Gateways to North America

FALL 2010

ADVOCATEThe Shipper

Official Publication of the Canadian Industrial Transportation Association

PLUS:

Supply Chain Executive of the Year

The Government Puzzle — How the Pieces Fit

www.cita-acti.ca

FALL 2010 | 3

FALL 2010

5 President’s Message

7 Gateways to North America

11 The Government Puzzle — How the Pieces Fit

13 Parrish & Heimbecker, Limited

14 Index to Advertisers

15 The Rail Service Review: The Shippers’ Perspective

17 Code of Armour

Chair: Ginnie Venslovaitis

President: Robert H. Ballantyne

Vice President: Cindy Hick

Manager, Marketing & Events: Denise Fata

Special Advisor: Forrest Hume, LLB

Published for The Canadian Industrial Transportation Association 580 Terry Fox Drive, Suite 405 Ottawa, ON K2L 4C2 Phone: 613.599.3283 Fax: 613.599.1295 www.cita-acti.ca

The Shipper ADVOCATE is published annually by J.M. Levi & Associates Ltd. 2200 Sherobee Road, Suite 404 Mississauga, ON L5A 3Y3 Phone: 905.270.6587, 877.305.6587 Fax: 905.848.8499 jlevi@primus.ca

Publisher/Editor: John Levi

Marketing Associate: Bert Eastman

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© 2010 J.M. Levi &.Associates Ltd. All rights reserved. The contents of this magazine may not be reproduced by any means, in whole or in part, without the prior written consent of the publisher.

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contents

ADVOCATEThe Shipper

Official Publication of the Canadian Industrial Transportation Association

Canadian industrial transportation assoCiation

assoCiation Canadienne de transport industriel

Cover photo: container ship enterting the Port of Vancouver

REPRESENTING SHIPPERS’ INTERESTS FOR OVER 90 YEARS

• Are you having rail service problems?

• Would greater use of long combination vehicles(LCVs) save you money?

• Are you worried about the ability of Canada’stransportation system to meet your future growth?

GOVERNMENT HAS A BIG IMPACT ON FREIGHT TRANSPORTATION! CITA gets the shippers’ messages through to government on policy, legislation, regulation, environmentand infrastructure needs.

CITA has 3 main elements to its mandate:1) Government Relations – advocacy on policy, legislation and regulation

2) Providing networking opportunities

3) Information dissemination

Membership is a sound investment for effi cient logistics.Call today to fi nd out how you can add YOUR COMPANY’S VOICEto that of some of Canada’s largest companies!

The National Voice of the Shipper

FOR MORE INFORMATION CONTACT CITA:(613) 599-3283 defata@cita-acti.cawww.cita-acti.ca

CITT_Ad.indd 1 9/11/08 11:16:50 AM

FALL 2010 | 5

GOVERNMENTS, at all levels, have an impact on all industries, but there are few businesses that have as much government involvement as transportation.

Carriers in all modes, passengers, vehicle owners, both private and commercial, and shippers must all contend with laws, regulations, licensing, fees, taxation, and inspection. In addition, with the exception of railways, governments supply most transportation infrastructure whether it is municipal roads, provincial highways or federal marine and airports, or the St. Lawrence Seaway. The federal government continues to operate some coastal ferry services, and provincial and municipal governments are also operators of urban transit and regional commuter services. In addition the federal government represents Canadian interests with various international agencies such as the United Nations, the International Transportation Forum and the Asia Pacific Economic Cooperation Group. Because of our proximity and close trading relations with the United States, it is also necessary to keep abreast of government actions in that country.

Governments can have a major impact on the effectiveness shippers’ supply chains. For example the recent threatened strike of CN by the conductors required liaison with Labour Canada on the potential damage this strike would do to the Canadian economy. In this instance, while the dispute was settled before a work stoppage, many shippers had to implement contingency plans as the strike deadline approached, often at considerable cost. The current labour laws created a period of uncertainty for many industries while the strike deadline loomed. It was important to communicate this to the federal government.

The prime role of CITA is government relations and the Association maintains continuing liaison with politicians and government officials in a number of government departments and agencies at both the federal and provincial levels. At its most fundamental level, the three main elements of government relations are:

PRESIDENT’S MESSAGE

Lobbying, Advocacy and Government Relations

1. Becoming aware of developing issues at an early stage in their evolution,

2. Providing input to the governments as they consider new laws or regulations, and

3. Once laws or regulations are implemented, to keep the membership informed of the details and impacts of new laws or regulations and how they should be implemented.

Much of CITA’s government relations work is with the federal government and its agencies. The role of these various bodies is not always well understood and elsewhere in this issue of the Shipper ADVOCATE there is an article that attempts to demystify the roles of these departments and agencies. What is Transport Canada’s role (or roles)? What does the Canadian Transportation Agency do? If Transport Canada regulates safety, why is there a Transportation Safety Board, and what does it do? If Transport Canada is responsible for motor vehicle safety standards, but the provinces are responsible for highway safety, how do their respective responsibilities mesh?

Lobbying has a bad name and conjures up pictures of plain brown envelopes changing hands relating to the award of government contracts. Lobbying or “advocacy” is a fundamental and necessary part of the democratic process. It is also a highly regulated activity at the federal level and with some provinces.

At the federal level lobbyists must be registered with the Commissioner of Lobbying and must report on a monthly basis to the Commissioner’s office on any contacts with politicians or senior bureaucrats. Lobbyists may be employees and undertake government relations work for only their employer, they may be consulting lobbyists who may represent a number of companies or other organizations, or they may be association staff people who lobby on behalf of the association’s membership.

Those of us at CITA fall into the last category. I am a “registered lobbyist” and must report, on a monthly basis, all contacts with Members of Parliament and senior bureaucrats, and what was the general topic of the discussion.

6 | The Shipper ADVOCATE

This information is public and can be viewed on the Lobby Commissioner’s website at https://ocl-cal.gc.ca/app/secure/orl/lrrs/do/commLogPublicSearch.

As an example, in October, I met with Anita Biguzs, Associate Deputy Minister of Transport, and with the Hon. Chuck Strahl, Minister of Transport, Infrastructure and Communities and this information will show up on the Lobby website no later than November 15.

As we are currently following the Transport Canada Rail Service Review, it is useful to see which railway officials are meeting with which Ministers and senior Transport officials and we are now able to do that.

