised related to the consistency and quality of arbitrator decisions on the establishment of service agreements, particularly in a short-form final offer arbitration environment, and given the importance of the agreements in determining the relationship between the parties. To address this concern, the Panel is recommending that the Agency be the arbitrator under the regulated dispute resolution process, given its experience and knowledge. The Panel is also recommending mandatory mediation as a means to address this concern.

Principles:

The principles of the Panel’s regulated dispute resolution process are as follows:

• Stakeholders, including shortlines and customers located on short line railways, that have an operational or commercial relationship with federally regulated Class I railways, shall have access to a regulated dispute resolution process.

• Once stakeholders have applied to the Agency to use the regulatory dispute resolution process, they waive the right to access other shipper protection provisions in the CTA for that specific dispute.

• The proposed new approach is a combined mediation-arbitration process.

• The mediator-arbitrator will be the same person.

• The mediator-arbitrator (there may be more than one per case) will be appointed by the Agency and will be either a member, an official or a third party, with experience in rail transportation, retained by the Agency and approved by the parties.

• The arbitration portion shall be final offer, binding, and non-appealable.

• The process applies to disputes regarding all service issues including:

»»establishment of initial service agreements, including renewals;

»»existing service agreements; and

»»service changes.

• As guidance, the mediator/arbitrator shall consider other existing transportation agreements/ arrangements (including confidential rate contracts, tariffs, etc.) between the two parties.

• Final decisions must be rendered by the mediator/ arbitrator within 45 day for disputes arising from the establishment of initial agreements and renewals and 21 days for all other disputes.

• Reasons for the arbitrator’s decision are to be provided only upon mutual consent of the parties, but are to remain confidential.

• There is to be no ability to award damages as part of the dispute resolution process.

• Parties are to be advised simultaneously of the arbitrator’s decision.

• The Agency is to publish a non-confidential high-level summary of arbitration decisions in its annual report. To this end, the arbitrator is to provide a non-confidential summary of the decision to the Agency within 14 days of advising the parties 

• The Panel recommends that the United States portion of cross-border traffic that originates/ terminates in Canada on CP and CN lines and originates/terminates or is inter-lined from respective CP and CN lines in the United States be covered by this process, unless the Transport Canada review identifies legal or policy issues that cannot be overcome.