Letter Decision No. CONF-R-15-2022

October 25, 2022

Application by Canada Malting Co. Limited (Canada Malting) against Canadian Pacific Railway Company (CP), pursuant to sections 25.1, 26 and 120.1 of the Canada Transportation Act, SC 1996, c 10 (CTA), regarding the reasonableness of charges and associated terms and conditions of CP’s Supplemental Services Tariff 2 (Tariff 2).

Case number: 
19-05957

Summary

[1] On October 3, 2019, Canada Malting filed an application with the Canadian Transportation Agency (Agency) against CP, pursuant to sections 25.1, 26 and 120.1 of the CTA, regarding the reasonableness of charges set out in specified Items of Tariff 2 and their associated terms and conditions.

[2] Canada Malting’s application focuses primarily on demurrage and other asset use charges (Items 10, 11, 13 and 15). It also challenges charges related to switching (Items 23 and 24), handling (Items 31, 32 and 46) and miscellaneous invoices (Item 73). Canada Malting’s arguments that these charges are unreasonable fall into two major themes:

(1) the asset use, switching and handling fees are excessive when considered alongside estimates of CP’s costs; and

(2) associated terms and conditions permit CP to charge fees in situations where a customer is not at fault and has no ability to prevent or address the situation.

[3] Canada Malting seeks several changes to Tariff 2 and an order requiring CP to refrain from collecting charges that were invoiced. CP argues that its charges and the associated terms and conditions are reasonable. Both parties have requested costs.

[4] In this decision, the Agency will address the following issues:

  1. Are the asset use charges and associated terms and conditions in Tariff 2 unreasonable?
  2. Are the switching and handling charges and associated terms and conditions in Tariff 2 unreasonable?
  3. Is Tariff 2 unreasonable because it does not expressly allow customers to select their facility model?
  4. Is the 25% surcharge on “miscellaneous invoices” in Tariff 2 unreasonable?
  5. Should the Agency use section 26 of the CTA to order CP to refrain from collecting unreasonable charges?
  6. Should the Agency award costs?

[5] For the reasons set out below, the Agency finds that:

  1. Asset use charges under Items 11, 13 and 15 are not unreasonable;
  2. Some of the terms and conditions associated with asset use charges under Items 11, 13, and 15 are unreasonable;
  3. Switching and handling charges under Items 23, 31, 32 and 46 are not unreasonable;
  4. Some of the terms and conditions associated with switching and handling charges under Items 23, 31, 32 and 46 are unreasonable;
  5. Item 24 is not unreasonable;
  6. It is not unreasonable that Tariff 2 does not allow customers to unilaterally select the gate status of their facility;
  7. The 25% surcharge on “miscellaneous invoices” under Item 73 is not unreasonable;
  8. The remedies set out in section 120.1 of the CTA are sufficient to address the issues identified with Tariff 2; and
  9. No award of costs is justified for either party.

[6] The Agency directs CP to propose wording, for the Agency's approval, to vary its Tariff 2, consistent with the requirements set out at the end of this decision.

[7] CP revised Tariff 2 several times between the time Canada Malting filed its application and the time that pleadings closed in this proceeding. The Agency’s findings relate to the tariff that was in effect at the time the application was filed. Subsequent revisions to Tariff 2 are noted when changes are relevant to the issues raised in the application.

Background

The parties

[8] Canada Malting is the largest malting business in Canada, operating three malting plants and nine grain elevators. It ships barley by railcar from its grain elevators to its malting plants, or receives barley in railcars shipped by third parties to its malting plants. It converts barley into malt at its plants, and ships that malt to its customers (brewers and distillers) by railcar.

[9] CP is a class 1 rail carrier that provides railway, transload and intermodal transportation services across its network. CP serves two of Canada Malting’s malting plants. One is located in Calgary, Alberta (Calgary plant) and the other is located in Thunder Bay, Ontario (Thunder Bay plant). The Thunder Bay plant is also served by the Canadian National Railway Company (CN). CP also serves two of Canada Malting’s grain elevators, located in Alberta.

