Decision No. 488-R-2008

September 25, 2008

File Nos. T7375-3/07-5
T7375-3/07-6
T7375-3/07-7
T7375-3/07-8
T7375-3/07-9
T7375-3/07-10

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Background

[1] Between September 5 and 10, 2007, the Canadian Wheat Board, North East Terminal Ltd., North West Terminal Ltd., Paterson Grain, Parrish and Heimbecker, Limited, and Providence Grain Group Inc. (the Complainants) filed level of service complaints with the Canadian Transportation Agency (the Agency).

[2] On January 18, 2008, the Agency issued conditional rulings in its Decision Nos. 20-R-2008, 21-R-2008, 22-R-2008, 23-R-2008, 24-R-2008, 25-R-2008 (January 18, 2008 Decisions) against the Canadian National Railway Company (CN). With respect to crop year 2006-2007, the Agency found that due to changes to CN's advance products programs, specifically its GX 100 and GT Pro Export grain programs and the elimination of CN's GTSE program, an insufficient quantity of general distribution cars were made available. As a result, CN was not providing adequate and reasonable (suitable) accommodation for traffic in the western corridors to the Complainants.

[3] In assessing crop year 2007-2008, the Agency noted that new CN grain products programs, which were designed to address earlier deficiencies, represented an effort on CN's part to provide adequate and reasonable accommodation for the traffic of the Complainants. However, there was insufficient information before the Agency related to CN's service record for crop year 2007-2008 under these revised programs for the Agency to rule whether CN was in breach of its level of service obligations.

[4] Consequently, the Complainants and CN were directed to file service information for crop year 2007-2008, beginning with Grain Week 1 through to and including Grain Week 36. The Agency stated that after reviewing this information, it would then determine whether CN failed to provide adequate and reasonable rail service for crop year 2007-2008 and what remedies, if any, need to be considered.

Issue

[5] Is CN in breach of its common carrier obligations for crop year 2007-2008?

Preliminary matter

[6] Pursuant to section 6 of the Canadian Transportation Agency General Rules, SOR/2005-35, the Agency may combine two or more proceedings in order to provide for a more expeditious process, as the circumstances and considerations of fairness permit.

[7] While the Complainants filed individual level of service complaints in September 2007 and the Agency issued six individual decisions on January 18, 2008, the Agency finds that all six complaints deal with similar facts and circumstances and the Complainants are seeking the same remedy. Therefore, the Agency has combined all six complaints in this one proceeding.

Grain transportation overview

[8] The grain transportation system is complex and involves a wide variety of stakeholders. Although they share the common goal of delivering Canadian grain to the customer, they often have competing interests which can lead to disagreements, conflict and ultimately legal action.

Grain supply chain

[9] The production of grain in the Canadian prairies and the delivery of that grain to domestic or international customers involves a complex multimodal supply chain.

[10] A wide variety of grains, oilseeds and specialty crops are planted in the spring of each year across the Canadian prairies and harvested in the autumn. The grain is moved to an elevator or a terminal where it is unloaded, weighed, graded and sometimes cleaned and or dried. The different varieties of grains are stored in the elevator bins and then loaded onto grain hopper cars to be transported to ports such as Vancouver, Prince Rupert, Churchill and Thunder Bay for loading onto ships for export to foreign customers. Grain is also shipped by rail to customers in Canada and abroad. The producer can also load grain directly into hopper cars at designated producer car loading sites. Some specialty crops are moved in containers.

[11] Once the rail cars are loaded with grain, they are collected and if there are enough cars, they may move as a unit train. Otherwise, the collected cars are moved to a rail yard facility where they are sorted and combined with other rail cars to make up a train.

[12] The assembled trains then move on the railway track to their destination. Depending on the origin and destination of the grain, switching or interlining may be required.

[13] When trains arrive at port they may be emptied directly into waiting ships or they may be unloaded into large storage elevators for future loading. Once the rail cars are unloaded, they are returned to a yard for classification and reassembly into trains. The empty hopper cars are then returned to the prairies where they are dropped off in yards to await redeployment. According to Quorum Corporation, the Edmonton based firm that acts as federal grain monitor, car cycle time (from country elevator to terminal and back) has averaged between 16-20 days over the past nine years. Grain spent an average of 56.1 days in transit to a vessel for export, including 29.2 days in the country elevator.

Demand-pull/Supply-push logistics systems

[14] A "demand-pull" logistics system is responsive and flexibly accommodates customer demand. In this case, demand for transportation is driven by sales obligations with grain buyers around the world. The Complainants have outlined the need for this type of system because it best accommodates their needs. They characterize the CN approach as a "supply-push" system where traffic is pushed to port on a prescribed schedule, not necessarily in step with demand.

[15] The quantity of grain shipped and ultimately sold is directly related to the demand for the product. The Canadian Wheat Board (CWB) and large grain companies actively seek customers for grain grown in Canada. International buyers recognize the high quality of Canadian grains but there are many other supplier countries in the highly competitive world market.

[16] Purchases can be contracted for long before the grain is at port or ready to be shipped. Sale agreements specify the type, grade, quantity, price and future date of delivery.

[17] Once the sales contract is finalized, the grain must be sourced from existing storage facilities, farms or country elevators. When the required grain is located, rail cars are ordered by shippers from the railway company, filled with the grain and shipped to destination to be unloaded onto an awaiting ship. Only grain that is demanded to fulfill the sale obligation is "pulled" to port. This demand-pull scenario ensures the right grain gets to port at the right time and is loaded onto the right ship. The sales contract for grain starts the overall transportation logistics process and the railway company accommodates the shipper's needs. This is the type of service shippers insist is essential for the grain industry to be efficient and competitive.

[18] However, the "demand-pull" system for grain is characterized by periods of high and low demand due to the seasonality of the grain production.

[19] The "supply-push" system is an alternative model where the available supply of transportation service dictates the amount of goods that will be "pushed" to port. This system is characterized by the operation of strict processes in anticipation of demand and maximized railroad asset utilization.

[20] Certain non-perishable commodities such as coal and potash are better suited to a "supply-push" model. These commodities originate from a single point and the product is moved in large unit trains to destination. Upon reaching their destination, the unit trains are unloaded and then cycled back to the origin point to repeat the process. The supply and movement of rail cars is normally handled via a commercial arrangement such as a multi-year confidential contract which specifies such matters as the number of rail cars, service levels, prices and penalties. This "supply-push" transportation model can be very efficient and economical and can be mutually advantageous for both the shipper and the railway company where commodity supply and demand are balanced and predictable.

[21] The gathering and delivering of grain, on the other hand, is a much more complex logistics process. Unlike coal and potash for example, there are hundreds of origins and many participants in the supply chain ranging from the farmer to the elevator company, to the railway company, to the terminal operator and vessel operators. Production is seasonal, the commodity is perishable and sometimes blending is required. Forecasting demand is short term and production can change significantly from year to year. Freight rates, while important, are not the key consideration if delivery commitments need to be met at port to satisfy sales contracts.

Overview of rail car allocation

[22] Prior to 1995, the Minister of Transport had the authority under the Canada Grain Act, R.S.C., 1985, c. G-10 to require railway companies to supply rail cars for carrying grain and place them at any point serviced by the railway company. These powers were exercised through the Grain Transportation Agency. In 1996, the Grain Transportation Agency ceased to exist when legislation changed. Subsequently, car allocation became the responsibility of industry.

[23] In 1996, the industry established the Car Allocation Policy Group (CAPG) to develop broad rail car allocation policies. Its members included the railway companies, CWB, major grain companies and smaller shippers.

[24] The main objective of CAPG was to allocate cars through a formal, non-legislative, consultative process to avoid gridlock, foster greater accountability between shippers and carriers and set high-level car allocation policy for western Canadian grain traffic. A four person executive committee, made up of a representative from the railway companies (either CN or Canadian Pacific Railway Company), CWB, the Western Grain Elevator Association and a producer, established guidelines for corridor priorities during periods of rationing and for dividing car supply between CWB, non-CWB and non-administered segments by railway and corridor. In addition, four-month allocation plans were developed to assist the railway companies, shippers and terminal operators in planning their resource requirements.

