November 8, 2012 / 1:37 AM / in 5 years

CN Rail CEO says Canada legislation could derail service

VANCOUVER (Reuters) - Looming legislation aimed at improving rail service for shippers in Canada could backfire and end up making the country’s sprawling rail networks less efficient, the chief executive of Canada’s biggest railroad warned on Wednesday.

Canada’s Conservative government plans to introduce legislation this fall giving all shippers more clout in ensuring consistent rail service, and improve ways to resolve disputes.

The rail companies are concerned that the legislation could end up dictating or imposing levels of service that don’t take into consideration existing commercial arrangements with customers.

Claude Mongeau, the CEO of Canadian National Railway Co, said the imposition of service obligations on rail companies might give relief to one unhappy shipper but that may come at the cost of upsetting service for others down the line as railroads are large, interconnected networks.

“It doesn’t take many to create a ripple effect ... I say beware of what you ask for as you may just derail the efficiency that we have been able to gain,” Mongeau told Reuters in an interview after speaking to a business audience in the West Coast port city of Vancouver.

The planned legislation stems from a rail service review conducted for the government by an independent panel following years of complaints from shippers, such as farmers and forestry companies, about poor rail service, including damaged rail cars and unpredictable pick-ups.

CN Rail is the largest of Canada’s two big railroads, and competes with Canadian Pacific Railway Ltd. Together they haul about 30 million tonnes of Western Canada grain annually, as well as large volumes of coal, fertilizer and industrial and consumer goods.

Railroads have defended their service track record saying it is fairly good overall and that additional legislation is not the answer, especially in a free-market economy.

Mongeau said legislation could poison relationships built up between customers and railroads over many years, and stop them from sharing information and data for fear it could be used against them in a dispute. “It is difficult to have mutual trust with a gun to your head,” he said.

Representatives of shippers and railroads spent four months in a government-sponsored committee this year trying, but ultimately failing, to develop both a template for service agreements and a dispute resolution process that could be used commercially.

Mongeau said that if the government is bent on introducing legislation it should be “balanced” and “targeted”. That could be achieved by requiring mediation as a first step to resolve disputes, rather than imposed arbitration, he said.

If cases did end up in arbitration, it should take place under the aegis of the Canadian Transport Agency, a government regulator that has a duty to ensure transportation efficiency in Canada, instead of a roster of arbitrators who don’t have rail industry experience, Mongeau said. Arbitration should also only be available to rail customers whose access is limited to a single railroad, not to those who can switch service providers if they are unhappy with their service, he said.

Reporting by Nicole Mordant; Editing by Carol Bishopric

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