The current approach ensures that lobbying is open and transparent and this is in the public interest, but also in the interest of those that lobby and those that are lobbied.

Lobbying is not generally well understood and why, you may ask, is it important to the democratic process. In our representative democracy, legislators and bureaucrats are charged with making laws and regulations affecting individuals, industries and other organizations, often on technically complex issues. If government people are going to “get it right”, they need input from various stakeholders in order to understand the technical complexities, the impacts on various stakeholders, and the differing views of various stakeholders. In many cases, it is the government agency that initiates the contact with special interest groups.

A current example comes from the Canadian Transportation

Agency (the Agency). The Agency keeps track of railway costs for a number of matters that they regulate and one of the elements in evaluating railway costs is the “cost of capital”. A railway investing capital either has to pay interest on money that it borrows or may be able to get varying rates of return on capital projects, depending on the choices it makes in where it invests its capital, or what the impact of borrowing and investing will be on its share price.

This is a highly technical issue and the Agency is hiring a consulting firm to evaluate its current method against alternative methods of computation. The Agency informed CITA and other stakeholders that it was undertaking this review and asked us to provide comments on the consultant’s report once made available to us. In this instance, working with other members of the Coalition of Rail Shippers, we will need to also consult with an expert to assess the Agency’s consulting report and provide input.

While this is a highly technical issue, the everyday consequences for rail shippers could be significant. They could, for example lead to higher rates for switching cars between railways where regulated rates are in effect. In this instance, it is important for the shipper community to inform the Agency on the potential impacts of changes that the Agency may be considering.

Parliament recognizes the importance of liaison with the private sector to the extent that it is even included in some laws. A transportation example is in the Shipping Conferences Exemption Act (SCEA). This law allows ocean shipping lines calling at Canadian Ports to enter into legal cartels, i.e. they are allowed to fix prices without violating the Canadian competition laws. This law recognizes that shippers and importers are directly affected by this unusual freedom given to the shipping lines and section 21 of SCEA states:

21. The Minister of Transport may designate any organization or association of shippers as representing, in the opinion of the Minister of Transport, for the purposes of this Act, the interests of those shippers.

Under this provision, the Minister of Transport has designated CITA as the shipper organization. This is of particular interest at this time as there is a movement in other countries to end this exemption from competition law and this may become an issue on which CITA will need to lobby on behalf of its members.

All this may seem complex and esoteric, but it is of considerable importance to all shippers, consignees, importers, and others in the supply chain. It requires constant vigilance by both the association staff and by the member companies. It is CITA’s role and we continue work with our members, both individually and collectively to ensure that governments hear the concerns of the shipper community.

R.H. Ballantyne, P.Eng.

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NORTH AMERICA will remain the destination of products from low-cost-manufacturing countries in Asia for decades to come. Despite the recent

economic downturn, forecasts predict that trade from Asia will resume its growth.

Selection of the ocean shipping gateway into North America is a strategic supply chain decision that will impact how efficiently and effectively Asian products reach their final destination in North America. Containers can move across the Pacific to the west coast entering through port gateways in Canada, the U.S. and Mexico. Containers may cross through the Panama Canal to enter at Gulf Coast or Atlantic ports. Containers can be shipped westward through the Suez Canal to east-coast ports. Global shippers and the logistics industry need to be aware of the competitive opportunities offered by each of these port gateways.

Los Angeles/Long Beach (LA/LB) — The Traditional Market Leader

LA/LB is the largest port complex in North America, closer to Asian sourcing points than east-coast or Gulf Coast ports using the Panama or Suez Canals. In addition to its proximity to Asia, the area’s large regional market justifies frequent and direct ocean service (first port of call) from Asia. Southern California is home to over 17 million consumers, making it the second-largest metropolitan area in the United States. LA/LB has deep-water berths that can accommodate vessels exceeding 5,000 TEUs and which cannot pass through the Panama Canal. Stack trains provide an efficient intermodal rail service for delivery to U.S. markets. These factors have led railroads to offer the largest number of rail schedules departing from LA/LB than from any other port in North America. The LA/LB route can provide both a low-cost and rapid service to western America, and is competitive to the mid-western distribution points that serve mid-America and the east coast. These advantages had led to constant growth in

LA/LB traffic until the recent economic downturn. Despite continued traffic growth for LA/LB, market share has been declining since 2006. Congestion and uncertainties have plagued LA/LB since 2002. Typically, LA/LB has a backlog of ships waiting to unload at any given time. The physical capacity of the ports, the local freeway and the railroad system is being strained, with limited space to expand. As a result, shippers have been investigating other options to serve both west-coast and east-coast consumer markets.

The Pacific Northwest (PNW)The PNW ports of Seattle, Tacoma (U.S.) and

Vancouver (Canada) are geographically closer than LA/LB is to most of Asia, have a sizeable but smaller local market for Asian-produced goods, possess deep-water port capacity, and are closer to northern destinations in the U.S. Ocean rates do not always reflect the shorter distance to the PNW ports, as more vessels can completely load or unload in LA/LB. In addition, negotiated rates for large shippers, including freight forwarders, are often equalized across the west-coast ports. The PNW ports are a good choice for time-sensitive freight moving eastward to destinations such as Chicago. Significant growth in the PNW ports can be attributed to shippers seeking alternatives to the chronic congestion in LA/LB. As container movement from Asia peaked in 2006 and 2007, PNW ports also suffered from increasing capacity utilization and congestion. The economic downturn has decreased port usage, however, and capacity utilization is no longer a significant differentiation factor between gateway ports at this time.

Asian freight exported to Canadian destinations can be consolidated with U.S.-based freight through American ports. As Canadian volume increases, however, direct movement through Canadian ports could improve transit time overall. U.S. railroad service from LA/LB lacks operations in central and eastern Canada and must interchange with Canadian railroads to enter that market. This changeover increases

Gateways to North AmericaBY GARLAND CHOW, PHD

GLOBAL SUPPLY CHAIN

8 | The Shipper ADVOCATE

transit time while also reducing reliability, which is inherent in any interchange of equipment between rail lines. In contrast, Canadian railroads have operations into major U.S. hubs and markets including Chicago and Memphis. Combined, the short ocean transit, comparable land transportation and deferred fees, such as the Harbor Maintenance Tax, improve Canadian gateway competition for U.S.-bound traffic.