[25] CAPG was disbanded in 2000 and grain companies began negotiating directly with the railway companies to secure a supply of rail cars.

[26] There has been a large reduction in the number of country grain elevators and a movement towards the creation of large, high throughput elevators and a consolidation of branch lines in western Canada. Large sidings at these high throughput elevators enable the railway companies to form grain trains of up to 112 cars, which can handle as much as 10,000 tonnes of grain. As a result, the railway companies developed many different programs for ordering rail cars, designed to serve a varying range of shippers' requirements and to achieve operational and cost efficiencies for the railway companies. These programs have evolved over the years to take into consideration the changing landscape of the grain gathering system and to maximize efficiencies.

[27] For example, in a 2007 level of service complaint filed by the Great Northern Grain Terminals Ltd. (GNG) against CN, the railway company had a number of Advance Product car allocation offerings. These programs allowed shippers to book rail cars in advance in different car block sizes, to selected corridors. To maximize efficiencies, railway companies provided shippers with incentives to load in certain block sizes such as 25, 50, or 100 cars in exchange for reductions on their freight rates. The railway companies benefited from large block sizes through reduced operating costs. Non-performance penalties were also in place for the shipper and late placement penalties for CN.

[28] Changes to the origin and destination were allowed within a specified corridor under certain conditions. A general allocation rail car supply program was also available to shippers for the ordering of one or more cars on a weekly basis, the week prior to placement. CN also had a car bid system that allowed shippers to secure rail cars at a market determined price for the GT Pro Export program. Shippers paid a premium above the posted tariff rates on available cars which were subsequently allocated to the highest bidder.

[29] Shippers had the ability to "trade" cars; that is to have cars delivered to other shippers' origin points after the car had been allocated by CN to them. This allowed the shippers to combine cars into larger blocks which were eligible for incentive rates or discounts. However, CN claims that the trading of cars encouraged phantom ordering, i.e., ordering of more cars on a weekly basis than actually required. Nevertheless, CN allowed all shippers to trade general distribution car supply.

CN's grain car ordering system - Crop year 2007-2008

[30] At the commencement of the 2007-2008 crop year, CN offered the aforementioned Advance Product car allocation programs. Between August 3 and September 30, 2007, CN made changes to various programs. Subsequent to the filing of these six original complaints in September of 2007, CN suspended the GX 100 program and reallocated the rail cars to general distribution. Later in 2007, CN further modified existing programs such as the GT Secure, which also affected the allocation of rail cars within these programs.

[31] CN subsequently removed these programs and no longer offered any advance products programs or cars for auction. CN distributed rail cars among shippers using a general distribution model based on historic shipments within a corridor.

[32] During the first half of the crop year, the general distribution grain car order system was a zero-based, weekly request order process. The shipper would request cars by corridor and by week and CN would confirm the number of cars the shipper would receive. During periods of high demand or adverse weather conditions, CN would allocate fewer cars than the shipper requested. This reduced allocation ensured that all shippers who requested cars received a portion of their request.

[33] This initial allocation was a projection that was made nine to ten days before the shipping week. Shippers would use the initial allocation to select origins. Subsequently, shippers would discuss the origins with CN, generally leading to confirmed shipper rail car orders four days before the shipping week. Actual service for the shipping week would then be determined taking into account terminal and receiver unloads, railway company's operating conditions and weather.

[34] If CN failed to deliver the confirmed rail car order, it was referred to as shortfall. CN would then prioritize the shortfall cars for delivery in the subsequent week or weeks. Shippers indicated that this prioritization offered a certain level of assurance and predictability. Knowing shortfall cars would be delivered shortly after the "want date" assisted the shippers in their planning process.

[35] On February 1, 2008, CN implemented a new rail car order taking system. This system, unlike the previous one, accepts all shipper requests into an "open book". The shippers can order cars up to sixteen weeks in advance of the "want date" for a specific origin. Early ordering does not necessarily mean priority over later orders. Orders are not necessarily completely filled for the "want date". Any orders not filled remain on the "open book" and can be filled at a later date or can be subsequently cancelled by the shipper without penalty within a prescribed period.

[36] CN submits that its new car ordering system represents an improvement over the previous system. It allows for better planning on the part of CN by providing origins earlier in the process. It is also consistent with the approach CN uses for other commodities. CN notes that its new car order taking system provides shippers with the ability to forward signal demand requirements and simplifies the order taking process. Further, it enables shippers to provide their full demand requirements and eliminates the need to reorder rail cars if initial requests are not satisfied.

[37] CN submits that the new system was introduced because the geographic origin and sourcing pattern of demand among grain loading points is highly variable week to week and over the course of the crop year, which makes forecasting of demand and operational planning highly uncertain.

[38] However, the shippers state that if and when orders are filled, it is at the complete discretion of the railway company and any control they previously enjoyed over the movement of grain is diminished.

Service performance/sequentiality

[39] Shippers and the railway companies have their own perspectives as to what constitutes service performance and how to measure it. The Agency also commented on this subject in its January 18, 2008 Decisions. The Agency found that an evaluation of the number of rail cars requested compared to the number of rail cars received was a reasonable method to use to measure the performance of CN in the 2006-2007 crop year.

[40] CN contends that a reasonable performance measure in the present case should be based on the forecast demand for cars for the 2007-2008 crop year. Based on this criterion, CN states that it has delivered cars in excess of the forecast demand and, therefore, there was no breach in the level of service in crop year 2007-2008. It also submits that the key criterion in assessing service should be the actual number of cars spotted in a grain week.

[41] Shippers argue that the measurement of service performance is more complex than a simple car count. Receiving the cars requested is obviously important, but the sequence in which the cars are received is equally important. Shippers have multiple customers who require delivery of different types of product, delivered to different destinations, coming from different source locations and potentially travelling on one or more railways.

[42] Receiving rail cars in a specific week is important to ensure the customer gets the right product on time. The Agency recognized that many factors come into play when measuring service performance. As noted in the January 18, 2008 Decisions:

The Agency considers that an examination of a service must begin with the essential metrics of cars ordered and cars received. The Agency finds, however, that there may be other qualifying factors that need to be taken into consideration in determining a carrier's service performance. These factors would include, but not be limited to, information as to the number of allocated rail cars a shipper cancelled, refused or traded, the time period over which the rail cars were spotted, loaded, released and lifted at a shipper's facility and the degree of congestion in the pipeline which may have a bearing on the overall time for delivering a product to its final destination.

[43] Shippers claim that sequencing of the spotting of rail cars is important. Shippers order rail cars in a sequence that matches the demands of their customers. Service that is not provided in the week ordered and in the sequence ordered result in damages to the shipper.

[44] CN submits that sequencing is not applicable as a service performance metric. CN claims that CWB's own process of contracting vessel freight creates excessive variations in the supply chain which renders sequencing of orders moot. Further, CWB's own actions of frequently prioritizing orders out of sequence to reflect changes in shipping plans, available stocks and vessel arrivals demonstrates that sequencing is not critical.

Grain weeks 1-36

[45] The Complainants submit that any comparison to crop year 2006-2007 should be disregarded. The Complainants maintain that because CN was found to be in breach of its level of service obligations in crop year 2006-2007 and that crop year 2007-2008 is being monitored by the Agency, it is natural for CN to improve its service.

[46] The Complainants state that CN's presentation of statistics for Grain Weeks 1-36 is extremely misleading as two distinct systems were in place during that period. While CN evidence for these weeks shows an "order fulfillment" rate, the Complainants submit that cars in Grain Weeks 29-36 were not truly "fulfilled" in the sense that rail cars were often spotted, (i.e., delivered) many weeks after the week for which they were requested. The Complainants assert that this has the effect of inflating the overall fulfilment numbers presented by CN.

