Decision No. CONF-R-12-2023

Summary

[1] On August 24, 2022, Al-Pac filed a level of service complaint with the Canadian Transportation Agency (Agency) against CN. In its complaint, Al-Pac seeks an order requiring CN to fulfill its level of service obligations for the receiving, carrying and delivering of wood pulp (pulp) traffic, and to reimburse Al-Pac for the expenses it incurred as a result of CN’s alleged failure to meet its level of service obligations. Al-Pac claims that during the period of December 21, 2021, to August 24, 2022, CN failed to provide a sufficient number of boxcars to transport Al-Pac’s pulp traffic.

[2] Given that this complaint, and the remedies sought by Al-Pac, concern boxcars, the Agency will use the term “boxcars” throughout this decision, even in cases when a party has used the term “railcar” in its submissions.

[3] Al-Pac claims that, during the complaint period, CN breached its level of service obligations under the Canada Transportation Act (CTA) by failing to provide:

• adequate and suitable accommodation for the carriage, unloading and delivering of Al-Pac’s pulp traffic; and
• all proper means, including locomotive power and crews, for receiving, carrying and delivering pulp traffic to its destination.

[4] Al-Pac seeks an order requiring CN to:

• supply and deliver a minimum of 159 boxcars or 95% of Al-Pac’s weekly boxcar orders, whichever is less, to Al-Pac’s mill in O’Morrow, Alberta (mill), each week for which Al-Pac orders boxcars;
• provide spot and pull service at the mill at least four scheduled days per week (Monday, Wednesday, Friday, Saturday); and
• pay compensation for Al-Pac’s expenses incurred as a result of CN’s breach.

[5] For the reasons set out below, the Agency finds that CN breached its level of service obligations during the period of December 21, 2021, to July 9, 2022, by failing to provide an adequate number of boxcars to transport Al-Pac’s pulp traffic, and thus failing to furnish adequate and suitable accommodation for the carriage, unloading and delivering of the pulp traffic. The Agency finds that CN has not provided the highest level of service to Al-Pac that it could reasonably provide in the circumstances, as required by the CTA.

[6] The Agency orders CN to deliver 159 boxcars or 95% of boxcars ordered by Al-Pac, whichever is less, on a four-week rolling average, with CN delivering no fewer than 80% of such boxcars in the week in which they were ordered.

[7] The Agency directs the parties to provide submissions on the compensation to which Al‑Pac may be entitled, based on the requirements set out at the end of this decision.

Preliminary matter

[8] Al-Pac claims that CN failed to provide a sufficient number of boxcars from December 21, 2021, to August 24, 2022. Al-Pac also seeks compensation for expenses incurred as a result of CN’s breach of its service obligations to it during the period from December 21, 2021, to the date on which the Agency issues its decision. However, the evidence submitted covers only the period from December 21, 2021, to July 9, 2022. Accordingly, the Agency will consider whether CN breached its level of service obligations during the period from December 21, 2021, to July 9, 2022 (complaint period). The Agency’s consideration of the matter of compensation for expenses in respect of a breach of service obligations shall be for this same period.

[9] [REDACTED] On this basis, the Agency finds that there was no confidential contract as specified in section 116(2) of the CTA in place during the complaint period.

[10] In its application, Al-Pac claims that CN failed to provide all proper means, including locomotive power and crews, for receiving, carrying and delivering pulp traffic to its destination. Given the Agency’s conclusion respecting the provision of adequate and suitable accommodation, it is not necessary to specifically address whether CN breached its level of service by not providing sufficient locomotive power and crews necessary for receiving, carrying and delivering the pulp traffic.

Application

[11] Al-Pac produces pulp at its mill located at the north end of CN’s Alberta Pacific Subdivision. It ships its pulp in railway-owned boxcars, and is dependent on CN to reach its markets. Pulp destined for export to customers in Asia is moved by CN rail to terminal facilities at the Vancouver port. Al-Pac’s North American sales are primarily destined to [REDACTED].

[12] [REDACTED].

[13] Al-Pac’s complaint alleges a reduction in the number of boxcars delivered to the mill that began after the “inception of the [REDACTED],” which saw the service CN provided to it decline from what was sufficient to transport 95% of Al-Pac’s pulp production in prior years. In response to service problems it was experiencing, Al-Pac reduced its production by more than 13% in 2021-2022 compared to the average of the two preceding years. Al-Pac states that service continued to deteriorate during the complaint period such that CN supplied less than 50% of Al-Pac’s average weekly boxcar requirement for approximately one third of the complaint period.

[14] Al-Pac describes its rail transportation requirements as consistent and “rateable” due to the continuous nature of the mill’s operation and the consistency of Al-Pac’s shipping patterns. Al-Pac claims that when its mill is running at full capacity it requires, on average, 168 boxcars per week to meet its rail transportation needs. It claims that due to CN’s consistent failure to supply the boxcars required and ordered during the complaint period, it had to move significant quantities of pulp into storage in third party warehouses and at the mill. It was also forced to rely on third-party trucking services to move pulp, both to warehouses and to customers, which resulted in it incurring additional expenses. Al-Pac also claims that CN’s failure to meet its level of service obligations during the complaint period forced it to slow down and stop production at the mill multiple times beginning in December 2021. Al-Pac also alleges that CN’s inadequate service resulted in it being unable to meet commitments to its customers.