[10] CP transports barley and malt for Canada Malting pursuant to confidential contracts and published pricing tariffs, both of which incorporate the terms of Tariff 2. Canada Malting ships barley from its own grain elevators in railway-supplied cars. When Canada Malting purchases barley from third parties, those parties make the transportation arrangements with CN or CP. Although Canada Malting does not have a direct contractual arrangement with CP for these inbound barley shipments, it pays CP’s Tariff 2 charges for the shipments pursuant to its arrangements with the third parties. Canada Malting ships malt to its customers in its own fleet of privately owned covered hopper railcars.

[11] The charges set out in Tariff 2 are for supplemental services not included in the standard freight rate set out in Tariff 1 – CP’s Guide to Products and Services (Tariff 1).

The law

[12] Subsection 120.1(1) of the CTA states:

If, on complaint in writing to the Agency by a shipper who is subject to any charges and associated terms and conditions for the movement of traffic or for the provision of incidental services that are found in a tariff that applies to more than one shipper other than a tariff referred to in subsection 165(3), the Agency finds that the charges or associated terms and conditions are unreasonable, the Agency may, by order, establish new charges or associated terms and conditions.

[13] The onus is therefore on Canada Malting to demonstrate that it is more likely than not that the charges in question, or their associated terms and conditions, are unreasonable.

[14] The factors that the Agency must consider in making this determination are set out in subsection 120.1(3):

(a) the objective of the charges or associated terms and conditions;

(b) the industry practice in setting the charges or associated terms and conditions;

(c) in the case of a complaint relating to the provision of any incidental service, the existence of an effective, adequate and competitive alternative to the provision of that service; and

(d) any other factor that the Agency considers relevant.

[15] As identified above, the Agency must consider industry practice in setting the charges and the associated terms and conditions. The record of this proceeding contains limited evidence with respect to industry practice. Primarily, the evidence and arguments relate to CP’s practices in setting these charges and how CP applies Tariff 2.

[16] The CTA defines a shipper as a person who sends or receives goods by means of a carrier or intends to do so. However, this decision refers to customer, the term used in CP’s Tariff 2, which is intended to have the same meaning as shipper in the context of that tariff.

1. Are the asset use charges and associated and associated terms and conditions in Tariff 2 unreasonable?

[17] CP’s asset use program includes both charges for delays in loading or unloading railcars (known as demurrage) as well as charges for situations where a railcar is held, staged, or unable to continue while it is in transit to its destination.

[18] In Decision 114-R-2001, the Agency defined demurrage as “a charge to freight cars, applicable to the shipper, which typically occurs when established time limits are exceeded for the loading or unloading of the cars. It is a penalty which is intended to penalize inefficient activities beyond the carrier’s control.”

[19] CP calculates demurrage on a credit and debit basis. Credits are the days that CP allocates customers to load or unload rail cars. Debits are the days actually used by customers to load or unload the rail cars. The time when debits accumulate is referred to as “asset use” in Tariff 2.

[20] At the end of each calendar month, CP subtracts a customer’s credits from its debits for that month, for each of the customer’s locations, for each specific rail activity (i.e., loading or unloading) and for each car ownership type (i.e., railway-owned or privately owned). CP then multiplies the remaining debits by a dollar amount set out in Item 11 (for railway-supplied cars) or Item 13 (for private cars) to determine the demurrage charges owing.

[21] In addition, Item 15 states that railcars which are held, staged, or unable to continue are subject immediately to the asset use fees specified in Items 11 or 13. Item 10 sets out definitions relevant to all three items.

[22] CP’s asset use charges are triggered by actual placement or constructive placement of railcars. Actual placement occurs when a railcar is physically placed on a customer’s private track. Constructive placement occurs when a railcar arrives at a local serving yard and is made available to the customer facility. If service is not scheduled every day for a customer, constructive placement only occurs on days on which service is scheduled. If a railcar arrives at the local serving yard after the order cut-off time on a scheduled service day, it is not constructively placed until the next scheduled service day.

