{"id":261314,"date":"2001-04-01T05:00:00","date_gmt":"2001-04-01T09:00:00","guid":{"rendered":"https:\/\/policyoptions.irpp.org\/issues\/car-competitive-access-rates-for-promoting-rail-competition\/"},"modified":"2025-10-07T19:22:48","modified_gmt":"2025-10-07T23:22:48","slug":"car-competitive-access-rates-for-promoting-rail-competition","status":"publish","type":"issues","link":"https:\/\/policyoptions.irpp.org\/fr\/2001\/04\/car-competitive-access-rates-for-promoting-rail-competition\/","title":{"rendered":"CAR: Competitive access rates for promoting rail competition"},"content":{"rendered":"

The Canada Transportation Act<\/em> Review Panel was appointed by the Minister of Transport to conduct a comprehensive review of the Canada Transportation Act<\/em> (CTA) and related legislation. It is working toward the presentation of a final report to the Minister by Canada Day. Within the review panel’s terms of reference, competitive rail access provisions are listed among the issues requiring special attention. In particular, the review panel is to consider proposals for enhancing competition in the railway sector in the broader context of increasing North American integration and ensuring cost-effective service for shippers over the long term.<\/p>\n

This emphasis on rail competition is consistent with the National Transportation Policy declaration in the CTA,<\/em> which states, among other objectives, that a network of transportation services making the best use of all available modes of transportation at the lowest total cost is essential to serve the transportation needs of shippers and travellers. Furthermore, competition and market forces are, whenever possible, to be the prime agents in providing viable and effective transportation services.<\/p>\n

Rail competition, where it exists, paves the way\u00a0toward lower prices and improved service for thousands of Canadian shippers in a variety of goods-producing industries. It strengthens the competitiveness both of those industries and of the railways themselves by making them more responsive and better able to compete internationally. Recognizing this, the National Transportation Act, 1987<\/em> abolished the right of railways to set their rates collectively and sought to encourage competitive behavior through a \u201cbasket\u201d of competitive access and dispute-resolution mechanisms.<\/p>\n

The intervening years have demonstrated that some of those mechanisms have worked well while others have not. In the current review, the Shippers’ Summit Group of associations, whose members account for approximately 95 per cent of Canadian rail freight revenues, advocates remedying this through proposals including: a \u201ccompetitive access rate\u201d (CAR) mechanism which simplifies the existing \u201ccompetitive line rate\u201d (CLR); modified but still limited railway running rights; and removal of deterrents to shipper use of the Canadian Transportation Agency. What follows describes and assesses the CAR (which was originally developed by the Canadian Fertilizer Institute).<\/p>\n

Within the basket of competitive access mechanisms in the current CTA,<\/em> both interswitching provisions and the CLR are designed to provide a shipper with access to a competing railway at an interchange. Under interswitching, a shipper located on one railway is permitted to have its traffic interchanged to another railway for the line haul when the point of origin of a movement of traffic is within a radius of 30 kilometres of an interchange. The Canadian Transportation Agency (\u201cthe Agency\u201d) has the responsibility to determine maximum rates charged for an interswitching move. Similar provisions apply to terminating traffic. Shippers have consistently reported that the railways compete for interswitching traffic, and they regularly use interswitching to obtain better routings for their traffic, or to obtain more competitive terms\u00a0and conditions.<\/p>\n

A shipper located on one rail line and\u00a0beyond the 30 km interswitching limits can ask its local railway to establish a CLR for moving goods to a competing railway line. To use this option, the shipper must have already reached an agreement with the competing railway before requesting a CLR from the local railway. The CLR applies from the point of origin or destination to the nearest interchange with the competing railway. If the parties cannot agree on a CLR, the shipper can ask the Agency to set it according to legislated guidelines. Since the Canada Transportation Act<\/em> was passed in 1996, however, a shipper can only obtain an Agency-established CLR by satisfying a \u201csubstantial commercial harm\u201d test and the Agency rate must be \u201ccommercially fair and reasonable to all parties.\u201d<\/p>\n

The Shippers’ Summit describes the CLR as a good idea gone bad. By 1993 shippers reported that they no longer undertook negotiations with railways for CLRs, and the National Transportation Act<\/em> Review Commission commented that Canada’s two major railways \u201chave effectively declined to compete with each other through CLRs, and as a result the provision is largely inoperative in Canada.\u201d This is a very serious result for resource-based shippers, whose plants, mills and mines are often served by only one rail line, are beyond interswitching limits and either have no access at all to other modes of transport or no access to modes that are economical for them.<\/p>\n

Why did the CLR fail and how can that failure be remedied by the CAR? The Shippers’ Summit Group believes that there are two major reasons why the CLR ceased working. One is the legislated requirement for an \u201cagreement\u201d\u00a0between the shipper and the connecting railway before a CLR can be obtained. Connecting railways are reluctant to enter into such agreements, which demonstrate their willingness to \u201cshorthaul\u201d the local railway, when there is no guarantee that a CLR will even be established to permit them to access the business. The other reason is the complexity imposed by the requirement for an Agency hearing when the parties cannot agree upon the CLR. The complexity and costs for a shipper seeking a CLR from the Agency were considerably increased when the subjective \u201csubstantial commercial\u201d harm test was imposed in 1996.<\/p>\n

To remedy these defects, CAR would carry out relatively minor repairs and improvements to the current CLR provisions. It would: remove the requirement for agreement with a connecting carrier; delete the requirement for an application to the Agency; abolish the substantial commercial harm test; and use a single method of rate calculation when the CAR must be established by the Agency, that being the \u201csystem average revenue-per-tonne-kilometre\u201d for the commodity being moved. A CAR would also be specifically permitted at both the origin and destination of a shipment, something which arguably is already permitted for the CLR under the existing legislation.<\/p>\n

The philosophy underlying CAR is to make it as close as possible to interswitching, a competitive access mechanism having a proven track record. Like interswitching, CAR would be rate-on-demand, with the Agency issuing the rate to the interchange upon the shipper’s request. This would avoid costly and time-consuming hearings before the Agency. It would also eliminate application of the \u201csubstantial commercial harm\u201d test. Furthermore, like interswitching, CAR is procompetitive. It is designed to allow the home railway to continue to compete for the traffic over the long haul even after it reaches the interchange at the CAR rate. Under the present CLR, this cannot happen. The traffic must be switched to the connecting railway once it reaches the interchange.<\/p>\n

Would these improvements upon the CLR be sufficient to make CAR effective? Many shippers are convinced that that they would, while others are not so sure, but all Shippers’ Summit members believe that CAR should be given the chance to provide shippers, especially resource-based shippers, with the rail competition originally expected from the CLR.<\/p>\n

When the CLR was first developed in 1987, the government of the day built in a number of safeguards and limitations designed to minimize the extent of its intervention in the marketplace. CAR continues these safeguards and limitations with little change. For instance:<\/p>\n