The Agency’s approach to rail level of service complaints

[15] In accordance with the CTA, the Agency must find that a company has fulfilled its level of service obligations if it is satisfied that the company has provided the highest level of service in respect of those obligations that it can reasonably provide in the circumstances. The Agency must consider a non-exhaustive list of factors set out in the CTA when making this assessment.

[16] In Decision CONF-9-2019, the Agency reviewed key Agency, Federal Court of Appeal and Supreme Court of Canada decisions that interpreted the level of service provisions of the CTA and its predecessors. In that Decision, the Agency stated that based on the legislation and jurisprudence regarding level of service complaints, a railway company is required to make every reasonable effort to receive, carry, deliver, and unload traffic offered without delay, even in the face of challenges beyond its control, but it is not asked to do the impossible. The railway company’s obligations can only be determined in light of the specific circumstances of each case.

[17] In determining whether a railway company has fulfilled its level of service obligations, the Agency has, where appropriate, used an evaluation approach that assesses whether there is a gap between a shipper’s reasonable request for service and the service provided. Under this evaluation approach, the Agency considers three questions:

(1) Is the shipper’s request for service reasonable?

(2) Did the railway company fulfill this request?

(3) If not, are there reasons which could justify the service failure?

[18] The Federal Court of Appeal found that this approach is reasonable in Canadian National Railway Company v Emerson Milling Inc., 2017 FCA 79:

The Agency’s evaluation approach is reasonable. It is a practical, useable test that captures both the essence of and much of the detail in subsection 113(1) of the Act. Far from imposing impossible burdens upon carriers like CN, as CN suggests, it suitably reflects the Supreme Court’s holding in Patchett that the carrier’s duty “is permeated with reasonableness in all aspects of what is undertaken.”

[19] In Decision CONF-9-2019, the Agency noted that amendments that were made to the level of service provisions of the CTA in 2018 are consistent with the principles around reasonableness and justification that have developed through case law and do not change the statutory language in sections 113 to 115 of the CTA regarding a railway company’s obligations; rather, this language offers interpretive guidance that is consistent with that case law by stating the threshold to be met for these obligations to have been satisfied — “the highest level of service in respect of [its service] obligations that [a railway company] can reasonably provide in the circumstances” — and provides a non-exhaustive list of factors to be considered by the Agency when assessing whether a railway company has met this bar.

[20] It is a shipper’s responsibility to convince the Agency that its request for service is reasonable and that there is a gap between its request and the service it receives. If such a gap is found to exist, the Agency will consider any justifications for that gap that the railway company presents. In so doing, the Agency will consider whether the railway company made every reasonable effort to receive, carry, deliver and unload the traffic offered without delay, even in the face of challenges beyond its control, or whether it was impossible to do so despite reasonable efforts. If there is a reasonable justification, then the Agency will find that the railway company has met its service obligations. If there is no reasonable justification, then the Agency will find that there has been a breach of the railway company’s service obligations and will look to the question of remedy.

[21] In Decision 2014-10-03, the Agency stated that the railway company must provide application-specific evidence of the efforts it has made to furnish adequate and suitable accommodation to move the shipper’s traffic, or compelling reasons why the shipper’s request cannot be reasonably accommodated. The evidence justifying a failure to provide a requested service must be put on the record by the railway company because the railway company is in the best position to identify and explain such a justification and because it is the railway company that has obligations under the CTA. The Agency will assess whether the service failure is justified based on this evidence.

Was Al-Pac’s request for service reasonable?

[22] CN concedes that Al-Pac had a legitimate demand for boxcars during the complaint period and that it properly communicated its service requests to CN. However, Al-Pac and CN disagree on what constituted reasonable service during the complaint period.

[23] Al-Pac submits that it requires on average 168 boxcars per week in order to meet its rail transportation needs and that the number of boxcars it requires fluctuates only slightly. Al-Pac claims that it has the capacity to produce 2,000 metric tonnes (MT) of pulp per day, 7 days per week, which represents a volume of 730,000 MT per year. To ship this volume of pulp production, Al-Pac would require 168 boxcars per week, at an average lading weight of 82 MT per boxcar.

[24] Al-Pac acknowledges that, beginning in December 2021, it increased its weekly boxcar orders in an effort to reduce the excess inventory at the mill resulting from inadequate boxcar supply leading up to and continuing through the complaint period. According to Al-Pac, it ordered, on average, 202 boxcars per week during the complaint period, whereas CN’s evidence is that Al-Pac ordered 198 boxcars per week during the complaint period.