[47] CN indicates that the Complainants are all members of the CARS Group, which was established after the introduction of certain CN advanced product offerings for the purpose of trading cars among themselves in order to supplement their car supply. On August 23, 2007, the CARS Group provided CN with its forecasted demand for rail cars for crop year 2007-2008 by month and by corridor. CN argues that it provided adequate and suitable service because it exceeded the CARS Group's August 23, 2007 demand forecast estimates. The Complainants submit that everyone involved was aware that these estimates were preliminary and subject to change once harvest details became fully known. Further, the Complainants indicate that CN was aware that the figures were subject to revision at the time of the forecast. As of August 20, 2007, only 18 percent of the harvest was complete for the six major grain varieties in western Canada.

[48] CN states that it supplied 115 percent of the requirements identified in the August 23, 2007 demand forecast. Specifically, the corridor fulfilment rates relative to their demand forecast are: Vancouver (73 percent); Prince Rupert (132 percent); Thunder Bay (84 percent); and North America in aggregate (131 percent).

[49] CN indicates that the CARS Group forecasted a demand for 66,043 rail cars for the first 36 weeks of crop year 2007-2008. CN in its May 16, 2008 submission states that:

the CARS group ordered 93,888 cars which represents 142% of their original forecasted requirements for the same period. While weeks 1-36 represents only 69% of the entire crop year, these orders represent 102% of the total orders that the CARS Group had forecasted for the entire crop year. This information is indicative of the fact that CARS group were inflating their car requests for the first 36 weeks of this crop.

[50] CN further stated in its May 16th, 2008 submission that a railway company's level of service obligations are in respect of all shippers and not only a subset of shippers. To require a railway company to accommodate this type of inflated demand would in effect constitute favouring a limited group of shippers to the detriment of others and would be inconsistent with the A.L Patchett and Sons Ltd. v. Pacific Great Railway Company [1958] S.C.R. 271 (Patchett) case in respect of peak demand.

[51] CN asserts that this forecasted demand should form the basis upon which CN's level of service obligations should be reasonably measured. CN states that assessing CN's statutory obligations now, using a different basis, would be unacceptable from procedural and substantive perspectives. CN further states that the Complainants have presented individual demand without regard to the fact that their complaints and evidence refer to aggregate demand. CN notes that the Complainants have broken down each of their weekly car requests attempting to suggest that the demand CN was expected to supply is different from the forecasted demand of the CARS Group. It is CN's position that having forecasted the demand for rail cars as a group in the context of negotiations with CN, the same members cannot now split this group to suggest that CN's performance should be measured against individual weekly car requests.

[52] Further, CN argues that many of the Complainants have traded away certain percentages of the rail cars allocated to them. The Complainants respond that they have never traded a rail car because it could not be filled with grain. The Complainants submit that the purpose of trading rail cars is to create blocks of cars so they can take advantage of CN's incentive freight rates which also creates efficiencies that benefit CN.

[53] According to CN, the Agency has requested CN and the Complainants to calculate a fulfilment ratio of confirmed shipper car orders as a percentage of total general rail car requests. CN maintains that this value is not an accurate indicator of service as it is not representative of actual rail cars spotted within a given grain week. CN asserts that the key metric in assessing service to the western Canada grain industry is the actual number of cars spotted in a given grain week. It is the spotting and movement of a rail car rather than its allocation that enables a grain company to consummate a grain sale. This creates space in the country elevator system to facilitate further deliveries of grain.

[54] CN indicates in the table set out below that its spotting performance significantly improved for crop year 2007-2008 versus the previous two years:

Weeks	2005-2006	2006-2007	2007-2008
1 - 9	3,005	3,560	3,857
10 - 26	3,647	3,460	3,880
1 - 26	3,424	3,495	3,872

[55] Overall, CN submits that it is not reasonable to allow complainants to challenge railway service when significantly more traffic has been shipped than in the previous year and where complainants do not use all rail cars allocated to them. CN also contends that it would not be reasonable to conclude that shippers with a competitive alternative, such as the Canadian Pacific Railway Company (CP), but who have increased their shipments with CN, can claim that CN is in breach of its service obligations for that period. CN adds that grain was transported and exported at levels exceeding previous years and the fact that CN's level of terminal unloads and total car spots have increased is evidence that CN has provided an excellent service in the first 36 weeks of this crop year.

[56] CN states that it is its understanding from the January 18, 2008 Decisions that the Agency wanted to determine whether the service provided for crop year 2007-2008 would be hindered by CN's programs. CN states that the evidence confirms that CN's service was consistent with its level of service obligations in that CN's market share increased, many of the Complainants shipped more grain with CN this year than in previous years and many of the Complainants traded or cancelled rail cars allocated to them by CN. CN's service performance allowed more grain to be exported during the peak period of this crop year than any peak period in the last 10 years. CN spotted more cars in Grain Week 1 through Grain Week 36 of this crop year than in the last two years and terminal unloads of CN cars were well above the 2006-2007 levels. CN's performance exceeded that of CP. Factors outside CN's control had an impact on the service provided, but CN's new car ordering system did not.

[57] CN states that the programs challenged by the Complainants and that the Agency accepted in design in its January 18, 2008 Decisions, did not hinder CN's performance and CN submits that the Agency's intent of validating the design of these programs with CN's performance has been fully met.

Summary of specific arguments

Canadian Wheat Board

[58] CWB submits that for the first 28 weeks of crop year 2007-2008, CN's service was abysmal. CWB asserts that CN's on-time shipping performance was substandard from the first week of the crop year and that this condition continued through the first 28 weeks of the grain season. CWB maintains that this substandard service was not confined to the "peak season" or to "winter conditions" and is just plain bad rail service.

[59] CWB asserts that the data demonstrate that rail cars were spotted from 1 to 10 weeks late and a number of requested cars were not even received during Grain Weeks 1 to 28; in no manner can this "service" meet the test enunciated by the Agency in the GNG Decision.

[60] CWB states that CN is also denying CWB its choice of ports and is funnelling CWB rail cars to Prince Rupert rather than Vancouver. Further, for Grain Weeks 1 through 28, CN confirmed 33,975 rail cars to Vancouver and 33,239 rail cars to Prince Rupert for all its western Canadian shippers. CWB requested 13,337 general rail cars to Vancouver and received 9,404 rail cars or 70.5 percent. Further, CWB requested 35,350 rail cars to Prince Rupert and received 29,964 rail cars or 84.8 percent. CWB states that while its traffic represented 90.1 percent of CN's Prince Rupert program, only 27.7 percent of CN's Vancouver program was made up of CWB traffic. CWB requests the Agency, in determining adequate and suitable service levels, to take into account the fact that CWB is receiving significantly fewer cars to Vancouver than it is to Prince Rupert. CWB asserts that Prince Rupert is not always its port of choice, but in order to secure car supply, it has been forced to order more cars to Prince Rupert. CWB contends that it has the right to determine the routing of its traffic to destination. CWB refers to Decision No. 20-R-2008, at paragraph 88, where the Agency stated:

...as stated in Agency Decision No. 457-R-1997, in the case of Eagle Forest Products Limited Partnership against CN, the Agency did confirm a shipper's fundamental right to determine the routing of its traffic and, in so doing, to obtain the best price for the movements. The Agency is still of that opinion.

[61] CWB submits that with CN's new car ordering system in place, between Grain Weeks 29 to 33, the number of rail cars shipped was substantially lower than the number of cars CWB ordered. From Grain Weeks 34 to 36, the number of rail cars shipped was in excess of the number of rail cars ordered. CWB states that this performance cannot be considered acceptable by any standard. CWB asserts that CN provides no commitment to deliver the rail cars in the week for which the cars were ordered, and the shipper is given no indication as to when the cars which have been "accepted" will actually be spotted. CWB adds that service that is not provided in the week ordered results in damage to the shipper.

[62] With respect to CN's on-time performance for Grain Weeks 29-36, CWB maintains that the percentage of rail cars actually shipped on time varied from a low of 2.2 percent in Grain Week 29 to 41.6 percent in Grain Week 36. Further, and in specific reference to Grain Week 29, CWB states that rail cars ordered arrived up to seven weeks late and only 48 rail cars were orders that were to fulfill the 2,189 cars ordered in Grain Week 29. It is CWB's position that this performance cannot be considered acceptable by any benchmark.