New West-Coast AlternativesThe Port of Prince Rupert (PR) began

container service in 2008 with even-shorter ocean shipping time from North Asia than the PNW ports, focusing on transporting Asia-to-U.S. freight. PR is situated 436 miles/36 hours sailing time closer to Shanghai than Vancouver is and over 1,000 miles/68 hours closer than Los Angeles is. This offers both a cost- and time-competitive service to serve the U.S. midwest. PR relies heavily on

the CNR, however, as the only available rail transportation from the port. The opportunity to utilize trucking from PR is limited due to inclement weather conditions in the winter and the long distance. However, the CNR runs through the lowest-grade mountain passes of the Rocky Mountains. This results in lower winter impact, faster operational times and lower costs than for other railways. Capacity utilization at the PR port is also low, so congestion is minimal and reliability has been good.

Lázaro Cárdenas (LC) is substantially further away from Asia than LA/LB. However, it is expected to become a major container facility due to congestion at LA/LB and the former’s relative proximity to major cities such as Kansas City and Houston. The Kansas City Southern Railway purchased joint ownership of Mexican railways to provide seamless and secure rail service to the U.S. heartland. Changes in government regulations have enabled international in-bond transit through LC to Laredo, Texas. Like Prince Rupert, capacity

utilization at Lázaro Cárdenas is low, resulting in very fast container-unloading and train-loading times. For non-priority freight to mid-America, LC provides a low-cost alternative and a likely substitute for Gulf vessel calls through the Panama Canal.

The Panama ConnectionThe Panama Canal routing to east-coast

and Gulf ports is the low-cost alternative when it is used for movements that are destined for the U.S. east and Gulf coast market, as the majority of that movement is on water. This cost advantage is to some degree offset by limitations on the size of vessels that can transit the canal and long transit time. Currently, the canal can accommodate only ships with a maximum of 5,000 TEUs. When freight is destined further inland, the Panama Canal is further disadvantaged, as it takes upwards of 26 days through an east-coast port from Shanghai to Chicago, as opposed to approximately 18 through a west-coast port. The Panama route has benefited from recent improvements by eastern

Container port and rail yards, Vancouver BC

FALL 2010 | 9

railroads to remove barriers to double-stack-train service from selected ports to midwest destinations. For example, the Homeland Corridor, which connects Norfolk with Chicago on 1,031 miles, is designed to handle double-stack trains, and passes through Columbus, Ohio, a major distribution hub. The Panama Canal alternative is recommended for non-priority Asian freight destined primarily to the east coast.

Congestion in the LA/LB gateway has also shifted traffic to the Panama Canal and, with rising fuel prices, Panama Canal throughput rose sharply. However, the Panama Canal is also reaching capacity, becoming more congested and less reliable. During peak periods, vessels can often wait 10 days before transiting the canal. Idle time can cost shippers as much as $50,000 per day, leading to a complex bidding process. In 2006, a British oil tanker paid $220,000 (not including transit fees) to jump ahead of 83 other ships. The Panama Canal authority recognized this constraint and began expanding the canal in 2006. The new canal – expected to open in 2011 – will be able to accommodate ships with up to 12,000 TEUs by 2014. There could be a potential shift of 25 percent of west-coast cargo to east-coast/Gulf Coast ports according to Panama Canal authorities. This will be achieved by accommodating larger vessels, reducing congestion and improving transit times. Many of the east-coast ports do not have the 45- or 50-foot depth needed to handle large vessels, but not all of these ports will need to deepen their harbours in order to benefit from the increased traffic. Many of the larger

ships will not require the maximum depth for unloading at these ports, because they are carrying high cube products and arriving with empty fuel tanks. There are also several proposals to create Caribbean trans-shipment centres and a hub for larger vessels transiting the Panama Canal transferring containers to smaller ships bound for North and South American ports.

The Suez AlternativeRouting containers from North

and South Asia typically requires 30 days through the Suez Canal. Freight originating west of Singapore, however, takes substantially less time through the Suez Canal; making it competitive both in cost and transit time. The geographic “centroid” of Asian manufacturing and exports is expected to shift from China toward India, increasing the attractiveness of utilizing the Suez Canal over transpacific liner services. As exports from Southeast Asia and India grow, the Suez Canal will become more valuable in reaching U.S. east-coast ports. A realistic scenario is that there will be gradual growth of exports from India as that country overcomes infrastructure barriers. The expansion of Asia-U.S. trade via the Suez Canal will thus be gradual, rather than explosive.

Factors to ConsiderFuel Cost. Although the price of oil

has dropped amidst the global financial-services crisis, it has steadily risen since 1985. Hovering around $63.50 in 2009, increased fuel costs have encouraged shippers to rely less on fuel-intensive

surface transportation by increasing their use of the Panama Canal route. And, although cost comparisons show that the west coast still has a total transportation cost advantage over the east coast to major midwest distribution hubs such as Chicago and Memphis, shippers need to be aware that increasing fuel costs would erode that cost advantage.

Port and Inland Transportation Capacity. Most port gateways have increased their capacity by deepening ship channels, building new container terminals, or increasing terminal capacity through berth and equipment additions. Inland transportation capacity must be commensurate with port capacity, however, to prevent bottlenecks downstream in the transport chain. This can include public roadways, drayage and short-line rail connections between port terminals and intermodal rail facilities, rail-line haul capacity and intermodal rail terminals. An analysis of the anticipated 2035 levels of service in the U.S. rail network showed that, without improvements, 25 percent of major rail-corridor mileage will be operating near or at capacity, resulting in moderate to limited ability to accommodate maintenance and recover from incidence. Thirty percent will be operating above capacity, which will result in unstable flows and service-breakdown conditions.

The study also concluded that major railway corridors in the west are more congested than those in the east. In response, both U.S. railroads operating in the west (UP and BNSF) have made substantial capacity investments throughout their networks. The Canadian ports and railways have also made significant investments, bolstered by integrated planning and cooperation between the public and private sectors to further minimize capacity bottlenecks along the corridors. Canada’s Asia-Pacific Gateway and Corridor Initiative has funded and coordinated investments, encouraging marketing and operational cooperation between participants in the transport chain since 2006. Recently, the U.S. west-coast transport chain has come together to form the West Coast Alliance, seeking to persuade the U.S. government to provide similar leadership for

10 | The Shipper ADVOCATE

supporting and financing transportation infrastructure.