[25] CN’s position is that Al-Pac has overstated its average weekly requirement, and that Al‑Pac’s boxcar requirements should be determined by reference to its production volumes, which it submits indicate that Al-Pac has an average weekly requirement of 145 boxcars. CN calculates this average weekly requirement using Al-Pac’s monthly planned production volumes that were converted to average daily planned production volumes. These were divided by a lading weight of 82 MT per boxcar to provide a daily boxcar requirement. The daily boxcar requirements were then tallied to determine weekly boxcar requirements in each week of the complaint period.

[26] Al-Pac, on the other hand, challenges CN’s assessment of “planned production volumes” and claims that it lacks evidentiary foundation. Al-Pac states that it does not use the term “planned production volumes”, but rather states that it produced production “budget” figures in response to CN’s questions. Al-Pac states that it “plans to run the Mill at full capacity,” but budgets production volumes that are lower than its production plan to reflect both planned maintenance and unplanned outages.

[27] The information on the record demonstrates that as a result of rail service levels during the complaint period, Al-Pac had to reduce its pulp production, store pulp, truck shipments to customers, and temporarily halt offshore sales of pulp in January 2022, and ultimately suspend its sales program in Asia. The Agency accepts that Al-Pac had to operate at less than full production in response to declining rail service during the complaint period and in the months leading up to it. The Agency finds that CN’s service should not dictate Al-Pac’s level of production or limit the growth of Al-Pac’s business. As the Agency stated in Decision 344-R-2007, CN has a statutory obligation to provide boxcars in acceptable quantities at acceptable times. As such, the Agency finds that a weekly boxcar requirement of 145 boxcars is neither based on correct assumptions, nor sufficient to address legitimate demand as it is not directly related to Al-Pac’s production capacity or its demand for service.

[28] Based on the foregoing, the Agency finds that Al-Pac requires 168 boxcars per week on average to transport its pulp when its mill is operating at full capacity. However, the Agency accepts CN’s position that this figure does not account for reduced boxcar requirements during periods of planned or unplanned maintenance. In light of the above, and considering that Al-Pac is asking for 95% of 168 boxcars per week, the Agency finds that Al-Pac’s request for 159 boxcars per week represents legitimate demand and takes into account operational factors that would reduce the mill’s ability to run at full capacity.

[29] As indicated in Decision 2014-10-03, where the shipper has a legitimate demand for service and it has properly triggered the level of service provisions, its request will be considered reasonable. In this case, the Agency finds that Al-Pac had a legitimate demand for service to transport its daily production of pulp and its built-up inventory. The Agency finds that Al-Pac communicated its requests for boxcars appropriately to CN, such that CN’s level of service obligations were triggered. Consequently, the Agency finds that Al-Pac’s requests for service during the complaint period were reasonable.

Did CN fulfill this request?

[30] CN concedes that it did not provide Al-Pac with all of the cars it needed to meet its transportation needs during the complaint period. However, CN disputes the size of the service shortfall claimed by Al-Pac. CN claims that it supplied an average of 58% of the boxcars required to transport Al-Pac’s actual pulp production during the complaint period, and points to the fact that Al-Pac was ordering more than 168 cars in most weeks during the same period. CN submits that the number of cars provided to Al-Pac should be evaluated in light of the number of cars required by Al-Pac to transport its pulp traffic rather than the number of cars it ordered, which includes reorders.

[31] Al-Pac states that in an effort to reduce excess inventory at the mill resulting from the inadequate car supply it was receiving, it increased its weekly car orders beginning in December 2021. Al-Pac does not dispute that it also reordered boxcars when the actual number of boxcars delivered in previous weeks was insufficient to move the traffic on hand.

[32] Notwithstanding that the parties dispute a small number of car order cancellations, the parties’ evidence supports that Al-Pac was ordering between 198 and 202 cars per week during the complaint period, with CN providing the lower figure and Al-Pac the higher. This results in a car order fulfillment rate either of 43% or 41%, respectively, over the complaint period. Al-Pac submits that 202 boxcars, on average, were required to ship weekly production and to make up for past service failures, when Al-Pac did not receive boxcars that it had ordered both before, and during, the complaint period.

[33] CN’s evidence demonstrates that it supplied 2,453 boxcars to Al-Pac during the complaint period, which when compared to the Al-Pac’s legitimate demand of 159 cars per week as specified above results in a car order fulfillment rate of 53%. Accordingly, the Agency finds that by any of the above measures, CN did not fulfill its service requirements to Al-Pac during the complaint period.

Are there reasons which could justify the service failure?

[34] CN claims that the following reasons contributed to its inability to provide Al-Pac with the number of boxcars required to meet its transportation needs:

• an unexpected market shift that saw:
• the total demand for boxcars increase across shippers and commodities, and
• a shift in destinations for boxcar traffic from export terminals to North American destinations;
• US Class 1 railways were slower than usual;
• it was colder than usual; and
• Winnipeg received record snowfall.

[35] CN adds that the market shift meant that boxcars were travelling through harsher climates and spending more time offline with slower US carriers. It claims that decreased offline velocity, cold and snow all contributed to longer cycle times for boxcars during a period of increased traffic, all of which strained car supply, and that all of these factors are outside its control and justify its failure to provide Al-Pac with a sufficient number of boxcars to meet its needs.

