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CN chief Claude Mongeau: ‘The risk is that the customers are now starting to define service more like a taxi.’


As the transportation industry girds for anticipated new legislation, Canadian National Railway Co. is warning that freight shippers' push for custom service would cause widespread disruption to the railroad business.

At issue is the debate over how to regulate service. Rail customers, headed by the Coalition of Rail Shippers, argue that there's a need for clearer service agreements between shippers and railways. If a dispute arises, shippers argue they should be able to use third-party arbitrators to resolve the problem.

The railways, on the other hand, would rather have mediation directly between railways and shipping customers or, if a dispute can't be resolved, continue to rely on the Canadian Transportation Agency to clear the air.

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The two sides have been stating their case publicly as they wait for legislation expected some time this fall. The shippers' association has been meeting with bureaucrats and cabinet ministers.

Meanwhile, CN chief executive officer Claude Mongeau, who has taken the lead in arguing the railway industry's viewpoint, sent a letter this week to CN's customers, arguing that third-party arbitration and the disruptions he sees it causing rail networks would be "simply unprecedented in a market-based economy."

In an interview, Mr. Mongeau said that freight rail works like a city bus system. Customers get on and off when needed, but the aim is to provide transportation for everyone.

However, "if you have arbitration that is done one customer at a time, the risk is that the customers are now starting to define service more like a taxi. 'I'd like you to pick me up at this time,' as opposed to hopping on the bus [as] it goes through its run," Mr. Mongeau argued.

If the legislation were to follow recommendations by a federal review that shippers be given the power to dictate how railways deliver their services, "not only can they call a taxi, but once they have the rate [negotiated], they can ask for a limousine," Mr. Mongeau said.

"If every citizen on a bus service had the right to go to arbitration to define the service, well, every citizen would want to be the last one to be picked up and the first one to be dropped off. Of course, that's not possible."

The shippers' association is calling for clearer service contracts. But "we're saying that the best way to get the service-level agreements is through a normal commercial agreement, not through arbitration," Mr. Mongeau said, "and certainly not through arbitration where you're defining service independent of commercial negotiations on rates and other matters."

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The Coalition of Rail Shippers argues that it simply wants service agreements that are clear and more akin to agreements on shipping rates.

"In most situations, the railway doesn't say explicitly what it's going to provide in the way of service, either car supply or consistency of transit time or some of those kinds of things. Yet it certainly is explicit in how much the customer will pay," said Bob Ballantyne, chairman of the Coalition of Rail Shippers.

"What the shippers are essentially asking for is to get the railways to sit down and explicitly agree to some level of service performance," he said.

However, CN's Mr. Mongeau said the railway backs service-level agreements with customers. "In fact, we have supply-chain collaboration agreements in various forms – service-level agreements – with customers representing close to 50 per cent of our business today."

But "what we don't agree with – because we feel it's not the right way to go – is that a customer could actually have the right to go to an arbitrator to impose the service terms in the first place, and to do so outside the normal commercial negotiations," he said. "We're saying that could create huge unintended consequences."

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