Transcript Highway H2O 2008 conference

Canada Maritime Conference
Comments on the Rail Service
Review
Remarks of
Bob Ballantyne
Montreal, September 15, 2010
Why A Rail Service Review?
Why not a:
 Truck Service review
 Ship service Review
 Airfreight Service Review?
There is a more fundamental question:
But first…
About CITA
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Founded in 1916
National association for Canadian shippers
120 + members and trade associates
Membership consists of purchasers of
transportation services from all industrial sectors
CITA members purchase over $4 billion annually
in transportation & contribute over $100 billion a
year to Canada’s GDP.
CITA Mission
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To actively promote a more competitive
and cost-effective Global freight
transportation system serving Canadian
industry
 i.e.
We’re lobbyists!
Is Rail Freight a Normally
Functioning
Commercial Market?
The Investor’s View 1
We eliminated Trans-Canada and reduced some other Utilities
Holdings, and replaced them with CN Rail and CP
Railway. While railways carry higher cyclical exposure, we are
more comfortable with their ability to pass input costs through to
their customers given the barriers to competition and the fuel
efficiency advantage over competing transport services. A
company's pricing power is much more of a focus than it has been
in recent years, as we expect this to be the case for the foreseeable
future.
(Page 36, PH&N second quarter report, June 30, 2008)
The Investor’s View 2
Attractive Competitive Environment
 The railroad competitive environment is arguably the envy of most
industrial sectors, boasting limited competition and steep barriers
to entry. …. with CN and CP both enjoying a comfortable
duopoly that prevents excessive competition
 This position is further sweetened by the fact that rail remains the
only cost effective alternative for several freight categories…
(Raymond James Financial Inc. report to investors, May 2009)
The Competition Bureau
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The Abuse of Dominance provisions of the Competition Act
(Sections 78 and 79) as used by the Competition Bureau
are instructive.
The Bureau’s general approach in evaluating allegations of abuse
of dominance is as follows:
• A market share of less than 35 percent will generally not give
rise to concerns of market power.
• A market share of 35 percent or more will generally prompt
further examination.
• In the case of a group of firms alleged to be jointly dominant, a
combined market share equal to or exceeding 65 percent will
generally prompt further examination.
The Rail Freight Market
In the case of the rail freight market, CN and CPR
together control 94% of the market by revenue.
Based on 2008 annual reports of CN, CPR, and
the Railway Association of Canada (RAC), total
rail freight revenues in Canada were $9.957
billion, CN’s Canadian freight revenues were
$5.632 billion and CPR’s Canadian freight
revenues were $3.814 billion. CN alone
accounts for 57% of the market based on
revenues and CPR for 38%.
CITA’s On-Time Service Rating
SCORE
2009
>= 191%
-
2008
2007
2006
2005
LTL
EXCELLENT
AIR FREIGHT
AIR FREIGHT
AIR FREIGHT
LTL
COURIER
GOOD
171% - 190%
COURIER
AIR FREIGHT
COURIER
COURIER
MARINE
TL
TL
TL
TL
ACCEPTABLE
131% - 170%
TL
LTL
AIR FREIGHT
MARINE
LTL
MARINE
INTERMODAL
MARINE
COURIER
MARINE
LTL
POOR
<= 130%
INTERMODAL
INTERMODAL
INTERMODAL
INTERMODAL
RAIL
RAIL
RAIL
RAIL
RAIL
Rail Freight Service Review
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With the passage of Bill C-8 in early 2008, the
government undertook an independent review of
rail service
Phase 1: Consulting studies
Phase 2: Stakeholder consultation and
development of recommendations
Submissions to the Review Panel
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Submission deadline April 30, 2010
Approximately 140 submissions received
by the Panel
The following comments are based on the
CRS Submission
Coalition of Rail Shippers
CITA chairs the Coalition
17 Industry Associations – member companies
account for 80+% of CN and CPR Canadian
revenues
CRS recommended four “Core Principles” for the
panel when considering more detailed
recommendations from various stakeholders
CRS Core Principles
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Performance Standards Focused on Core
Elements of Railway service
Ongoing Independent Monitoring of Railway
Service
Consequences for Non-Performance
Negotiated Dispute Resolution Processes
Review Panel – Next Steps
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The Panel has issued its preliminary
thoughts on the possible direction of its
recommendations
Expects to publish a preliminary report by
the end of September
Final report to the Minister of Transport by
year end
Investors and Railways
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Investors may like railways’ pricing power,
But it attracts regulation and
other government actions, e.g. LCV trucks
now allowed in 7 provinces
Is exercising monopoly power really
in the long-term interest of railway
investors, or is it:
Short term gain for long term pain?
Thank You
Questions, comments, debate?
www.cita-acti.ca