[36] Al-Pac disputes the alleged unexpected market shifts and CN’s justifications for the insufficient number of boxcars, and suggests that the failure was actually due to a range of issues including a lack of contingency planning, a reduction in fleet size and fewer train operating employees.

[37] The Agency must consider the evidence to determine whether CN has provided the highest level of service that it could reasonably provide in the circumstances. Among the non-exhaustive list of considerations set out in the CTA, the Agency will consider the parties’ operational requirements and restrictions and the railway company’s contingency plans when faced with foreseeable or cyclical events. As set out in Decision 2014-10-03, the Agency may consider alternatives offered and, where relevant, extenuating circumstances beyond the railway’s control. In that Decision, the Agency indicated that the level of service obligations placed on a railway company imply that it must make efforts to identify measures in advance of the course of events and make necessary arrangements to address its customers’ needs. The Agency will consider evidence of such efforts in this case.

Increased demand for boxcars

[38] CN claims that in 2022, total demand for all boxcars increased by 38% above the previous three-year average and that, combined with increased cycle times for all boxcars, would have required CN to double its fleet size to meet total orders. CN claims that the surge in demand was not forecasted by the shippers or by CN, and that the year-over-year increase was sudden and unexpected such that it did not have any lead time to acquire additional resources, even if these were available in the market, which CN claims they were not.

[39] CN argues that while total carloads of forest products declined from 2021 to 2022, other commodities are also shipped in boxcars and contributed to the demand. Although CN does not provide data to demonstrate in which sectors there was increased demand that more than offset the decreased demand in forest products, it provides data showing that during the complaint period, its fulfillment rate for boxcar requests across its system was approximately 51%.

[40] Al-Pac rejects CN’s claim of a substantial overall system-wide increase in demand for boxcars, arguing that some of this stated increase in demand is arrived at solely by measuring car orders, which include orders and reorders, and it suggests that relying on this as evidence of a sudden surge in demand can significantly overstate actual demand. Al-Pac points to evidence submitted by CN itself, where CN states that: “Relying on car orders (which includes both car orders and reorders) can significantly overstate the total shortfall.” Al-Pac submits that a correlation exists between shortfalls in one week and an increase in car orders in the following week, as demonstrated by CN’s data, and argues that the increase in car orders in 2022, was largely driven by reorders rather than an increase in actual demand.

[41] Al-Pac also argues that since the same pattern was evident throughout 2021, it should not have been unexpected. It submits that system boxcar orders began to exceed prior year orders by a significant margin beginning in June 2021, six months before the complaint period.

[42] Moreover, Al-Pac points to a reduction in the size of CN’s boxcar fleet. Al-Pac cites CN’s data showing that it supplied over 20,000 fewer cars from December 2021 to July 2022, than in the same period three years earlier. Al-Pac contends that CN continued to reduce equipment and resources available to serve customers even as traffic volumes began to rebound in the second half of 2020 and continued into 2021. It argues that CN’s reduced car order fulfillment rates from December 2021 to July 2022, compared to the preceding two years, can only plausibly be explained by a reduction in the number of boxcars that were in service to fill those orders.

[43] Al-Pac also contends that despite being unable to fulfill shippers’ demand for boxcars, a portion of available boxcars are reserved for CN’s Car Auction Program (CAP), which makes these boxcars available to the highest bidder. It contends that the lack of transparency associated with the program makes it unable to determine the extent to which car order shortfalls could have been met by boxcars that were reserved for the CAP during the complaint period.

[44] CN does not dispute that it reduced its fleet size from 2018-2019 to 2021-2022. However, CN states that its fleet was appropriately sized given what it knew at the time. Moreover, CN notes that while Al-Pac calculated that CN could have moved 9,682 additional carloads during the months of December 2021 and April 2022, had it not downsized its fleet, the shortfall during that same period was 48,945 carloads due to what CN alleges was an unexpected 38% increase in overall system demand. CN, also states that boxcars allocated to the CAP during the complaint period represent less than 5% of total boxcar supply and had those cars been included in the general allocation Al-Pac would have received only one extra car per week.

[45] According to Al-Pac, it ordered 5,855 boxcars during the complaint period, to accommodate daily production and product that was placed in storage due to boxcar order shortfalls, whereas CN claims Al-Pac ordered 5,745 boxcars.

[46] Using Al-Pac’s stated weekly average requirement of 168 boxcars, 4,872 cars would have been needed during the complaint period had there been no boxcar shortfalls or product in storage. This represents an increase of approximately 20% in boxcar orders over the complaint period to contend with those shortfalls. CN has not indicated whether reordered cars from all customers contributed to the 38% surge in boxcar demand across the system during the complaint period, but given Al-Pac’s experience, and CN’s data showing car order shortfalls in one week and an increase in car orders in the following week, it appears likely.