[63] With respect to CWB's traffic to all corridors, CN indicates that it has fulfilled 84 percent of CWB's total general rail car requests. On two of the larger corridors, i.e., Vancouver and Prince Rupert, CN indicates that it met 72 percent (Vancouver) and 87 percent (Prince Rupert) of CWB's requests for rail cars.

[64] According to CN, CWB shipped 11 percent more grain with CN this year despite the fact that the overall CWB volumes have declined by 2 percent over crop year 2006-2007. Based on the fact that CWB shipped more grain with CN and exported 1.2 million fewer tonnes this crop year, CN concludes that it has provided a level of service to CWB consistent with its statutory obligations.

North East Terminal Ltd.

[65] North East Terminal Ltd. (NET) states that in its most heavily used corridors, CN spotted 63 percent and 55 percent of the rail cars requested in Grain Weeks 1-28.

[66] During Grain Weeks 29-36, CN spotted NET 65 percent of the rail cars in the week for which they were requested, and spotted more than 50 percent of the rail cars requested four or more weeks after the date for which they were requested. NET notes that according to CN, it spotted 65.1 percent of the rail cars ordered by NET for Grain Weeks 29-36 or 165 rail cars compared to the 252 rail car ordered.

[67] NET states that although CN indicated that it has spotted 3,930 rail cars in Grain Week 33 and nearly 4,000 rail cars in Grain Week 34, this would only be a measure of adequacy and suitability of service had those rail cars been requested for those weeks.

[68] NET submits that its data filings demonstrate that CN has failed to provide adequate and suitable accommodation for NET's traffic for crop year 2007-2008. Service performance during Grain Weeks 29-36, a non-peak grain shipping period, is inadequate and unsuitable as rail cars were spotted up to five weeks late.

[69] CN states that it has fulfilled 79 percent of NET's total rail car requests. CN also points out that NET is served by both CN and CP. In CN's submission of February 13, 2008, it states that NET shipped 301 rail cars with CN so far this year, which represents a 240 percent increase relative to last year. CN asserts that considering the fact that CP also serves NET, an increase of this magnitude confirms that NET is satisfied with CN's service. CN notes that its fulfilment rate does not provide a complete picture of the service actually provided to NET.

North West Terminal Ltd.

[70] North West Terminal Ltd (NWT) submits that its data clearly demonstrate a service breach. NWT states that for Grain Weeks 1-28, CN supplied general distribution rail cars for the corridor of Vancouver at a rate of 57 percent (hopper cars) and 41 percent (containers). NWT notes CN's own evidence indicates that it has fulfilled only 55 percent of NWT's total rail car requests. NWT submits that this is not an adequate and suitable level of service by any benchmark.

[71] While CN claims that NWT's shipments have increased by 3 percent from last year, NWT submits that an increase of only 3 percent over a year in which CN was in breach of its service obligations by itself demonstrates that CN is still in breach of its level of service obligations.

[72] NWT refers to Grain Week 29, the first week CN's new system was in place, and indicates that NWT submitted its rail car requests to CN which were all automatically placed in CN's "open book", whether they are able to deliver the cars in Grain Week 29 or not. NWT states that four days prior to the loading week, it was advised by CN that it did not intend to deliver the 72 rail cars requested.

[73] CN notes that while the fulfilment rate for NWT was 55 percent, NWT traded away rail car supply equivalent to 14 percent of the rail cars allocated to it from CN. Further, NWT cancelled an additional 8 percent. CN argues that this high level of trading and cancelling rail cars severely challenges the validity of the overall total rail car requests. It is CN's position that NWT's actions of trading and cancelling allocated rail cars confirm that CN has met the demand of this shipper and fulfilled its level of service obligations.

[74] CN states that a significant number of NWT's rail car requests for the Vancouver corridor were for container stuffer facilities. CN submits rail car requests to these facilities exceeded the total unloads of all CN shipments during many of the weeks in question, resulting in rationing of rail cars.

Paterson Grain

[75] Paterson Grain (PG) states that CN's service record is poor. In Grain Weeks 1-28, CN supplied only 65 percent of the non-CWB rail cars requested by PG for the U.S.A. corridor and only 12 percent of the non-CWB rail cars requested for the Thunder Bay corridor.

[76] For Grain Weeks 29-36, PG was spotted only 16 percent of the rail cars requested in the week for which they were ordered, and 20 percent of PG's total rail car requests were spotted three or more weeks after the date for which they were requested.

[77] Further, PG notes that CN's own data demonstrate that adequate and suitable service levels are not being provided as CN has only fulfilled 60 percent of PG's total rail car requests. This is not adequate and suitable service by any benchmark.

[78] CN indicates that while it has fulfilled 60 percent of PG's general rail car requests, PG cancelled 390 rail cars or 27 percent. This represents 57 percent of the initial allocation to Vancouver; 79 percent to Thunder Bay; and 19 percent to U.S.A./Mexico. Specifically referring to the Thunder Bay corridor, CN adds that in 17 weeks where PG requested rail cars from general allocation, PG cancelled 100 percent of the initial allocation in nine weeks, and cancelled a portion of the allocation in six other weeks. CN therefore asserts that the 60 percent fulfilment rate must be assessed against this high number of cancellations. CN is of the opinion that this highlights that general rail car requests are not a valid proxy for actual demand.

Parrish and Heimbecker, Limited

[79] Parrish and Heimbecker, Limited (P&H) submits that CN is not providing an adequate and suitable level of service as, by CN's own submission, CN has fulfilled only 63 percent of P&H's total rail car requests for Grain Weeks 1-36.

[80] P&H asserts that as a result of CN's "open book", a portion of "cancelled" orders were a direct result of CN being late in spotting the rail cars. P&H notes that by the end of Grain Week 36, P&H had 695 orders outstanding in the "open book" and, in many instances, by the time CN spotted the rail cars, P&H had already made alternative arrangements. P&H submits that these cancellations should not be considered a factor to absolve CN of service failures.

[81] In fulfilling 63 percent of P&H's total rail car requests, CN submits that, compared to the previous crop year, the number of cars waybilled by P&H on CN increased by 26 percent. Although some of the increase is attributable to P&H leasing private equipment for shipments to the U.S.A., CN asserts that P&H shipments on CN with CN equipment have also increased substantially for this crop year. CN states that its fulfilment rate must be considered in the context that P&H shipments to Vancouver, Thunder Bay, and intra-west locations were up 135 percent, 39 percent and 366 percent respectively.

[82] CN also notes that P&H cancelled 15 percent of its initial allocation and 10 percent of its overall general rail car requests while in 12 of 28 weeks of allocation, P&H cancelled portions of the initial allocation received. More importantly, CN states that P&H chose to use 1,034 of the 3,467 confirmed rail car orders at origins served by CP. CN asserts that this confirms that CN's service at stations exclusively served by CN meets its demand.

Providence Grain Group Inc.

[83] Providence Grain Group Inc. (PGG) submits that CN is in breach of its service obligations especially in Vancouver and U.S.A. corridors. PGG notes that in these two corridors, for Grain Weeks 1-28, CN provided general distribution cars at a rate of 73 percent and 43 percent, respectively, which renders operating a small shipping business virtually impossible.

[84] PGG states that for Grain Weeks 29-36, CN has consistently delivered the rail cars ordered three to four weeks late. PGG notes that in CN's final submission, CN states that it fulfilled 75 percent of PGG's total rail car requests. PGG submits that this level of fulfilment constitutes a service breach. Further, PGG asserts that this percentage is inflated because CN is presenting statistics for Grain Weeks 1-36 together when two distinct systems were in place for that time period. Aggregating statistics in this manner ignores the fact that rail cars in Grain Weeks 29-36 were not truly "fulfilled" because the rail cars were often spotted many weeks after the week for which they were requested.

[85] CN submits that PGG's general rail car requests for the Vancouver corridor were significantly inflated and CN has met PGG's demand for this crop year. CN notes that it fulfilled 75 percent of PGG's general rail car requests and 82 percent in the Vancouver corridor specifically. CN points out that PGG traded away car supply equivalent to 22 percent of the CN allocated rail cars. According to CN, this confirms that using PGG's general rail car requests as a proxy of their demand in this corridor yields an incorrect result of CN's fulfilment rate.