[23] The application of asset use charges under Tariff 2 depends upon the gate status of a customer facility, which governs the movement of traffic from CP’s local serving yard to the facility. A facility is assigned one of the following gate statuses:

Open Gate: CP delivers cars to the customer from its serving yard as they become available, up to the facility’s loading or unloading capacity.

Closed Gate: the customer orders railcars from CP’s serving yard by the specific identification number (ID) for the railcar. CP delivers only the specific cars ordered. The Thunder Bay plant is a Closed Gate facility.

Order by Quantity: the customer orders railcars by volume and commodity (e.g., corn) or equipment type (e.g., private car), rather than by specific car ID. CP selects the cars to be delivered to the facility based on the customer’s criteria. Customers can order cars from CP’s serving yard based on the capacity that will exist at their facility when CP’s train arrives, and can order specific car IDs to their facility by paying an extra charge under item 24 of Tariff 2. The Calgary plant is an Order by Quantity facility.

[24] While Canada Malting identified numerous issues related to asset use, its allegations generally fall under two major themes:

  • CP’s asset use charges for demurrage and railcars held, staged or unable to continue are unreasonable when considered alongside estimates of CP’s costs; and
  • the terms and conditions associated with these charges are also unreasonable because they permit CP to charge fees in situations where a customer is not at fault and has no ability to prevent or address the situation that leads to the charges being applied.

[25] Each of these arguments is examined in turn below.

CP’s asset use charges are excessive when considered alongside estimates of CP’s costs

Positions of the parties

Canada Malting

[26] Canada Malting submits that the charges for demurrage under Items 11 and 13 are excessive and therefore unreasonable.

[27] Under Item 11, CP charges demurrage for railway-supplied cars on a customer track. The amount charged varies based on the level of demand for a particular type of railcar. CP charges $80 per day for a “low”-demand car, $110 per day for a “balanced”-demand car, and $200 per day for a “high”-demand car.

[28] Canada Malting compares these charges to estimates of the average daily market cost to lease a covered hopper car, which is $22.77 per day, or $33.13 per day for a new covered hopper car. Canada Malting uses these figures both as market benchmarks and as estimates of CP’s daily cost to supply a covered hopper car. It submits that Item 11 charges are 3.5 to nearly 9 times the market cost of leasing a covered hopper car and provide CP with markups of 251% to 778% above its daily costs. Canada Malting submits that this goes far beyond fair compensation or what is necessary to incentivize the efficient use of railway assets.

[29] Item 11 also sets out CP’s demurrage charges for railway-supplied cars on CP track. To estimate the costs that CP incurs when it holds its own cars on its own track, Canada Malting adds the daily lease cost of a covered hopper car ($22.77 or $33.13 for a new covered hopper car) to the estimated cost of providing 60 feet of track, the assumed length of a covered hopper car ($0.88 per day based on track and roadway amortization figures, or $6.16 per day based on the track replacement cost). Based on these figures, Canada Malting estimates that the costs to CP range between $23.65 and $39.29 per railcar, per day. Thus, according to Canada Malting, Item 11 provides CP with a contribution of 104% to 591% above CP’s costs, which Canada Malting submits is unreasonable.

[30] Item 13 sets out demurrage charges for privately owned cars on CP’s track. CP charges $70, $130, or $155 per car, per day depending on the location of the railcar. Canada Malting submits that these charges far surpass reasonable market comparators and what it estimates are CP’s actual costs of providing track space.

[31] Canada Malting estimates that the average market cost of storing a railcar is $9.37 per car, per day or $12.04 per car, per day on the high end. Canada Malting also estimates the cost of providing 60 feet of track to accommodate a covered hopper car (either $0.88 per day using available track and roadway amortization costs or $6.16 per day using the track replacement cost, which it indicates would not generally be used for this type of analysis). Based on these estimates, Canada Malting submits that the contribution margin CP receives for privately owned railcars stored on its tracks ranges between 1,036% and nearly 18,000%.

