Shippers gain right to service level agreements

WINNIPEG, Manitoba—The federal government has given Canadian shippers an early Christmas gift.

A piece of legislation was tabled in the House of Commons today. Known as Bill C-52, the Fair Rail Freight Service Act, it will give businesses the ability to turn to government-run arbitration if they are unable to achieve a service level agreement with federally regulated railways, including CN and CP. (Provincially regulated railways aren’t affected by this.)

It is a right shippers have been wanting for years, and according to the federal minister of transport, infrastructure and communities, Denis Lebel, it is legislation the government was glad to create. “We’re here for a good announcement, a very happy one,” said Lebel.

“We must ensure that railways and shippers in Canada can work together to expand their businesses. That’s exactly what the bill will achieve.”

The legislation follows a report earlier this year, by Jim Dinning. The Final Report of the Facilitator of the Rail Freight Service Review examined the relationship between shippers and railway companies.

Lebel said the government needed to take this action because of the inherent inequality between rail companies and their customers.

“After a comprehensive study the review panel determined that there is an imbalance in the shipper-railway relationship,” he said. “The recommended the use of service agreements as a commercial tool to enhance clarity, predictability and reliability on rail service. The government supports the panel’s focus on a commercial solution. We believe that commercial negotiations are the best way to improve service provided to shippers, and the overall preferment of the system.”

There are two main components to the bill. The first part says shippers have the right to request a service level agreement from the railways. The second part says if the shipper and the railway cannot come to terms about a service level agreement, the shippers have the right to take the railway to arbitration and have a binding contractual agreement imposed.

“Ideally the arbitration process will never be used. That’s what he hope. But we need a fast and inexpensive process to break the deadlocks” said Lebel.

The legislation also provides outlines for how the agreement will be enforced. For every violation of the agreement, the railway will face a maximum penalty of $100,000.

How it will work

The government describes the process as “interest-based arbitration” that will be administered by the Canadian Transportation Agency (CTA). Cases will be heard by CTA  members or quasi-judicial experts or external arbitrators, who will be determined on a case-by-case basis.

At this point, the CTA expects its own members will hear cases during the first two years. Then it will likely add experts and arbitrators to the mix of people available to adjudicate cases. There are no costs for CTA members to handle cases but there will be costs if an external arbitrator is used. In those circumstances, the shipper and the railway will pay the arbitrator’s fees on a 50-50 basis.

Under the terms of the legislation, when a shipper approaches a rail company and requests the creation of a service level agreement, the railway will have 30 days to respond with an offer. If it fails to do so, that’s when the shipper has the right to seek arbitration.

To be eligible for arbitration the shipper has to demonstrate the company has made an attempt to reach a commercial service contract. It also has to provide 15-days’ notice to the railway that it is seeking arbitration.

The arbitration process has a maximum time-limit of 45 days, although the arbitrator has the discretion to extend the process by up to 20 additional days.