[47] While CN claimed that it did not anticipate a surge in demand for boxcars, CN did not explain how it forecasted demand and what steps it took to plan for, or address, demand for boxcars. Monthly car order data supplied by CN demonstrates that boxcar orders began to rise in June 2021. CN states that boxcar orders exceeded 2020 boxcar orders by a significant margin beginning in July 2021. It also notes that this gap widened in August, and, suggested that it could be fairly described as a trend by September 2021. The system data supplied by CN demonstrates that year-over-year demand was increasing steadily each month beginning in June 2021. Compared to the same month in 2020, year-over-year demand had increased by approximately 12% in June 2021, 19% in July 2021, 25% in August 2021, 28% in September 2021, 26% in October 2021, 31% in November 2021, all before the start of the complaint period. This suggests that the continuation of this trend into 2022 cannot reasonably be described as sudden or unexpected.

[48] At the same time that demand was rising, evidence submitted by CN demonstrates a steady decline in its boxcar fleet from 11,376 in January 2020, to 9,366 by January 2023. CN states that it only began sourcing additional boxcar supply in Q4 of 2021, with an unsuccessful attempt to lease boxcars. It shifted its efforts to purchasing boxcars sometime after Q4 of 2021, when it states that it ordered 800 boxcars, scheduled for delivery in Q1 of 2023, and an additional 800 for delivery in Q1 of 2024. The Agency therefore finds that CN neither anticipated, nor effectively responded to steadily increasing demand for service, which began before and continued into the complaint period, with timely and effective actions to secure the necessary additional boxcars to meet this demand.

[49] The Agency accepts CN’s evidence that the effect of the CAP would have been minimal as it relates to Al-Pac’s boxcar deficit, but notes that given CN’s stated order fulfillment rate across its system during the complaint period was 51%, it suggests that all available boxcars should have been allocated to shippers to meet their legitimate demand rather than being auctioned through the CAP.

[50] While the evidence produced by CN demonstrates an increase in demand for boxcars during the complaint period, the Agency finds that CN has not established that the increase was significantly above what could be considered a return to historic demand levels, or unforeseeable given the uptick in economic activity following the initial impact of the global pandemic. Likewise, the Agency finds that CN’s claim that its fleet was appropriately sized for what it knew at the time is not supported by the evidence of a steady increase in demand beginning in June 2021, at the same time as its boxcar fleet was continuing to decline. The Agency therefore finds that CN has not established that there was a 38% increase in total boxcar demand in 2022 that affected its ability to meet Al-Pac’s level of service requests during the complaint period. Even if the Agency were to accept an increase in demand, CN has not demonstrated it was unpredictable and therefore could not be met.

Shift in boxcar traffic destinations and slower US Class 1 railways:

[51] CN indicates that during the January to July period, British Columbia (BC) was the destination for, on average, 29% of boxcar shipments from 2011 to 2021. This proportion declined to 21% in 2022, which resulted in an increase in the proportion of rail traffic moving into the US. It also notes that Al-Pac’s traffic reflected a similar shift. From 2019 to 2021, Al-Pac shipped between [REDACTED]% to [REDACTED]% of its pulp to North American destinations, with the remaining [REDACTED]% to [REDACTED]% going to export destinations via rail terminals in the Vancouver area. In 2022, [REDACTED]% of Al-Pac’s pulp traffic was going to North American destinations.

[52]  CN also claims that while average loaded miles increased just 2% from 2020-2021 to 2021-2022, offline time increased 29%, and was the highest it has been in 11 years. CN submits that its overall cycle times during the complaint period were adversely affected by the reduced velocity of traffic on US railways. CN refers to hearings and a decision from the United States Surface Transportation Board case titled “Urgent Issues in Freight Rail Service” that involved the four largest US Class 1 railways and noted that rail carriers identified current labour shortages as the primary cause of recent rail service issues. CN submits that these labour shortages resulted in reduced velocity on US railways.

[53] Al-Pac claims that, according to CN’s own data, the overall volume of boxcar traffic destined to the US has declined steadily since 2017, and that fewer boxcar shipments were destined to the US during the complaint period than in the corresponding period in prior years. Pointing to CN’s data, Al-Pac claims that overall boxcar shipments to Wisconsin remained flat compared to prior years while boxcar shipments to the rest of the US, BC and the rest of Canada decreased.

[54] Al-Pac acknowledges that it adapted its shipping patterns, sending a greater proportion of its pulp to the US during the complaint period, but indicates this was necessary to respond to ongoing inadequate service from CN. Beginning in January 2022, Al-Pac temporarily halted offshore sales of pulp and ultimately suspended its sales program in Asia so as to be able to direct its reduced production to contracted and critical existing regular customers in North America.

[55] The Agency finds that despite the volume of boxcar traffic to the US through the complaint period declining, there was an overall shift in the proportion of traffic from export terminals to North American destinations. At the same time, the Agency notes that the explanation for this shift in destinations as it relates to Al-Pac’s pulp traffic was to preserve its contracted North American sales at the expense of its Asian sales program, in response to inadequate rail service from CN. The Agency therefore finds that an increase in the proportion of traffic going to the US does not explain the significant service shortfalls experienced by Al-Pac, as US-bound boxcar shipments were almost 15% lower in January through July 2022, than in the same period in 2017.