[86] Further, CN notes that 6 percent of the rail car allocation provided to PGG were cancelled. Even with the cancellation and trading of rail cars, CN states that PGG's level of shipments have increased by 41 percent for Grain Weeks 1 through 36 when compared with the same period last year.

Measuring service performance and service obligations

[87] Based on the information received from the shippers and CN, as required by the January 18, 2008 Decisions, the Agency now has sufficient information to evaluate the service performance of CN for the 2007-2008 crop year.

[88] The Agency determined in the January 18, 2008 Decisions that the benchmark to be used for determining that CN was in breach of its level of service obligations for crop year 2006-2007 was the number of rail car orders confirmed versus rail car orders requested. Under those circumstances, and considering the submissions from all parties, the Agency determined that this was an appropriate manner in which to measure the performance of CN. However, it has become evident that circumstances have changed and the pleadings of all parties have raised issues which need to be considered, such as quantity of cars received, and predictability of delivery, and factors beyond the control of CN and the shippers. These additional issues have brought about the need for a more comprehensive evaluation of the facts and ultimately has resulted in the recognition that the previous performance measure applied alone is no longer sufficient to determine if CN provided an adequate and reasonable level of service in crop year 2007-2008.

[89] The parties have commented on the issue of reasonableness in their submissions.

[90] CN points out that in Agency Decision No. 475-R-1998, CWB against CN and CP, as well as in the GNG Decision, at paragraph 64, that the statutory obligations of a rail transport carrier are not absolute but are in fact measured by the test of reasonableness in all circumstances.

[91] CN also refers to the qualification of reasonableness as explained in the Supreme Court of Canada in the case of A.L Patchett and Sons Ltd. v. Pacific Great Railway Company (Patchett case).

The qualification of reasonableness is exhibited in one aspect of the matter of the present complaint, the furnishing of facilities; a railway, for example, is not bound to furnish cars at all times sufficient to meet all demands...

[92] Further, CN states that what is required to be provided by a railway company in the discharge of its statutory common carrier obligation as set out in the Canada Transportation Act (CTA) in respect of statutory grain traffic, is "a basic level of service". Agency Decision No. 411-R-1989, Prairie Malt Limited against CN. (Prairie Malt Decision).

[93] The Complainants argue that CN's interpretation of its statutory level of service obligations is incorrect. They add that CN misinterprets the case in the Prairie Malt Decision. The Complainants reject the notion that the service they have received and have deemed inadequate constitutes a "basic service".

[94] Further, the Complainants submit that CN omits the applicable passage from their submission, thereby attempting to alter the principle expressed in the Prairie Malt Decision. CN claims that this case establishes that the basic service to be provided by railway companies is of some lower benchmark. The Complainants argue that the Prairie Malt Decision does not alter the law expressed in the Patchett case. They state that CN, in citing the Prairie Malt Decision, did not include the following quotation:

We are of the view that the basic level of service owed to the grain industry is met through the provision of hopper boxcar services available to all grain shippers, wherever located. That is a "reasonable service" which Justice Rand defined as a railway's obligation in the Patchett case.

[95] The Complainants also state that CN has attempted to promote its own version of the level of service obligations established in the GNG level of service complaint against CN. The Complainants state that in the GNG Decision, the Agency determined that CN has the statutory obligation to provide all grain shippers, whatever their size, with adequate and suitable accommodation for the carriage of their products, to the extent that the service requested is reasonable in all circumstances.

[96] To further support its position, the Complainants also refer to a National Transportation Agency decision rendered on January 13, 1984, Prince Rupert Grain Ltd. and Ridley Grain Ltd. against CN. The Complainants submit that the decision makes extensive reference to various Canadian and U.S.A. cases dealing with level of service provisions and there is no reference to what constitutes "basic services". However, there is reference to the obligations of railway companies to make reasonable efforts to ensure their facilities meet shippers' needs. The Complainants assert that the level of service obligations in the CTA are not restricted or limited to some "basic service" as CN has argued.

[97] In addition, while CN submits that its obligation are owed to all other shippers on its network and that it cannot be expected to discriminate in favour of the Complainants to the detriment of its other shippers, the Complainants state that CN has not provided evidence to show that this is the case.

Agency position

[98] The Agency and its predecessors have been faced with interpreting the statutory obligations of a railway company through numerous proceedings. When considering a breach of level of service obligations, the Agency considers all of the circumstances of the particular case. This includes considering whether the railway company, in the circumstances, did what was reasonable to meet its obligations. The obligations of a railway company are not absolute. They are assessed against a reasonableness standard in all circumstances.

[99] The service obligations of a railway company are set out in section 113 of the CTA. Paragraphs 113(1)(a) through (c) of the CTA require a railway company to furnish adequate and suitable accommodation for the receiving, loading and delivering of all traffic offered for carriage on the railway without delay and with due care and diligence.

[100] The Agency recognizes that it is not the obligation of the railway company to furnish cars at all times sufficient to meet all demands. Any level of service that is provided must be sustainable and to require the railway company to meet all demands, especially at peak periods, would not be reasonable. However, the Agency also recognizes that a "basic service" is a service that provides cars available to all grain shippers, regardless of size, wherever located and in acceptable quantities at acceptable times.

[101] Further, the Agency must also consider the objectives of the national transportation system. The system must be efficient, economic and competitive. In addition, it should also be safe, secure and respect the environment. These attributes will most likely be attained when the prime agents are competition and market forces. Therefore, the commercial or contractual relationship of the parties must be taken into consideration.

[102] Regulations will be used to achieve these objectives when competition and market forces cannot. The CTA does not prescribe how they are to be achieved. It is within these objectives that the Agency will determine what is an adequate and reasonable level of service.

[103] CN states that its service levels for crop year 2007-2008 were consistent with its level of service obligations in that many Complainants shipped more grain with CN than in previous years. The Agency finds that the test of reasonableness goes beyond that. Even though the Complainants may have shipped more grain with CN, this alone does not constitute an adequate and reasonable level of service. More grain may have been shipped because the crop harvest was larger.

[104] CN also states that its market share increased. While market share in a competitive market may be an indicator of service levels, the Agency finds that this is not the case for captive shippers.

[105] CN points out that it spotted more cars in Grain Weeks 1 through 36 than in previous years and its performance exceeded that of CP. The Agency finds that an increase in the spotting of cars does not necessarily mean that the railway company has met its service obligations. Spotting of rails cars must also take into consideration timeliness of delivery.

[106] Finally, CN's statement that its performance exceeded that of CP has no bearing on these particular complaints as it is CN's performance that is being assessed.

[107] The Agency finds that CN's arguments alone do not support its contention that it provided an adequate and reasonable level of service.

[108] Further, while the railway company is responsible for the transportation of grain, it is ultimately the shipper who starts the process through the commercial sales agreement. This sets in motion a logistics chain of events of which rail transportation is only one component. The demand for rail service is derived from the demand for grain at destination and not the opposite.

[109] It is clear from the evidence that the Complainants have received varying levels of service from CN with respect to the number and timing of cars delivered. While there is no doubt that the grain transportation system is complex and that there are many factors that must be considered, the Agency finds that a certain level of predictability must also be incorporated into the parameters of what is to be an adequate and reasonable level of service. The Complainants have asked the Agency to order CN to reinstitute its old car ordering system as it provided a greater level of certainty as to when rail cars would be delivered. The Agency does not find it necessary to direct CN as to how rail cars should be ordered. Rather, to provide the predictability by which an adequate and reasonable level of service can be expected and measured, the Agency finds it more appropriate to set a performance benchmark.

[110] Performance-based benchmarking is used increasingly in regulatory regimes. For example, Transport Canada and the National Energy Board use performance-based approaches. Performance-based approaches specify a required outcome but leave the means of achieving that outcome to the discretion of the industry and/or corporate entity being regulated. Performance-based approaches are not prescriptive as to how the outcome is to be achieved, rather it provides flexibility to industry and/or corporate entities to choose their own means to achieve the desired goals while selecting the most effective and efficient options. Performance benchmarks can also encourage innovation and continuous improvement. Therefore, the Agency has decided to use a performance-based approach in dealing with these level of service complaints.