Door-to-door service quality is determined by how well each of the transport-chain participants coordinate and work together. Conflicting business processes and operating schedules can lead to inefficient and unreliable container supply chain operation. Recently, Port Metro Vancouver and the CN railroad agreed to establish a framework for the port, developing mechanisms to monitor and evaluate the performance of each participant at the port against established benchmarks. They designed processes to communicate service-related matters and resolve disputes between supply chain participants on a commercial basis. Both companies believe that supply chain collaboration is the best way to help enlarge the Gateway’s share of Asian containerized imports to North America.

In the end, the reliability of a system depends on supply and demand. A port gateway can build capacity, but, with increasing demand, any system will become congested and subject to delays. Shippers need to keep abreast of each port gateway’s performance and the prospective capacity utilization of that gateway.

Environmental Considerations. All major ports have proactive programs to reduce their environmental impact through actions such as truck-fleet modernization, dock-side power and night-time operations. However, the total environmental footprint of using a particular port gateway is largely dependent on the combination of ocean versus rail and truck distances used by each gateway for door-to-door service. As with fuel costs, east-coast destinations from Asia favour all-water routes to east-coast gateways to minimize CO2 emissions, while west-coast routings minimize CO2 emissions to west-coast and midwest destinations. In 2014, this disparity will diminish, as the Panama Canal enables larger ships to deliver closer to the destination. This will be significant in the future if a system of carbon taxes or carbon credits is available to transform environmentally superior routings into dollar benefits.

Gateway-Related Fees. You pay for

what you get. Each of the gateways and their respective transport-chain partners are increasing capacity to improve service, but nothing is free. You need to be aware of the fees that will be charged now or in the future to cover the costs of environmental impacts, capacity expansion and services. Examples include the Alameda Corridor Fee and Pier Pass Traffic Mitigation Fee in LA/LB and the capital-recovery fees charged by many ports.

There are currently proposals to change the Harbor Maintenance Tax that is charged at all U.S. ports, and Panama Canal tolls will certainly be increased to cover the cost of canal expansion. Although some of these fees may be temporarily deferred, they are eventually worked into the total cost of the port gateway as assessorial fees added to container charges or embedded in the ocean-shipping rate. Shippers need to be aware of both current and prospective fees in comparing alternative gateways.

Ocean-Carrier Service-Deployment Strategies. Shipping lines are continuously evaluating which combination and sequence of port calls will optimize ship utilization. PNW ports may be closer to Asia but have fewer first-port-of-call services, negating the distance advantage. Shippers need to be aware of impending service and schedule changes that will impact the timing of deliveries from Asia.

Maintain Flexibility to Mitigate Transport-Chain Disruptions and Risk. Although some amount of unreliability can be forecast from historical performance variation, the transport chain can still be halted by labour strikes, weather, and acts of terrorism. Shippers need to be prepared for potential crises, such as labour disruptions resulting from prolonged and failed negotiations. Other sources of supply chain disruptions, such as a natural disaster (earthquakes) or terrorist acts, cannot be readily anticipated. Shippers must have alternative routings within and between each gateway port, utilizing processes and established relationships to survive these disruptions. Shippers should maintain a portfolio of suppliers at and across alternative ports to mitigate risk. For example, a shipper can substitute long-

distance truck for intermodal rail when containers are delayed at an ocean port, or have arrangements at several ports for entry into North America. Logistics service providers that have networks across multiple port gateways are well positioned to provide that flexibility with respect to freight handling, shipment processing and control.

Real Experience CountsShippers have the choice of using

different port gateways to bring their products into North America from Asia. Choosing the right port gateway involves more than knowing the scheduled service and quoted prices of alternative routings. The actual service provided depends on how the service providers, as a transport chain, cooperate to deliver door-to-door service. It depends on capacity decisions being made continuously by the suppliers in the transport chain, and the supply and demand conditions at each gateway. Being aware of historical performance and adapting to current and future conditions ensure that the right choices are made in the supply chain, anticipating changes and switching to alternatives when necessary.

There is no substitute for firsthand knowledge and experience, but even large shippers have difficulty gaining and maintaining useful knowledge across all gateway alternatives. Intermediaries, such as freight forwarders, third-party logistics providers and consultants, can fill the experience gap, dealing with multiple transport suppliers located in many geographic markets. Third parties are a vital part of the global supply chain, providing expertise as a value-added service.

Garland Chow, PhD, is Associate Professor and Director, Bureau of Intelligent Transportation Systems and Freight Security, Sauder School of Business, University of British Columbia. Author of over 200 articles and reports in the supply chain and logistics field, his current research includes global sourcing, supply chain optimization and security in the marine container supply chain.

Reprinted through the courtesy of 3PL Canada.

FALL 2010 | 11

Transport CanadaTransport Canada (TC), is headed by the Hon.

Chuck Strahl, Minister of Transport, Infrastructure and Communities. He is assisted by the Hon. Rob Merrifield, Minister of State for Transport.

TC has several major roles and these include:• Establishing policy for all modes under

federal jurisdiction.• Recommending legislation for the commercial

and safety aspects of all modes under federal jurisdiction.

• Administering transportation safety and security for all modes.

• There are some shared responsibilities with the provinces in the above two bullets, primarily in commercial road transport.

• Administering the Transportation of Dangerous Goods Act for all modes.

• Acting as landlord for major marine and airports and directly

The Government Puzzle — How the Pieces FitBY BOB BALLANTYNE

WHO DO YOU TALK TO IN GOVERNMENT?

IN EARLIER ISSUES of the ADVOCATE, we’ve profiled a number of federal government departments that have an impact on freight transportation. Unless one is involved with these departments

and agencies on a daily basis, it is not obvious what their specific responsibilities are and how they relate to one another and to the provincial governments. All government departments and agencies that impact on business in general, also impact on transportation companies and their customers. In this article, we’ll attempt to clarify the respective roles of the government departments and agencies that focus on Transportation, how they relate, and how they fit into the federal government structure. After you’ve read this, if you want more information on the various agencies, I would suggest looking at the back issues of the ADVOCATE or refer to their respective websites.