[32] Canada Malting submits that the asset use charges for railcars held, staged, or unable to continue under Item 15 are also unreasonable. The amounts charged under Item 15 are the same as those charged under Items 11 and 13. According to Canada Malting, the charges under Item 15 are unreasonable for the same reasons that the charges under Items 11 and 13 are unreasonable.

[33] Canada Malting argues that there is limited use in considering industry practice to assess the reasonability of CP’s Tariff 2 charges because the industry in Canada is comprised mainly of two class 1 rail carriers (CP and CN), both of which have considerable market power and which can mirror one another’s terms and conditions.

[34] Canada Malting also submits that CP’s argument that the reasonableness of asset use charges should be assessed by their effectiveness in discouraging inefficient customer behaviour is problematic because it means there is no upper limit on the amount that CP can charge for extended asset use.

CP

[35] CP submits that there are three flaws with Canada Malting’s analysis: (1) the market benchmarks and cost estimates do not reflect the true cost to CP of providing track space; (2) the market analysis does not accurately reflect the customer’s cost of obtaining storage services from a third party, nor is that service truly “similar” to the service provided by CP; and (3) market and cost analyses are not appropriate for evaluating the reasonableness of asset use charges, as they ignore the very purpose of those charges.

[36] CP submits that Canada Malting’s estimates of the cost of providing track space are inapt because its local serving yards are not parking lots. CP claims that private equipment dwelling in its local serving yards takes up space and impedes its ability to process inbound trains, build outbound trains, and service local facilities. CP submits that the practice also increases service failures and heightens safety risks.

[37] CP argues that storing railcars offsite is different than having railcars in the local serving area. CP points out that the storage costs Canada Malting provided do not account for the cost of transporting private equipment to and from a storage location, noting that the average tariff rate to move an empty railcar from an Alberta origin to an Alberta or Saskatchewan destination is $2,397 one-way.

[38] Finally, CP submits that demurrage charges are designed to promote the efficient use of rail assets by penalizing inefficient customer behaviour; to provide some compensation to CP for the extended use of its assets, even though it is difficult to quantify some impacts, such as those on its network fluidity; and to promote fairness for all of its customers.

[39] CP indicates that railway assets that may be impacted by inefficient handling of railcars include tracks and local serving yards, crews and locomotives, maintenance and inspection. This, in turn, has a negative impact on network fluidity, thus decreasing the efficient movement of railcars across a rail network.

[40] CP argues that its asset use charges are reasonable in light of these objectives. CP argues that asset use charges should be assessed by whether they meet their objectives, which CP submits they do. CP also submits that its asset use charges are comparable with the practices of other class 1 rail carriers.

Analysis and determinations

[41] The Agency finds that Canada Malting’s cost-based approach does not provide an appropriate basis to assess the reasonableness of CP’s demurrage and asset use charges. As the Federal Court of Appeal recognized in Canadian National Railway Company v Canadian Transportation Agency, 2008 FCA 123, demurrage and asset use charges generally have two purposes: to incentivize efficient use of railway assets and to provide some compensation to a railway company for inefficient handling of railcars. Canada Malting’s analysis does not take into account all of CP’s legitimate costs, and the market comparators it uses are not apt in the circumstances. The Agency also finds that it is unlikely that charges established using Canada Malting’s methodology would encourage efficient shipper behaviour. They would therefore not fulfill the other identified purpose of these charges.

Cost Estimates

[42] When a customer sends goods from point A to point B, it sets in motion a highly complex process that involves several types of costs to CP. Canada Malting’s analysis, which relies on track and amortization cost estimates for storing a railcar, fails to adequately capture these costs, such as CP’s fixed or overhead costs and impacts on its network fluidity.

[43] Canada Malting’s estimate of the cost of storing a railcar in a local serving yard is based on the available track and roadway amortization costs for the assumed length of a covered hopper car. The Agency considers it highly unlikely that 60 feet of track space would be sufficient to effectively accommodate a railcar in a serving yard, given that railcars stored in a serving yard can impede access to other railcars. Moving a stored railcar between tracks to access other railcars would also entail effort and costs. These costs are not accounted for in Canada Malting’s track amortization analysis.