[111] Based on the pleadings of the parties and all information submitted, the Agency determines that a performance benchmark should be comprised of three components; the first component is the number of rail cars confirmed for delivery; the second component is the timeliness and predictability of the delivery of the confirmed rail cars; and the third component recognizes factors that affect performance such as weather, terminal unloads, excessive demand for rail cars in peak periods, operational restrictions and derailments.

[112] With respect to the first component, it is essential for shippers to receive an adequate and reasonable number of rail cars to transport grain to plan their operations. This is a basic and fundamental requirement.

[113] The second component deals with the timeliness of the confirmed orders. It is not only important that shippers receive an adequate and reasonable number of rail cars, it is also necessary that they receive them in a timely and predictable fashion.

[114] The final component recognizes that while a shipper needs to have some certainty, the ability of the railway company to provide this level of service may be compromised for short periods by factors beyond its control.

[115] These components are described in greater detail below.

Component 1: Number of rail cars confirmed for delivery

[116] In the GNG and January 18, 2008 Decisions, the benchmark used for determining that CN was in breach of its level of service obligations for crop year 2006-2007 was the number of rail car orders confirmed versus rail car orders requested. The relationship between the number of cars the shipper requests and the number of cars the railway company confirms is an essential component in the development of a performance benchmark. However, the Agency also recognizes the importance of actual cars delivered.

[117] The Agency notes CN's position that the spotting (delivering) of rail cars in a given week should be used as the appropriate indicator to measure its performance against the demand forecast provided by the Complainants. Further, using CWB as an example, CN states that it provided CWB with 64,862 rail cars or 96 percent of what was ordered by CWB. From a global perspective, one could arrive at a determination that this is much more than a reasonable level of service. However, the Agency finds that a benchmark based solely on spotting rail cars without taking into account the time period between the "want date" and actual delivery would not define an adequate and reasonable level of service.

[118] The Agency finds CN's view that its level of service obligations should be measured against the Complainants' forecasted demand is not a reasonable benchmark either. A forecasted demand is what the wording implies. It is simply an estimate based on the best information available at the time together with applied judgment. It is not a prediction, nor is it definite. CN notes in its final submission that Grain Weeks 1 to 7 are the pre-harvest period. The Agency finds it unreasonable for CN to take the position that the CARS Group's August 23 demand forecast should be used as the measurement of CN's performance when the forecast provided by the Complainants was supplied during the pre-harvest period. As harvesting of the crop commences, the size and quality of the crop can be evaluated. Customer demand for Canadian grain can also be better assessed.

[119] The Agency recognizes that at times of peak order demand there may not be enough cars to fulfill all requests. In any given grain week, CN will receive requests for rail cars that it may not be able to fulfill because a portion of the rail car fleet is in transit. The remaining cars may not be sufficient to satisfy current demand and the railway company allocates cars to shippers based on their previous years allocations. Shippers believe other criteria are being used to determine the allocation of cars such as size and/or location of shipper.

[120] The Agency recognizes that confirming 100 percent of the requested cars may be unachievable.

[121] As previously noted, the benchmark used for determining that CN was in breach of its level of service obligations was the number of rail car orders confirmed versus rail car orders requested. Under the circumstances, the Agency determined that this was an appropriate manner in which to measure CN's performance. With the introduction of CN's new rail car ordering system, the circumstances have changed because all rail car orders are accepted. Yet, the shippers have no sense of when these rail car orders will be delivered. This lack of predictability makes planning difficult.

[122] The evidence shows that some car orders requested on a weekly basis were confirmed at rates below 60 percent. The Agency finds that this is not a reasonable level of performance and this is consistent with its previous findings. Having determined that 100 percent may be unachievable and 60 percent is unacceptable, the Agency finds that confirmation of at least 80 percent of the cars requested is an acceptable and reasonable level of service standard. Setting a minimum confirmation level of 80 percent will increase the predictability of car confirmations, which will allow shippers to plan their operations accordingly.

[123] In setting this standard, the Agency also considered the evidence from CWB, as it is one of CN's largest grain shippers and certainly the largest shipper amongst the Complainants. Included in its data filings for Grain Week 36, CWB produced data indicating the percentage and number of rail car orders by week and when they were received.

[124] According to the data filings related to the CWB's traffic, CN confirmed that 84 percent of the rail cars requested in a crop year where according to CN, a higher volume of grain was transported than in previous years. Taking into consideration the complexities of the grain logistical system as a whole, and CN's ability to achieve this standard, the Agency finds a confirmation rate of at least 80 percent to be a reasonable and achievable service standard as the first component of the performance benchmark.

Component 2: Timeliness of the rail cars confirmed for delivery

[125] The second component of the performance benchmark is the timeliness of the rail cars confirmed for delivery. Were the cars that were delivered by the railway company actually delivered in the week they were ordered for or delivered during a later grain week? The Agency reviewed the traffic data submitted by CWB and determined that for the first 28 grain weeks of 2007-2008, CN delivered between 71 and 99 percent of CWB rail cars orders either on time or in the subsequent two weeks (three weeks total).

[126] The Agency discounted the data for Grain Weeks 29-36 with respect to timeliness of rail car orders. The Agency is of the opinion that the introduction of CN's new car ordering system initially caused some confusion among shippers.

[127] The percentage of rail cars delivered on time or in the subsequent two weeks (three weeks total) between Grain Weeks 1-25 was 90 percent or higher. These percentages declined for Grain Weeks 26, 27 and 28 to 85 percent, 71 percent and 75 percent respectively, however, the Agency attributes this decline to the extreme weather conditions which existed over a period commencing in Grain Week 26.

[128] While the Agency discounted the applicable data for Grain Weeks 29-36, the Agency notes the percentage of rail car orders delivered either on time or in the subsequent two weeks (three weeks total), increased from 38.1 percent in Grain Week 29 to 58.4 percent in Grain Week 34.

[129] The Agency finds the performance for Grain Weeks 1-25 to be an achievable level of service. Some of the Complainants, who commented on CN's new car ordering system, were not necessarily pleased with the old car ordering system. However, they were satisfied in the knowledge that car orders not received for the week ordered would be prioritized and received within the next few weeks, which allowed them to plan accordingly. Further, as the Complainants submitted that close to 20 percent of the rail cars were delivered three or more weeks after the want date for which they were ordered, it follows that 80 percent were being received within three weeks. While 20 percent delivery three or more weeks late was not adequate nor suitable according to the Complainants, the Agency determines that a standard of a minimum of 90 percent delivery on time or in the subsequent two weeks (three weeks total) should alleviate this concern of the Complainants.

[130] Therefore, the Agency finds that delivery of at least 90 percent of all of the Complainants confirmed orders within three weeks is reasonable, acceptable and achievable. CN has been able to meet this delivery percentage for CWB and the Agency sees no reason why the same level of performance cannot be met for the other Complainants. Also, confirmed orders are orders CN selected for delivery. It seems reasonable that CN can deliver at least 90 percent of rail cars it has committed to deliver.

[131] CN is still obligated to deliver all remaining confirmed rail cars.

Component 3: Factors that affect performance

[132] The Agency is also mindful of the need to consider the external variables which may influence the timely delivery of rail cars. The Agency cannot find a breach of level of service based upon a single incident or a limited period of substandard performance. A third component is required to take into account certain short term circumstances typically outside the control of the railway company such as weather conditions, terminal unloads, terminal congestion at ports, excessive demand for rail cars in peak periods, operational restrictions, and derailments. The Agency determines that a 12-week rolling average of the timeliness of delivery as outlined in Component 2 is reasonable to provide CN with sufficient time and opportunity to return to service levels above the performance standards established for Components 1 and 2 in all but the most exceptional circumstances.