To provide the appropriate context, here is a brief civics lesson on the Canadian Parliamentary system. As a federation, the constitution allocates responsibilities between the federal and provincial/territorial governments. In this article, we’ll focus on the federal government. Like all western democracies, authority is divided between the executive, legislature and the judiciary. In the British Parliamentary system, the executive branch of government is directly responsible to the legislature, i.e. the Prime Minister and his cabinet are elected members of the House of Commons or may be Senators. The Prime Minister and his Cabinet is the Executive branch of government and the various ministries and agencies that impact carriers and shippers in all freight transportation modes are part of, or report to, the executive branch. In the remainder of this article, we’ll focus on Transport Canada, the Canadian Transportation Agency, Natural Resources Canada (NRCan), Environment Canada, and the Transportation Safety Board.

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In this article, we’ll attempt to clarify the

respective roles of the government

departments and agencies that focus on

Transportation, how they

relate, and how they fit

into the federal government

structure.

12 | The Shipper ADVOCATE

managing a number of smaller ports in both modes.There are other responsibilities, but the above list covers TC’s

major responsibilities as related to freight transportation. The Canada Transportation Act, which governs the commercial side of aviation and railway companies is a good example of how TC exercises its role and how it relates to other agencies. The policy group advises the Minister on legislation such as the Canada Transportation Act, but once it becomes law, responsibility for administering the regulatory provisions of this Act resides with the Canadian Transportation Agency. So if, for example, a shipper has a complaint about railway freight rates or service, the Act has provision for dealing with such complaints, but the independent Canadian Transportation Agency is responsible for resolving them.

TC is directly responsible for administering and regulating air, marine, and rail safety, and shares this responsibility with the provinces and territories with regard to road safety. TC sets the safety specifications for road vehicles including trucks, but once approved vehicles are on the road, it is a provincial responsibility to regulate road safety. TC does not investigate transportation accidents; this is the responsibility of the Transportation Safety Board as described below.

The Canadian Transportation AgencyThe Canadian Transportation Agency (CTA), a quasi-judicial

agency, reports to the Minister of Transport, Infrastructure and Communities, but is independent of Transport Canada. It is managed by a Board of up to seven persons appointed by the “Governor-in-Council”, i.e. the Cabinet. There are five Board

members and Mr. Geoffrey Hare is the current Chairman.It has a regulatory role in commercial aviation, marine and

rail. Its major role with regard to freight transportation is with the rail mode. Under the Canada Transportation Act, the Agency determines regulated inter-switching rates and the revenue caps for the movement of western grain. It also develops railway costing standards and regulations and audits railway companies’ accounting and statistics-generating systems, as required. The Canada Transportation Act also recognizes, to some extent, the limited competition that exists in the Canadian rail freight market. Under the Act, the Agency deals with rate and service complaints from rail shippers, provides a dispute mediation service available to shippers and administers the baseball style Final Offer Arbitration process.

The Transportation Safety Board (TSB)The TSB is an independent agency reporting to Parliament

through the President of the Queen’s Privy Council, the Honourable Josée Verner. Its purpose is to advance safety in the air, marine, pipeline, and rail modes. It has no role in investigating road accidents.

The TSB fulfills its role by investigation, holding public inquiries, identifying safety deficiencies, and making recommendations to the appropriate authorities. It is not a court and does not determine civil or criminal liability. It was purposely set up independent of the Minister of Transport and TC to avoid any conflict of interest, or perceived conflict of interest. Most of its recommendations, which are non-binding, are directed to TC for action. For example, if the TSB investigates an aviation accident and determines a procedural deficiency that may require new regulations, it makes such a recommendation to the Minister of Transport and it is up to TC to modify, implement, and enforce the regulation.

Environment Canada (EC)The Canadian Environmental Protection Act, 1999 (CEPA

1999), is the legislative mandate for EC to regulate emissions for both on-road and off-road vehicles. A major focus for EC has been with on-road vehicles and its On-Road Vehicle and Engine Emission Regulations came into force on January 1, 2004. These regulations align the emission standards with U.S federal standards and apply to both light duty and heavy-duty trucks.

EC works with Transport Canada and with Natural Resources Canada to promote reduction of greenhouse gases and other harmful emissions by all modes of transport.

Natural Resources Canada (NRCAN)NRCAN manages outreach programs directed at the

commercial transport industry. Its Vehicle Fuels program encourages the use of alternative fuels such as biodiesel, ethanol and cleaner conventional fuels such as low-sulphur diesel.

The Fleet Smart program promotes and encourages truck fleet owners, managers and owner-operators to adopt energy-efficient practices that reduce both emissions and fuel costs.

Other Departments and AgenciesThe above commentary is not exhaustive and there are many

other departments such as the Canadian Border Services Agency that have a major impact on cross-border freight transportation.

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THE GREAT LAKES / St. Lawrence Seaway system has long served the Canadian grain shipping industry well by providing

a clean and efficient shipping channel for export. Equally important and perhaps less obvious is the role the Great Lakes/St. Lawrence Seaway plays in domestic movement between the big grain production area of the west and the big population and consumptive market in the east.

Parrish & Heimbecker Ltd. is a 100-year-old Canadian company that has quietly built up a thorough and efficient network of freight and terminal capacity to serve this market. P&H uses a network of terminals, marine shipping services and rail terminals as a comprehensive pipeline between western Canada, the domestic processors in the east and export markets around the world.

Domestic food processors are under intense pressure to lower cost at a time when environmental concerns

Parrish & Heimbecker, LimitedJASON AUGER

MEMBER PROFILE

Grain elevators at the Port of Owen Sound.

are growing. Processors are highly motivated to make measureable gains to lower greenhouse gas emissions while increasing the food safety aspect of shipping and lowering cost.

P&H’s response to this includes a new shipping terminal for receiving domestic grains and shipping export in the Port of Hamilton and revital-izing the Great Lakes Grain Company eleva-tor in Owen Sound, Ontario. The Hamilton terminal at Pier 10 will be capable of unloading inbound vessels, including bulkers, fast loading of lakers at 1,500tph (tonnes per hour) for transfer to the St. Lawrence or export and will be serviced by both CN and CP rail. It has berthing positions for four 745 foot vessels at the same time in an interface between a 25-car unit train rail. “This terminal will provide shippers and processors with the best security, food safety, cost of shipping advantages and flexibility possible in the Great Lakes region. The Port of Hamilton is the perfect hub for marine and rail shipping and receiving of agri-food products and will

enhance our capability in Thunder Bay, Owen Sound and Montreal,” said vice president of P&H Grain, Rob Bryson.