[56] With respect to offline travel time, the evidence provided by CN shows an increase during the complaint period, from 11.4 days to 14.3 days. It also shows that between January 2012 to July 2021, offline travel time varied considerably, from a low of 7.3 days to a high of 12.7 days.

[57] Despite variation in offline cycle time over the past decade, the Agency finds that the evidence demonstrates that cycle times during the complaint period were somewhat longer than in past years. The Agency finds that CN did not present evidence of the specific impact that longer cycle times had on the supply of boxcars that Al-Pac received during the complaint period. Likewise, while the evidence regarding rail service issues on US railways provides some insight into difficulties experienced by the US railway network in winter 2021-2022, CN has not linked this evidence in a direct way to its service to Al-Pac in this case. Accordingly, the Agency finds that CN has not established that cycle time variations are a reasonable justification for a service shortfall of that magnitude to Al-Pac.

Cold weather

[58] CN claims that cold temperatures in Western Canada during the complaint period resulted in reduced system velocity. It states that temperatures below -25 degrees C, require a reduction in train lengths and speed for safety reasons. CN adds that these restrictions lower the system’s velocity which, in turn, reduces the supply chain’s shipping capacity overall. It submits that in Western Canada, between December 1, 2021, and March 31, 2022, 82 of 121 days saw temperatures below -25 degrees C, with 29 of those days having temperatures below -35 degrees C, which would require even greater restrictions on train lengths.

[59] In support of its position, CN provides temperature data for the period December 1, 2021, to May 31, 2022, in Edmonton, Alberta; Fort Frances, Ontario; Jasper, Alberta; Prince George, British Columbia; Saskatoon, Saskatchewan; Sioux Lookout, Ontario; Sudbury, Ontario; and Winnipeg, Manitoba.

[60] Al-Pac, on the other hand, submits evidence that similar minimum temperatures in Athabasca, Alberta; Edmonton and Winnipeg appear to have had a more pronounced impact on CN’s service in the winter of 2021-2022 than during the same period in 2020‑2021. Moreover, Al-Pac claims that despite the weather conditions described by CN in winter 2021-2022, it made fewer locomotives and crews available in Western Canada than in each of the two preceding milder winters, suggesting that CN was in fact less prepared. To support this, Al-Pac cites evidence from CN that shows that CN had an average of 3,816 crew members available for work in its Western Region from December 2021 to March 2022, compared to an average of 4,087 available for work in the same region from December 2020 to March 2021. In addition, CN’s evidence shows that between January and April of 2022, the daily average number of locomotives in active service in CN’s Western Region declined from 709 to 627, with the majority of the reduction taking place between January and February, the coldest months of the complaint period, in the part of CN’s network that historically experiences the most severe weather conditions.

[61] The Agency accepts that during periods of extreme weather, railway companies are faced with operational constraints, such as corridor restrictions, speed limitations and train length reductions that reduce the ability to maintain operations at normal levels, and that this, in turn, can lead to increased car cycle times (see, for example, Decision 2015-07-10). In CN’s 2021-2022 Winter Plan, which was submitted by both parties, CN identifies recent actions that it took to improve winter operations.

[62] While the Agency acknowledges Canada’s difficult winter operating conditions, and CN’s efforts to address these, the relevant question in this case is the extent to which the weather was extraordinary and how it specifically affected the provision of boxcars to Al-Pac. In that context, CN did not provide any evidence that the weather during the complaint period was exceptionally harsh, nor how the weather affected the provision of boxcars to Al-Pac. Moreover, the reduction in the daily average number of locomotives between January to April 2022 appears to the Agency to be the result of a CN operational decision rather than an operational constraint caused by cold weather. Therefore, the Agency finds that CN has not established that cold weather justified its reduced service to Al-Pac.

Record snowfall in Winnipeg

[63] CN submits that boxcar traffic flows to and from the US via Winnipeg, and that between December 2021 and March 2022, Winnipeg received record snowfall amounting to 143 centimetres. According to evidence provided by CN, this was the most snow Winnipeg had received during this timeframe in the past 60 years. CN submits that given that amount of snowfall, yard operations in Winnipeg had to be shut down multiple times to clear snow before operations could resume, which impaired cycle times for boxcars.

[64] Al-Pac argues that CN’s data does not establish when snow was falling, but instead how much snow had fallen, cumulatively, in Winnipeg. While CN argues that snow accumulation began to affect its operations as cold temperatures were beginning to rise, Al-Pac submits that there was relatively little new snowfall in Winnipeg as extreme temperatures were beginning to ease in mid-March 2022. Al-Pac argues that CN’s claim that snow clearing was a daily necessity in Winnipeg from December 26 until May is not credible.

[65] The Agency recognizes that heavy snowfalls require a railway company to clear snow in order to perform certain yard operations. However, CN has not provided data to demonstrate the effect that heavy snowfalls had on its Winnipeg yard during the complaint period as compared to previous years, such as the number of times the yard had to be closed to clear snow and the duration of those closures. The Agency accepts Al-Pac’s argument that CN has not explained the impact of large snowfalls at its Winnipeg yard on CN’s ability to meet Al-Pac’s service requests. Without such evidence, the Agency finds that CN has not established that the amount of snowfall in Winnipeg during the complaint period justifies its failure to meet Al-Pac’s service requests.