[133] This decision was based on a review of CWB data. As noted previously in this Decision, for the first 25 grain weeks, CN delivered more than 90 percent of the rail car orders within three weeks with the exception of Grain Weeks 26, 27 and 28, when the percentages declined to 85 percent, 71 percent and 75 percent respectively. These were weeks in which extreme winter weather conditions affected operations. The Agency, after calculating a 12-week rolling average, found these percentages increased to 94 percent, 92 percent and 90 percent, respectively.

[134] It is expected that most circumstances outside of CN's control which could have a negative impact on service delivery will be short-term in nature. The 12-week rolling average will allow the railway company time to recover and return service to levels above the previously mentioned standards.

[135] However, there may be extraordinary circumstances, where CN can demonstrate that the event had such a negative and prolonged impact on its operations, that it could not reasonably meet the 12-week rolling average performance level. These would be exceptional or even catastrophic circumstances or events, such as earthquakes or prolonged (third party) labour disputes. CN may not be able to recover in the short term. The Agency would take these factors into consideration in making its determination as to whether there is a breach in CN's level of service.

Summary of performance components

[136] Generally speaking, the Agency finds that this performance-based approach will allow CN flexibility in managing its business and maximizing efficiencies. It is recognized that there may be times when performance levels will vary within a range of modest "tolerance" against the benchmark, depending on the facts and circumstances. Nevertheless, shippers will be able to plan, based on a predictable level of service in receiving their rail cars.

[137] In assessing whether CN is in breach of its level of service obligations to the Complainants, the Agency will first examine whether CN confirmed, at a minimum, 80 percent of the car requests. (Component 1)

[138] The Agency will then examine whether 90 percent of those confirmed orders were received during the want week or the subsequent two weeks (three weeks total). (Component 2)

[139] If both standards are achieved, there will be no breach of the railway company's level of service obligations.

[140] As the Agency has already noted, it cannot find a breach based upon a limited period of substandard performance. If that substandard performance is caused by factors beyond the control of CN and is rectified so that the 12-week rolling average remains above the Component 1 and 2 standards, no breach will be found (Component 3).

[141] However, if after considering the 12-week rolling average, the railway company still has not recovered to the standards set out above, CN may be found to be in breach of its level of service obligations, unless it can satisfactorily demonstrate that there were exceptional circumstances outside of its control that prevented it from meeting the performance standards.

[142] The Agency finds that this benchmark provides a reasonable basis for evaluating the level of service performance by CN to the Complainants.

Determination of breach of level of service

CWB

[143] Based on the performance benchmark now established by the Agency, the Agency finds that there is no evidence of a breach of CN's overall level of service obligations to CWB. For the first 25 weeks of crop year 2007-2008, CN delivered more than 80 percent of the requested rail cars to CWB and more than 95 percent of these cars were delivered either on time or in the subsequent two weeks (three weeks total). For Grain Weeks 26-28 the deliveries fell below the established threshold set by the Agency, however, after the application of the 12-week rolling average, the percentages to these three weeks increased to exceed the standard.

[144] Based on an examination of Components 1 and 2, the Agency finds that CN is not in breach of its level of service obligations to CWB at a system level.

[145] CWB requested the Agency, in determining adequate and reasonable service levels, to take into consideration that it was receiving significantly fewer cars to Vancouver than it was to Prince Rupert. The Agency acknowledges, consistent with previous Agency decisions, that shippers have a right to choose their own routing for the movement of their products. In this case, CWB is concerned with a specific aspect of routing, a shipper's right to choose a destination port. The Agency subsequently reviewed the evidence specific to the Port of Vancouver and with regard to the first standard and, based on CN's data, CN confirmed 72 percent of CWB's rail car requests. There appears to be a breach based on Component 1 alone with respect to the Vancouver traffic. However, the Agency will not rule on the matter, because it lacks the data required to assess Components 2 and 3.

NET

[146] For Grain Weeks 1-28, CN confirmed only 67 percent of NET's requests. CN submits that the fulfillment rate increases to 79 percent if Grain Weeks 1-36 are reviewed. While this is below the 80 percent threshold, the Agency, as noted earlier, in setting the performance standard, did not consider the data in Grain Weeks 29-36 because CN's new car ordering system accepts 100 percent of the requests.

[147] The Agency then reviewed Component 2, timeliness of delivery, and found that CN was not able to deliver cars in a time frame that met the standard, even after taking into consideration the 12-week rolling average. There were no exceptional circumstances, as identified by the railway company, to excuse the substandard performance of CN.

[148] Based on the examination of Components 1, 2 and 3, the Agency finds that CN is in breach of its level of service obligations to NET.

NWT

[149] CN states that it fulfilled 47 percent of NWT's rail car requests between Grain Weeks 1-28, and 55 percent for Grain Weeks 1-36. According to CN, the fact that NWT traded away 35 percent of its confirmed orders and cancelled rail cars confirms that CN has met its level of service obligations.

[150] The Agency finds that according to CN data, between Grain Weeks 1-28, NWT requested 1,540 rail cars. CN confirmed 655 rail cars or 42.5 percent. Even if the Agency were to deduct the 230 rail cars which were traded away, CN's confirmation would only increase to 50 percent. If the Agency also deducted the 76 rail cars which were cancelled, CN's confirmation rate would still only be at the 53 percent level.

[151] The Agency then reviewed Component 2, the timeliness of delivery. The data demonstrate that in several instances rail cars were delivered three or more weeks later than requested . Subsequently, the Agency reviewed Component 3 and determined that CN's 12-week rolling average was well below the standard. There were no exceptional circumstances identified by CN.

[152] Based on the examination of Components 1, 2 and 3, the Agency finds that CN is in breach of its level of service obligations to NWT.

PGG

[153] Based on CN data, between Grain Weeks 1-28, PGG requested 616 rail cars and CN confirmed 427 rail cars or 69 percent. Taking into account that PGG cancelled 35 rail cars, the actual confirmation rate is 75 percent.

[154] The Agency accepts that the Complainants do have the right to trade cars. In this particular case, 128 rail cars were traded. CN delivered these cars to another shipper. In the specific circumstances, the Agency finds that CN should not be penalized when measuring its performance. Taking into account the cancelled and traded cars, CN's fulfilment rate is acceptable.

[155] The Agency then reviewed the Component 2, the timeliness of delivery to PGG, and determined that CN exceeded the standard.

[156] Based on the examination of Components 1 and 2, the Agency finds that CN is not in breach of its level of service obligations to PGG.

P&H

[157] CN submits that from Grain Weeks 1 to 28, P&H requested 6,227 rail cars. Of these, CN confirmed 3,467 rail car orders or 56 percent. P&H also cancelled 624 rail car orders. P&H states that the cancelled cars were the result of train run programming rules and the result of poor service in spotting rail cars, and that this should be taken into consideration in assessing CN's performance.

[158] The Agency finds that in this situation, CN was partly responsible for the cancellations. However, even if the Agency were to accept CN's position and factor in the rail car cancellations, the confirmation rate would only increase to 62 percent.

[159] In reviewing Component 2, the timeliness of delivery, the Agency found that CN achieved the standard for 24 out of the 28 weeks, and after analyzing the 12-week rolling average, CN missed the standard in one week. No exceptional circumstances were identified by CN to explain this.

[160] Based on the examination of Components 1, 2 and 3, the Agency finds that CN is in breach of its level of service obligations to P&H.

PG

[161] Between Grain Weeks 1-28, CN's data filings indicate that it confirmed 1,238 rail cars of the 2,185 requested by PG. This represents 57 percent. CN argues that PG cancelled 390 orders, which brings into question PG's original car order request, and this factor should be taken into consideration.

[162] PG states that its records show that only 345 rail cars were "cancelled". PG notes that a number of the cancelled cars were the result of PG using an incorrect order form. Rather than ordering 4 blocks of 25 rail cars, 4 blocks of 50 rail cars were ordered for two weeks in a row. Instead of being allocated 100 rail cars in each week, PG was awarded 200 rail cars. This resulted in it cancelling 200 rail cars. According to PG, CN was aware of this mistake. Secondly, PG indicates that in nine weeks between Grain Weeks 1-22, 120 rail cars were cancelled by CN because PG did not meet CN's 10-car minimum in order to receive service to Oyen East Subdivision. Even if the Agency were to consider the 390 rail cars which were cancelled between Grain Weeks 1-28, CN's confirmation rate would only increase to 69 percent.