P&H’s shipping programme is based on regular, frequent service through the Great Lakes/St. Lawrence Seaway system, serving a variety of customers with each

trip. Individual holds are combined to balance each trip and the marine shipping service is balanced with rail service into

and out of seven rail terminals P&H operates in Ontario. P&H’s product flow is a mixture of oilseeds, milling wheat, feed grains, and partially processed grain products from western Canada into the demand market in the Great Lakes basin. It also exports soyabeans, corn, and wheat out of Ontario to around the world. The flow of product goes from Thunder Bay downstream to the lake ports, grain terminals and as far east as Halifax.

Occasionally vessels will unload and reload individual holds of grain along the route on a ‘city bus’-type delivery run through the Great Lakes/St. Lawrence Seaway system. Marine transport of bulk

Hundred-year-old company

continues to invest

in Seaway assets

14 | The Shipper ADVOCATE

commodities in less than full vessel load lots has allowed companies with smaller shipping volumes to access lower cost marine freight.

Furthermore P&H ships bulk vessels in less-than-full load lots as it reduces the customer’s inventory cost by maintaining smaller inventories. However, the regular sailing schedule provides an assurance of supply and the cost savings of marine shipping. Sailings are a combination of separate holds of different products for various customers.

In recent years P&H has switched to using ‘Riverclass’ self-unloading vessels although, the majority of the ports of call are full seaway draught and can load and discharge bulkers. The convenience of the more nimble vessels matches well with the supply chain management requirements. P&H manages product flow for seven flower mills as well as a mixture of ethanol manufacturers, oil seed manufacturers and positions domestic grain for export. On a yearly basis P&H moves about 30 bulk vessels through the

Unloading malt at Owen Sound.

The Port of Belledune is a year-round marine transport facility with a modern, deep water point of access to key northern markets. The port has developed strategic partnerships to facilitate problem solving for complex needs within transportation, logistics and the handling of challenging project cargo.

The Port of Belledune is the most �exible choice for moving project cargo into the Eastern Arctic, Newfoundland and Labrador.

thearcticgateway.com

Seaway system.The reason that P&H has continued to

invest in marine facilities is because of the greater energy efficiency of shipping over water and the environmental benefits of a low emissions transportation pipeline. “Society’s interest in limiting green house gas emissions is going to be answered by increasing our utilization of maritime shipping,” – says Steve Kell of P&H. The carbon output of shipping by vessel is less than half of moving the same volume by rail and a fraction of the environmental footprint of shipping by

truck. P&H is a major player in modal shift and works directly with customers to measure cost and environmental impact then craft a plan to maximize the company’s efficiency using a variety of modes and facilities.

P&H Regional Report 103, August 2010

INDEX TO ADVERTISERS

ANNuAL CONFERENCE/TRADE ShOWSupply Chain Canada ........................IBC

CuSTOMS BROkERSSummit Custom Brokers ........................ 6

FREIGhT SERVICESACL ................................................OBC

PORTSPort of Montreal ................................ IFCPort of Belledune ................................ 14Thunder Bay Port Authority ................. 12

FALL 2010 | 15

IN 2006, a number of industry associations came together to lobby for changes to the rail shipper protection provisions of the Canada Transportation Act, which was being considered by the government for

amendment. The Coalition of Rail Shippers” (CRS) has 17 associations in its membership and the companies represented by CRS members account for over 80% of the total Canadian revenues of CN and CPR.

With significant input from the CRS, Bill C-8, amending the Canada Transportation Act, received Royal assent on February 28, 2008. While Bill C-8 improved the shipper protection provisions related to pricing issues, it did not address the chronic and widespread service complaints of shippers. The government undertook that it would commission an independent review of rail service with the passage of Bill C-8 to start within 30 days of Bill C-8 becoming law.

The review was structured in two phases. Phase one was the data gathering and analysis phase undertaken by three consultants hired by Transport Canada, and Phase two, currently underway, is the recommendation and reporting phase. The three-person Panel is scheduled to complete their recommendations and submit their final report to the Minister by the end of December 2010.

Details of the consultants’ findings can be found on the Transport Canada website at www.tc.gc.ca/eng/policy/acg-rfs-review-examen-sfm-rvw-eng-442.htm.

The consulting mandates covered the following areas:

1. An independent, data based analysis of service quality by QGI Consultants of Edmonton.

2. A detailed report describing the rail based logistics system by QGI Consultants.

3. A survey of shippers and other stakeholders in the rail based supply chain by NRG Consultants of Winnipeg.

4. A survey of regulation the U.S. rail industry of other regulated industries in Canada by CPCS

The Rail Service Review: The Shippers’ PerspectiveBY BOB BALLANTYNE

THE FUTURE OF RAIL FREIGHT

Consultants of Montreal.The consultants found that:(a) Service quality, as measured by car supply

and on-time delivery is inconsistent, unreliable and highly variable;

(b) Shippers and other stakeholders were generally unsatisfied with rail service quality;

(c) Canadian railway level of service obligations are stricter than those that apply to carriers in other modes.

In mid 2009, the three person panel was appointed to take the findings of the consultants, obtain input from interested stakeholders, develop recommendations, and report to the Minister. Walter Paszkowski, a former Alberta Minister of Transportation and Utilities, chairs the panel, and the other two panelists are Bill LeGrow, a former logistics Vice-President with West Fraser Mills Ltd., and David Edison, a former CN Vice-President.

The panel received over 140 submissions. Most submissions are public and can be found on the Transport Canada website. It will not be a surprise that the railway submissions and the shipper submissions came to diametrically opposed conclusions. The railways feel that improvements are being made and no new regulations inhibiting their freedom of action are necessary.

The shipper position is that rail freight is not a normally functioning competitive market and that the two major railways are effectively a “dual monopoly”. The government has expressed a preference for “commercial solutions” from the panel. If rail freight was a normally functioning competitive market, then shippers, most of whom operate highly competitive markets, would agree. Because the bargaining power between the buyer and the seller in the rail freight market is skewed in favour of seller, the shipper community sees the need for additional government oversight as a surrogate for effective competition and to re-balance the bargaining power.