Conclusion on CN’s justification for the service failure

[66] The Agency finds that CN has not established that it made every reasonable effort to provide adequate and suitable accommodation for the carriage, unloading and delivery of Al-Pac’s pulp traffic or all proper means, for receiving, carrying and delivering pulp traffic to its destination, even taking into account challenges beyond its control. The evidence and justifications provided by CN do not establish that the reasons for the gap in service were unforeseeable and could not have been avoided. Moreover, CN’s submissions do not establish that it provided the highest level of service that could be reasonably provided in the circumstances it describes. Accordingly, the Agency, finds that CN has breached its level of service obligations to Al-Pac during the complaint period.

[67] In this case, the Agency recognizes that CN faced a number of operational challenges during the complaint period related to weather conditions, including snowfalls in Winnipeg, cycle times, and boxcar demand. While acknowledging that US cycle times were somewhat longer compared to historical cycle times and that there was some increase in the demand for box cars, the Agency nonetheless finds that CN has either failed to demonstrate the actual impact these events had on its operation, with respect to service to Al-Pac, failed to demonstrate that these conditions were significantly different than in previous years, or failed to take adequate measures to address the challenges. Considering that each element of justification is not significant, even when considered collectively, they do not explain the level of service received by Al-Pac during the complaint period.

Remedies sought by Al-Pac

An order defining a minimum level of service that CN would be required to provide

[68] Al-Pac seeks an order from the Agency requiring CN to provide no fewer than 159 boxcars or 95% of Al-Pac’s weekly boxcar orders, whichever is less, to the mill and to continue to provide spot and pull service at the mill at least four scheduled days per week (Monday, Wednesday, Friday, Saturday).

[69] CN argues that an order for a guaranteed future car supply for an indefinite period of time would require the Agency to be satisfied that anything less than fulfilling 95% of Al‑Pac’s boxcar requests would be a breach of CN’s level of service obligations. CN submits that such a determination cannot be made in the context of Al-Pac’s complaint to the Agency.

[70] In support of this argument, CN cites Decision 2015-03-12 where the applicant filed a complaint concerning a pending policy change by CN that it believed would result in a breach of its level of service obligations. However, as the applicant’s complaint involved a hypothetical failure by CN to meet its level of service requirements, the Agency dismissed the application, which included a requested order requiring CN to meet future service requests. In that case, the Agency could not order a remedy in response to an unproven level of service breach.

[71] The present case is markedly different as Al-Pac has established that a level of service breach occurred. Where a breach is established, the Agency has broad discretion to craft a remedy, including the power to order a specific future car supply without a defined time limit. Under the CTA, the Agency can make prospective orders for a railway company to construct works, acquire property, or allocate or distribute cars in the manner specified by the Agency. The Agency can also order a railway company to fulfill its obligations in any manner and within any time or during any period that the Agency deems expedient, having regard to all proper interests, and to specify the particulars of the obligation to be fulfilled. Where it establishes a condition of service, the Agency must ensure that it is commercially fair and reasonable to all parties.

[72] The obligations imposed by the CTA apply to any traffic and not just to boxcar requirements based on production or historical volumes. Nothing prevents the Agency from taking into account a reasonable increase in a shipper’s traffic volume when examining the appropriate remedy. There is nothing on the record to suggest that Al‑Pac is unable to produce pulp volumes equivalent to 159 carloads a week. In fact, this production volume figure is less than what would be required if Al-Pac were operating at full capacity. That said, the shipper’s need for service is not the only consideration that the Agency must take into account when deciding adequate and suitable accommodation. It must also consider the railway’s reasonable ability to comply with the order, taking into consideration the factors set out in 116(1.2) of the CTA.

[73] In this case, the Agency finds that it is appropriate to make an order respecting CN’s future car supply to Al-Pac for these reasons: Evidence submitted by Al-Pac demonstrates that it ordered, on average, 170 boxcars per week over the period leading up to the complaint period, whereas CN’s evidence shows that Al-Pac ordered on average 168 boxcars per week over the same period, which is consistent with what Al‑Pac has stated it requires on an ongoing basis. The evidence also shows that a lack of predictability in boxcar supply had immediate and serious detrimental effects on Al‑Pac’s operations, which included production slowdowns beginning in December 2021, shutdowns in January and March 2022, and suspended sales. In this case, a remedy centred on a specific boxcar supply will ensure that the Agency’s order is as practicable as possible for both parties and results in a predictable boxcar supply that will satisfy Al‑Pac’s needs.

[74] As noted above, Al-Pac’s request for 159 boxcars per week represents its legitimate demand level and takes into account operational factors that would reduce the mill’s ability to run at full capacity. Therefore, the Agency finds that Al-Pac’s request for an order requiring CN to supply a minimum of 159 boxcars per week or 95% of Al-Pac’s weekly boxcar orders, whichever is less, is reasonable.