[163] In reviewing Component 2, the timeliness of delivery to PG, the Agency finds that CN did not achieve the standard. Further, no exceptional circumstances were identified by CN.

[164] Based on the examination of Components 1, 2 and 3, the Agency finds that CN is in breach of its level of service obligations to PG.

REMEDIES

[165] At the time of the filing of the complaints in September 2007, based on the rail car allocation system of CN, the Complainants requested various remedies from the Agency. Since the filing of these complaints, CN has changed or eliminated certain grain programs and has introduced a new rail car ordering system. CN currently uses all general distribution cars, has no advance programs (with the exception of the GT Secure ordered by the Agency), no minimum duration requirements to book cars and it has no bid car programs.

[166] The Complainants submit that while these changes are positive in principle, CN is still not providing adequate and suitable accommodation because it adds new car orders to the "open book" without a commitment to spot and lift those orders in the week ordered; it does not spot and lift the cars in the week ordered causing critical sequencing issues; and it is not transparent or accountable for the manner in which it rations and delivers the cars. In addition to the remedies initially requested, the Complainants request the Agency to order CN to implement a car allocation system that recognizes the following principles:

1. CN shall continue with the current system of using all general car allocation;
2. CN shall not require minimum block sizes or minimum order durations;
3. CN shall spot and lift the cars ordered in the week in which they are ordered;
4. CN shall ration cars in a fair and equitable manner; and,
5. CN shall be transparent in its rationing criteria and post them weekly on its Web site.

[167] The Agency has previously determined that CN is in breach of its level of service obligations to the Complainants in respect of crop year 2006-2007. The Agency has now found that based on the Agency established service performance benchmarks for the movement of western grain for these Complainants, CN is in breach of its level of service obligations to NET, NWT, P&H and PG for crop year 2007-2008. The Agency finds that CN has not breached its level of service obligations to CWB and PGG for crop year 2007-2008.

[168] Subsection 27(1) of the CTA states:

On an application made to the Agency, the Agency may grant the whole or part of the application, or may make any order or grant any further or other relief that to the Agency seems just and proper.

[169] With respect to the remedies, the Agency has many options available. Pursuant to paragraph 116(4)(a) of the CTA:

(4) If the Agency determines that a company is not fulfilling any of its service obligations, the Agency may

1. order that

   1. specific works be constructed or carried out;
   2. property be acquired;
   3. cars, motive power or other equipment be allotted, distributed, used or moved as specified by the Agency; or,
   4. any specified step, systems or methods be taken or followed by the company.

[170] Pursuant to paragraph 116(4)(c) of the CTA, the Agency may order a railway company to fulfil its level of service obligations in any manner and within any time or period the Agency deems expedient.

[171] After weighing all the possible remedies, the Agency, in determining the relief to be granted to NET, NWT, P&H and PG, has decided that a performance-based benchmark is a remedy which is fair and reasonable to the parties.

[172] Throughout these proceedings, the Complainants have referred to planning and predictability. The Agency is of the opinion that it is very important to the Complainants that they receive predictable rail service. This was recognized by the Agency in the GNG Decision, which addressed the aspect of unpredictable and erratic rail service, and it is further acknowledged in this Decision.

[173] The Agency determines that the relief to be granted to the Complainants will be the application of this new service performance benchmark, which has been used to assess the service breaches. CN will be required to confirm to NET, NWT, P&H and PG, at a minimum, 80 percent of their requested rail cars. Further, 90 percent of the confirmed cars must be delivered either on time or in the subsequent two weeks (three weeks total). CN must meet these performance standards on a 12-week rolling average throughout each crop year. CN is still obligated to deliver all remaining confirmed rail cars.

[174] With respect to CWB and PGG, while breaches were found in crop year 2006-2007, CN has improved its service levels for crop year 2007-2008 and the Agency determined that there was no breach. As both CWB and PGG are receiving an adequate and reasonable (suitable) accommodation for their traffic, no remedy is required. The purpose of the new performance benchmark is to ensure that CN delivers rail cars on a predictable basis, unless CN is able to demonstrate that exceptional circumstances prevent it from doing so. The performance benchmark specifies a required outcome but the Agency will leave the means of achieving this outcome to CN's discretion.

Agency order

[175] The Agency orders CN, effective immediately, to provide a level of service to NET, NWT, P&H, and PG as set out in the established service performance benchmark for crop year 2008-2009 and beyond.

Application for interim relief and award of costs

[176] On January 31 and February 1, 2008, the Complainants filed applications for interim relief prohibiting CN from implementing a new car ordering system and ordering CN to continue with the car distribution regime already in place for the crop year 2007-2008. In the alternative, as the Complainants submitted that CN's proposed car allocation approach went against the spirit and intent of the January 18, 2008 Decisions, the Complainants requested that CN be required to show cause why it should not be held in contempt of those Decisions. Further, the Complainants and CN requested awards of costs.

[177] In Decision No. LET-R-76-2008, the Agency dismissed the applications for awards of costs. The Agency also did not grant the Complainants' show cause request but ruled that the issue related to compliance with the Agency's previous rulings would be the subject of a finding when the Agency determined whether CN failed to provide adequate and reasonable rail service for crop year 2007-2008.

[178] CN argued that its new car ordering system was fully compliant with the "spirit and intent" of the Agency's January 18, 2008 Decisions. CN further stated that it implemented everything the Agency ordered it to do to address issues of predictable car supply relative to service standards encountered during crop year 2006-2007.

[179] The Agency issued conditional rulings, (the January 18, 2008 Decisions), as it recognized that CN's new grain products programs were designed to address earlier service deficiencies identified by the Agency, and this represented an effort on the part of CN to now improve the level of service for the Complainants. Before the Agency could properly assess whether these new programs resulted in the provision of adequate and reasonable accommodation for the traffic of the Complainants, the Agency ordered that service performance data be provided.

[180] The purpose of the data collection was to determine whether CN was providing adequate and reasonable accommodation for the traffic of the Complainants based on the new programs in place. The Agency measured the performance of CN under these new programs. Thirty-six weeks of data were submitted by the parties. While CN did introduce its new system of car ordering in Grain Week 29, the Agency is of the opinion that it was CN's prerogative to do so.

[181] The Agency finds that CN was not in contempt of the January 18, 2008 Decisions by implementing a new car ordering system. The Agency finds that a car ordering system, while it may be linked to the various grain products programs in effect, was a new development subsequent to the January 18, 2008 Decisions. In assessing CN's performance, the car ordering system became one factor in arriving at its final determination as to whether CN was providing adequate and reasonable service levels to the Complainants, but this does not mean that CN was in contempt of the Agency's previous rulings by implementing it.

[182] In its January 18, 2008 Decisions, the Agency had also ordered CN to allow the Complainants to continue to trade rail cars. The shippers claim that this is not possible under CN's new car ordering system. CN states that it is still permissible.

Other matter

[183] Over the last two years, the Agency has been seized with a higher than usual number of complaints from shippers in the grain industry. As a result of changes made in the grain transportation system as reflected in the evidence before it, the Agency has determined that a performance-based benchmark is appropriate in assessing an adequate and reasonable level of rail service. It provides predictability of rail service for shippers while providing CN with flexibility to meet or exceed the standards for each component of the benchmark.

[184] While the Agency finds that a performance-based benchmark provides a sound basis for determining if a shipper is receiving adequate and reasonable service, the performance-based benchmark established in this Decision is based on the particular circumstances and factors relating to the complaints in this proceeding. The remedy ordered is applicable only to NET, NWT, P&H and PG.

[185] The Agency is of the opinion that the utilization of a performance-based benchmark to establish adequate and reasonable service levels would benefit the western grain industry as a whole. The Agency encourages the railway companies and the grain shippers to enter into a dialogue with the goal of setting performance based standard levels. The Canadian Transportation Agency is prepared to assist in facilitating such a dialogue if the parties would find this helpful.

Members

• Geoffrey C. Hare
• Raymon J. Kaduck