The submissions of the various shipper groups and the CRS were consistent in their

While Bill C-8 improved

the shipper protection provisions related to

pricing issues, it did not

address the chronic and widespread

service complaints of

shippers.

ANNuAL CONFERENCE/TRADE ShOWSupply Chain Canada ........................IBC

CuSTOMS BROkERSSummit Custom Brokers ........................ 6

FREIGhT SERVICESACL ................................................OBC

PORTSPort of Montreal ................................ IFCPort of Belledune ................................ 14Thunder Bay Port Authority ................. 12

16 | The Shipper ADVOCATE

core recommendations, which can be summarized as follows:

1. A need for basic service standards in terms of car supply and on-time delivery.

2. Independent data analysis of service data collected from the railways, shippers, and receivers.

3. Reciprocal penalties for service failures.

4. A negotiated commercial dispute resolution process, possibly with the government acting as a referee in developing terms and conditions.

Currently, the railways have the right to impose penalty charges against the service failure by shippers, i.e. “demurrage charges” against shippers or receivers that take too long to load or unload railway owned rail cars. This is one of a number of “tariff” penalty charges that railways can impose on shippers and receivers. There is no comparable penalty tariff regime for service failures by the railways.

In August, 2010, the panel issued a Draft Panel Solutions paper providing an outline of its thinking with regard to their recommendations. This paper proposed a two-phased approach that asks the railways to enter into voluntary arrangements with shippers to address the chronic service and communications issues and, if after a government review in 2013, there is no improvement, then the government should legislate changes to railway behavior. In this approach any further regulatory constraint would become law long after 2013 and is so far in the future that it would not act as an effective incentive for a voluntary change in railway behavior.

The Panel issued its Interim Report on October 8 and asked for feedback from stakeholders by November 8. The recommendations in the Interim Report follow closely from the August Draft Panel Solutions paper.

The Interim Report comes to the conclusion that rail freight is not a normally functioning competitive market, as CITA and other shipper groups have stated and in Section 5.3 the report states: “The Panel concludes that the railways

continue to possess market power over many of their customers”.

The report goes on to state that “Four Key Elements” should be addressed as follows:

• Consultation and Notification of Service Changes

• Implementation of Service Agreements

• Establishment of Fair and Balanced Dispute Resolution Processes, and

• Enhanced Performance Reporting.The panel

then makes eight specific recommendations to address the changes they feel need to be made to address the service

deficiencies.The first five recommendations are as

follows.• Shippers and railways should work

collaboratively to develop commercial solutions to improve service.

• Changes in local train service should take place after consultation with affected shippers and with 10 days advance notification of service changes.

• The railways should enter into good faith negotiations to establish service agreements with shippers.

• Using a facilitator, the railways should negotiate balanced dispute resolution processes with shippers.

• Railways should improve service reporting.

The Panel proposes that these first five recommendations be implemented voluntarily by the railways and their customers.

The shipper community has stressed that long experience with inconsistent service doesn’t give them much comfort that improvements will be sustained on a voluntary basis. The Panel has responded in their recommendations 6 to 8, that service be again reviewed in 2013 to determine if the voluntary approach has worked and, if not, that a regulatory framework be put in place to force the changes outlined in the first five recommendations. As a result of input from the shipper community after the August Draft Panel Solutions

Paper, the Interim Report proposes that the regulatory framework be drafted as soon as the government accepts the recommendations, and that if results of the 2013 review are unsatisfactory, the government should “trigger” the implementation of the regulatory backstop.

The Panel’s analysis and conclusions, in the view of shippers, follow logically and naturally from the consultants’ findings, and reach the correct conclusions based on the evidence. Having determined that there are long-standing service problems, that the railways possess market dominance over many of their customers, the Panel then proposes that “commercial solutions” be tried first and any regulations to ensure re-balancing of market power be delayed until after a further service review in 2013. In the view of shippers, there is a disconnect between the Panel’s conclusions and the decision to delay a rebalancing by regulation. There are two major concerns with the Interim Report recommendations that the shipper community has expressed:

1. Regulatory action is needed in parallel with the “voluntary” approach to act as a surrogate for a normal competitive market, and

2. The Panel has not addressed the shipper community’s concern that unless there is some reciprocal penalty regime in place for service failures by the railways and other supply chain participants, there is no significant incentive to ensure that service improvements will be sustained.

The Panel, the consultants, and the various stakeholders who have contributed input to this study, have participated in a useful and important project that will, if implemented properly, result in an improved rail based supply chain that will improve Canada’s competitiveness on world markets and be of value to importers and the Canadian consumers that they serve.

In its final report, shippers will be looking for the panel to make recommendations based on the facts uncovered by the consultants, serious consideration of stakeholder submissions, and to not shy away from recommending early changes to the Canada Transportation Act.

…the panel [should] not shy

away from recommending

early changes to the Canada

Transportation Act.

FALL 2010 | 17

down entrepreneurship and challenges, and first and foremost, integrity.

“We’ve been accepting of changes -- we quickly realized we must excel in change and not complain about it. Certainly, the customer has brought a lot of these ideas to us over the last four to five years,” he said.

This has not gone unnoticed among Armour’s peers. Ginnie Venslovaitis*, manager of trans-

portation services at Unilever Canada, has worked with Armour since 1991.

“I think it is refreshing to see trucking companies take chances, grow and mould themselves to what is happening in industry very quickly. Some of the interesting stories I have heard about

Wes prove that. His staff or customers come to him with ideas and challenges and he reviews and allows for changes to be made or for a new business to unfold. This is certainly the quality that can be held out as sign of a leader and strategic thinker.

“I believe Wes has his company, his family, his management team, his drivers, his customers and the whole Atlantic Canada region in his mind as he makes changes and moves his business forward. It is always a pleasure to meet and see Wes as his personality is open and straightforward and under no pretense. It makes you feel good to be around

THE NAME Wes Armour will no doubt be familiar to readers. President and CEO of Moncton, N.B.-based Armour Transportation Systems, Wes (Wesley) Armour is a popular participant in

CT&L’s shipper-carrier roundtable and one of its Award Winning Suppliers. This year, he is also being recognized as the 2009 CITA Supply Chain Executive of the Year.