[75] The requirement to provide 95% of Al-Pac’s weekly boxcar orders is not meant to be inflexible. Although the Agency found that CN did not provide justification for having failed to fulfill Al-Pac boxcar orders during the complaint period, CN did provide evidence showing that different external factors such as weather and network congestion may affect its ability to consistently meet up to 95% of Al-Pac’s boxcar orders every week in which the boxcars were ordered. For this reason, the Agency finds that CN’s minimum boxcar delivery requirement should be met on a four-week rolling average.

[76] In addition, the Agency also finds it appropriate to allow CN to deliver no fewer than 80% of such boxcars in the week they were ordered. Allowing CN to meet its minimum boxcar delivery requirement on a rolling average over four weeks will provide CN with sufficient flexibility to make up any weekly shortfalls that could result from unforeseen circumstances.

[77] The Agency notes that spot and pull service is currently provided at the mill on four scheduled days per week (Monday, Wednesday, Friday and Saturday). The Agency expects that this will remain the minimum frequency.

[78] CN has raised the concern that an indefinite Agency order in relation to boxcar supply should not amount to a finding that service below the specified level is automatically a service breach. However, given that the order made in this decision only requires the delivery of a maximum set amount or a percentage of the boxcar orders that Al-Pac will actually place, it already contains a mechanism that ensures CN is not required to deliver more boxcars than necessary to accommodate Al-Pac’s transportation needs.

[79] Further, the Agency acknowledges that a shipper’s level of service needs and a railway company’s ability to fulfill these needs are not static. Accordingly, the Agency’s order will remain the proper remedy to ensure CN meets its level of service obligations to Al‑Pac unless there is a fundamental change in circumstances between the parties.

[80] For this reason, the Agency’s order should not be read as relieving CN from any service obligations it may have over and above the Agency’s order if, for example, Al-Pac’s business grows and its rail service changes accordingly. In addition, the order should be read to allow for the possibility that CN may have a reasonable justification to not provide boxcars in accordance with the order made in this decision.

[81] The Agency expects that CN will take measures that will allow it to meet its service obligations as they arise, including maintaining an appropriate boxcar fleet.

[82] Consequently, provided there is no fundamental change in circumstances, the Agency orders CN to provide a level of service to Al-Pac that is consistent with its service needs, which represents approximately 159 boxcars per week, or 95% of Al-Pac’s weekly boxcar order, whichever is less, on a four-week rolling average, with CN delivering no fewer than 80% of such boxcars in the week in which they were ordered.

Al-Pac’s requested compensation for expenses

[83] Al-Pac claims that it had to take mitigation measures as a result of CN’s lack of service, which caused Al-Pac to incur expenses that would not otherwise have been as great, including trucking expenses and warehousing and storing expenses.

[84] In Decision LET-R-50-2022, the Agency bifurcated this proceeding into two phases. The first phase concludes with this decision and addresses Al-Pac’s claim that CN breached its level of service obligations to Al-Pac during the complaint period, and Al-Pac’s claim for relief in the form of an order requiring CN to fulfill its level of service obligations for the receiving, carrying and delivering of pulp traffic. In the second phase of this proceeding the Agency will seek submissions from the parties regarding the compensation to which Al-Pac is entitled as a result of CN’s failure to fulfill its level of service obligations during the complaint period. Submissions from the parties should follow the timelines set out below.

Order

[85] Provided circumstances do not change fundamentally, CN is to provide Al-Pac with 159 boxcars per week or 95% of its boxcar orders, whichever is less, on a four-week rolling average, with CN delivering no fewer than 80% of such boxcars in the week in which they were ordered. CN is to continue to provide spot and pull service at the mill at least at the current frequency.

[86] The Agency provides Al-Pac until 5:00 pm Gatineau local time on December 1, 2023, to submit evidence in relation to the expenses it has claimed to have incurred as a result of CN’s failure to meet its level of service obligations during the complaint period and to provide a copy to CN. Al-Pac’s submission must include full documentation in support of its request for compensation for expenses incurred. As part of its supporting documentation, Al-Pac should file a copy of its invoices for expenses claimed during these periods, as well as any other relevant documents, including an itemized list.

[87] CN will then have until 5:00 pm Gatineau local time on the tenth business day after the receipt of Al-Pac’s submissions to file a response and to provide a copy to Al-Pac. Finally, Al-Pac will have until 5:00 pm Gatineau local time on the fifth business day after the date of receipt of CN’s response to file a reply. A reply must not raise issues or arguments that are not addressed in the response or introduce new evidence unless a request has been made under the Canadian Transportation Agency Rules (Dispute Proceedings and Certain Rules Applicable to All Proceedings) and that request has been granted by the Agency.

---

Legislation or Tariff referenced	Numeric identifier (section, subsection, rule, etc.)
Canada Transportation Act, SC 1996, c 10	26; 37; 113; 114; 115; 116
Canadian Transportation Agency Rules (Dispute Proceedings and Certain Rules Applicable to All Proceedings), SOR/2014-104	20(2)