Canadian Pacific Railway Ltd. has launched a legal action against the federal government in an attempt to overturn new regulations the railways say slow the flow of goods and cost Canadian jobs.
The Calgary-based rail company is seeking permission in the Federal Court of Appeal to fight changes made by the Canadian Transportation Agency to the rules governing a customer's ability to ship goods with a competing railway, known as interswitching.
Changes that came into effect with the spring passing of the Fair Rail for Grain Farmers Act give rail customers in the three Prairie provinces extended rights to demand their local railway move their goods to another railway, if the rail interchange is within 160 kilometres. Previously, the distance was just 30 kilometres. The government also widened interswitching rights to shippers of all commodities, not just grain.
In court filings, CP said its cost to switch a car to a rival line is $825, but it can only charge the regulated rate of $461. Based on expected traffic volumes, this means a loss of $13-million a year, the company said, describing the changes as "arbitrary" and beyond the regulator's authority.
CP also alleged the regulator made four errors in law, including enacting the changes at the government's behest without any independent assessment.
When the changes were first announced in the spring, CP said forcing it to handle cars destined for another railway will complicate rail movements, slow traffic and open the Canadian market to U.S. rivals.
Agriculture Minister Gerry Ritz said in a statement on Thursday that the change was made to foster competition among railways and give rail customers access to more shipping options.
"Our government is hopeful that CP and all members of the rail logistics supply chain will embrace being part of the solution as opposed to being entrenched in the problems of the past," Mr. Ritz said.
Analysts have said the expanded interswitching regime means the number of western grain elevators served by both major railways rises to 150 from 14.
"They call it poaching. We call it competition," said Wade Sobkowich, who speaks for the major grain trading companies in Western Canada, including Viterra Inc. and Cargill Ltd.
Mr. Sobkowich said interswitching is "cumbersome" and grain companies try to find other ways to move their goods. "To my knowledge no companies have yet applied for an interswitch within the new 160 kilometre radius," he said. "Also, one really requires the willingness of the other railway to accept the interswitch in order for it to work properly, and the railways have not historically expressed an interest in accepting each other's traffic."
CP spokesman Martin Cej would not comment on the appeal.
The Fair Rail Act was passed in the spring after farmers and grain companies complained of poor service following the record 2013/14 harvest. In addition to expanding interswitching rights, the law requires the country's two major railways to move a minimum amount of grain each week, forces companies to report on weekly shipping volumes, and gives grain companies greater abilities to negotiate service agreements with railways.
Canadian National Railway Co. chief executive officer Claude Mongeau said the expanded interswitching rights are "not well thought-out."
Mr. Mongeau told a conference in Montreal on Wednesday the change makes railways less efficient and does nothing to move grain more quickly, especially when all railroads are operating at capacity.
"Interswitching opens access to Canadian traffic to U.S. railroads like BNSF for instance," Mr. Mongeau said. "For a few hundred dollars BNSF can access Canadian traffic and move the goods to U.S. ports. That policy effectively exports Canadian jobs. It undermines the Canadian railroad profitability and it undermines the tax revenue of government."
CN is not involved in the court action and said it had no comment on it.