His company operates from 23 freight terminals located throughout Atlantic Canada along with facilities in Montreal and Toronto, and runs a fleet of more than 3,400 vehicles.

But as Armour himself puts it, in describing the relatively modest beginning of what is today Armour Transportation Systems, “We really started at the bottom.”

His father had a farm about 25 miles from Moncton, and ran one farm truck, buying, selling and shipping hay.

“In the 1950s, my father bought a Kraft Foods truck and that was really the beginning of our company. I got involved in trucking when I graduated from college. When I was 21, Dad took a mild stroke and I bought the business, GM Armour and Son Ltd., from him -- I couldn’t refuse, since I probably didn’t have 10 dollars in my bank account!” said Armour, who noted the business already had a good motor carrier licence. Armour and his wife lived off her teaching salary for about 14 months, while he learned the ropes of the business.

“Certainly since I became involved in the business, I’ve stayed focused on what I wanted to do, and we wanted to put people first, not only the customer, but our own people. We never wanted to lose those family values,” he said.

Internal relationships are a priority at Armour Transportation Systems, where fundraising activities, barbecues, and dances take place on a regular basis.

“We make sure we have a balance there and I think that’s why our turnover is very low,” said Armour.

But he noted the company is very driven by top-

Code of ArmourBY JULIA KUZELJEVICH

SUPPLY CHAIN EXECUTIVE OF THE YEAR

Integrity, respect and profitability are award-winning strategies for Wes Armour, CITA Supply Chain Executive of the Year

18 | The Shipper ADVOCATE

him and his team,” said Venslovaitis.Mike Cormier, vice-president of supply

chain for Scotia Investments, has worked with Armour on a business and personal level for more than 14 years.

“In today’s challenged supply chain world, traditional cookie cutter approaches do not always work. Each and every customer stands alone based on their own merit with unique operational requirements and constraints. With Wes Armour’s leadership, his team is truly dynamic, creative, innovative and open-minded when working with us to find the right fit and solution to overcome these customer/operational challenges. Wes’s high level of dedicated leadership has built an excellent business relationship between us, which exemplifies the true spirit of a supply chain partnership,” Cormier said.

Flexibiilty key During Tough Times

Many shippers and carriers have recently gone through some tough economic times, and Armour noted that in times like this, flexibility in business is key.

“You don’t forget what people did for you and you make allowances for that.”

But for some players, said Armour, recession has meant an increased focus on cost.

“You do have customers looking for ways to reduce cost, and they’re going and putting tenders out and some of these are companies that have never put out tenders before. You could always sit down with them and go over an agreement. Shippers have got to be careful of that and not beat up on the carrier so badly because I think things will be coming back to normal and there will be problems finding people, and capacity,” said Armour.

“We still have many customers looking beyond that, but many are not,” he said.

Armour stressed that success can be measured by stability.

“We have to be profitable -- a company that is not is a failure, in my books. Long term, if you’re not profitable, the rest of it doesn’t really matter. That’s certainly one of my strategies,” he said.

Another strategy, according to Armour, is that trucking is a mere piece

of the total transportation move, so good relationships with other players become paramount.

“People are looking for a total package today. This has forced us to become partners rather than enemies. The logistics business is just booming -- it has been a really positive thing for us,” he said.

In February 2009, Armour Transportation Systems opened a multi-purpose, $15-million facility in Dartmouth, N.S., located on 25 acres in the Atlantic-Gateway Halifax Logistics Park, featuring more than 100,000 sq. ft. of logistics warehousing space, 22 loading doors, and cross-dock capacity with 60 doors. A three-bay, state-of-the-art maintenance depot was designed to service Armour’s fleet of more than 3,400 pieces of equipment.

The facility has been touted as “a total transportation solution under one roof” and marks the company’s commitment to promoting the Atlantic Gateway.

According to Patrick Bohan, manager of business development at the Halifax Port Authority, Armour “is a tireless champion for the betterment of transportation in Canada. Wes and the company he runs are examples of best practices in action. Wes Armour and his team at Armour Transportation have repeatedly demonstrated their ability to step up and meet the needs of customers who use the Port of Halifax. The development and opening of their new facility in Halifax during 2009 was but the latest example where we saw their expertise in action.”

Armour is currently chair of the Atlantic Gateway Advisory Council, a group of 13 businesses in the private sector, which give government the private sector view of policies and projects geared to improving transportation through the Gateway.

“That has been an eye-opener for many of us, and certainly very positive. This has also been something brand new especially for the federal government with regard to sharing information with the 13 of us. We try to get a whole variety of executives so we get a great knowledge of the issues that come up. That’s the one real refreshing area where we’re seeing the modes of transport working together to give the customer

a better deal,” he said.Armour said that when the economy

improves, there will be some important lessons to draw from the downturn.

“It has certainly made people look at their costs. It made people look for other, better ways to do things. It should make us more proactive, looking ahead for changes. I would hope our customers get away from so much focus on dollars and cents, and making a long-term relationship with a carrier work,” he said.

2010 will continue to be busy for Armour Transportation Systems, which also recently achieved Canada’s 50 Best Companies Platinum status for the seventh year in a row.

Deloitte, CIBC Commercial Banking, National Post, and Queen’s School of Business sponsor this national award, and the platinum status designation “exemplifies consistency, commitment and the ability to be flexible in a changing marketplace,” said John Hughes, partner, Private Company Services group with Deloitte.

As part of the designation, Deloitte asked Armour executives to fill out a survey rating them on various criteria.

“It was very interesting because the executives all had the same integrity, we worked the same way and our strengths were all in the right areas. If we had a weakness, it might have been communicating better with others. I’m a very modest person, but I like to think I had something to do with that.

“If your executives rate high, that flows down through the entire company. I like to think that accountability, a ‘small business handshake,’ respect for employees, customers and suppliers, and respect back from them creates an atmosphere that’s really strong and tough to defeat. It appears we have 10 great executives and we were really happy with the results. I feel that I have not changed in all the years of being in the business. But my style has hopefully improved a bit!” said Armour.

* Ginnie Venslovaitis is currently Director, Transportation Operations, Hudson’s Bay Company.

Reprinted from Canadian Transportation & Logistics, April 2010, with their permission.

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