Bill C-49 Brings Important Changes to Rail Transportation in Canada

Bill C-49, An act to amend the Canada Transportation Act and other Acts respecting transportation and to make related and consequential amendments to other Acts, was passed by the House of Commons and the Senate and received Royal Assent on May 23, 2018. The updates significantly impact the railway industry by amending legislation including the Canada Transportation Act (“CTA”), the CN Commercialization Act (“CN Act”) and the Railway Safety Act (“RSA”).

Interswitching and Long-Haul Interswitching Rates

To interswitch is to transfer traffic from the lines of one railway company to those of another at an “interchange,” the place where the lines of two railway companies meet. Long-haul interswitching is the practice where one railway company transports railcars over a short distance to another railway company, which then conducts the “line haul”, or the majority of the distance of the journey. Where a shipper has access to only one railway in its immediate area, the interswitching rule allows the shipper to access that railway company’s services in order to transport freight to a higher traffic area where the shipper will then be able to choose between competing railway companies. Bill C-49 amends the CTA in two ways to change the way that the Canadian Transportation Agency (“Agency”) may assist shippers in obtaining reasonable rates for interswitching.

First, bill C-49 modifies the provisions by which the Agency determines interswitching rates where a shipper is located within 30 km (or a greater distance prescribed by the Agency) of an interchange. Rather than prescribing such rates by regulation, the Agency will now determine them yearly and publish them in the Canada Gazette by December 31st of each year.

Second, bill C-49 overhauls interswitching rate remedies for shippers outside of the radius applicable to regular interswitching rates. The previous Competitive Line Rate (“CLR”) system allowed shippers to apply to the Agency for a rate, but applicants were required to have an agreement with the connecting railway company before applying to the Agency. In practice, this system was rarely beneficial to shippers and even more rarely used. With the adoption of bill C‑49, the CTA provides for a new remedy, Long-Haul Interswitching (“LHI”). Under this regime, where a shipper has access to only one Class 1 railway carrier, and where two or more railway companies operate along the desired route, the shipper may apply to the Agency to have the interswitching rate assessed and set according to market conditions. A customer served by only one class 1 railway carrier may request interswitching to the nearest railway interchange, up to 1200 kilometers or 50% of the distance of the journey, whichever is greater. The Agency is required to review and make a decision within 30 days of receiving an LHI rate request. As is the case with regular interswitching rates, the Agency may order a railway company to interswitch traffic and to provide facilities for interswitching. In determining the rate, the Agency will take into consideration factors including any costs that result from moving a greater number of cars or from transferring several cars at the same time, as well as any long term investment needed in the railways.

Re-Classification of Railways and Additional Reporting Requirements

Four new Class 1 Rail Carriers

Railway companies’ duties to report their activities to the Minister of Transport vary according to their size. Prior to the adoption of bill C-49, the Transportation Information Regulations adopted pursuant to the CTA defined classes 1, 2, 3, and 4 “rail carriers” according to a railway company’s annual revenue within Canada. C-49 brings the definition of class 1 rail carriers within the CTA and replaces the income-threshold model with a simple list. Going forward, the following are class 1 rail carriers in Canada: the Canadian National Railway Company (“CN”), the Canadian Pacific Railway Company (“CP”), BNSF Railway Company, CSX Transportation, Inc., Norfolk Southern Railway Company, and Union Pacific Railroad Company. Other railways may be designated as class 1 by regulation. This amendment has the effect of adding four new class 1 railways to Canada, as CN and CP already qualified as such.

Reporting Requirements

Along with this change come increased reporting requirements for class 1 rail carriers, which are now required to provide detailed information to the Minister or Transport on a monthly basis including the following:

  • Traffic, including detailed information with respect to shippers, intermodal shipping, commodity codes including the identification of dangerous goods, whether rates result from tariffs or confidential contracts, and whether a regular interswitching or LHI rate (as described above) applies to the traffic;
  • Performance data, including train speed, weekly average cars online, terminal dwell time, grain cars loaded, coal unit, all as provided by the United States Code of Federal Regulations, certain of the provisions of which are now incorporated within the CTA;
  • Detailed financial reporting.

CN and CP, the two railways designated by the Agency as “prescribed railway companies” under the CTA, have further reporting requirements with respect to the transportation of grain. Bill C-49 expands on these and requires that CN and CP report any amount earned through traffic moved under the Agency’s prescribed interswitching rates, as well as any amount earned by transporting grain on flat cars carrying containers. CN and CP must also provide the Minister with yearly plans in respect of grain traffic, including contingency plans for winter weather conditions.

Changes to CN Ownership Rules

Previously a Crown Corporation, CN was privatized pursuant to the CN Act in 1995 and subsequently transferred ownership to private investors. Originally, no individual or corporate shareholder was permitted to hold more than 15% of the votes that may be ordinarily cast to elect directors of CN. Bill C-49 updates this aspect of the CN Act to permit an individual or corporate shareholder to hold up to 25% of the votes that may ordinarily be cast to elect directors of CN. This effectively grants the ability of a single individual to own up to 25% of CN.

Mandatory Recording Devices

Finally, Bill C-49 amends the RSA and associated legislation to require railway companies to use prescribed recording instruments, to collect data with those instruments, and to preserve such data for analysis by railway safety inspectors and by the Minister of Transport. In order to address personal privacy concerns, the RSA provides that such data will be admissible as evidence in proceedings against a railway company, but inadmissible as evidence in proceedings brought against an individual on board the railway equipment.

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