[44] The market estimates that Canada Malting uses to compare offsite railcar storage facilities to the costs for railcar storage in local serving yards do not account for the cost of transporting railcars to and from the storage location. Also, it is not surprising that offsite railcar storage fees and demurrage charges bear little resemblance to one another, given the transportation costs and inconvenience of storing railcars at an offsite location compared to the convenience to customers of storing their railcars in a local serving yard that is intended to facilitate the movement of traffic.

[45] Canada Malting’s estimate does not account for the costs of equipment and repairs for the track in question which also require management and oversight for planning, implementation and safety. These and other overhead costs would increase CP’s direct costs, and lead to an increase in total variable costs. Moreover, no contribution to fixed costs has been applied.

[46] Canada Malting’s estimate also does not account for costs associated with network inefficiency. While there are challenges in quantifying these costs, and CP’s own evidence about the impacts was largely qualitative in nature, the costs are real and cannot be ignored. Models that attempt to quantify the costs of network inefficiency do exist, but Canada Malting’s costing approach did not address them, or recognize that these costs may vary depending upon how busy the rail network is and the number of railcars dwelling in the local serving yard.

[47] Assessing demurrage charges based solely on the costs arising from congestion in a local serving yard may not be enough to deter a customer from parking its railcars in that yard if those costs are less than the costs to park the railcars elsewhere. A reasonable demurrage rate must also take into account impacts on the rest of CP’s network.

[48] Because Canada Malting’s approach does not take into account these additional costs, including the cost associated with network inefficiency, the Agency finds that Canada Malting’s costing methodology does not provide a reliable basis upon which to assess the reasonableness of demurrage charges.

[49] The Agency must also consider industry practice in assessing the reasonableness of the demurrage charges. Although Canada Malting submits that this factor should be given little weight because there are only two major class 1 rail carriers in Canada and the others have very limited operations in Canada, the Agency believes that there is no reason to give less weight to this factor than to the others set out in subsection 120.1(3) of the CTA. While the Canadian railway industry is largely dominated by CN and CP, section 6 of the CTA also lists BNSF Railway Company, CSX Transportation, Inc., Norfolk Southern Railway Company and Union Pacific Railroad Company as class 1 rail carriers, providing a broader range for comparing demurrage charges. Competition between railways would not necessarily lead to lower demurrage charges, given that asset use charges and freight rates serve entirely different purposes. In a competitive environment, factors such as competitive freight rates, service frequency, and reliability influence a customer’s choice of railway. As previously discussed, asset use charges are set to achieve other objectives.

[50] The following table, which was submitted by CP, shows asset use charges for class 1 rail carriers at the time CP filed its answer.

Table: Demurrage / Asset-Use Rates (perday, local currency)

Equipment Type CP CN NS UP CSXT BNSF
Railway-Supplied $80 - $200 $130 - $200 $150 - $250 $100 - $350 $150 - $250 $75 - $150
Private Non-hazardous $70 - $155 $75 - $130 $60 $145 $75 $150
Hazardous $225 $170 - $220 $100 $250 $150 - $250 Rates above + $75
Toxic Inhalation Hazard $2000 $2000 - $2500 $2000 NA $1500 $1500 - $2500

[51] The amounts outlined above suggest that CP’s charges are in line with the industry practice of all class 1 rail carriers in Canada, and indeed within North America. Taking into account the amounts charged by other class 1 rail carriers, the Agency finds that CP’s charges fall within a range that is generally consistent with industry practice.

[52] The Agency also believes that because a primary purpose of demurrage is to incentivize efficient customer behaviour, demurrage charges can be in excess of costs without necessarily being unreasonable, provided the associated terms and conditions are such that a customer has a reasonable opportunity to minimize the amount of demurrage it pays.

[53] In light of the above, the Agency finds that Canada Malting has not demonstrated that the amounts set by CP for its asset use charges in Tariff 2 are unreasonable.

Terms and conditions associated with asset use charges are also unreasonable

Positions of the parties

Canada Malting

[54] Canada Malting argues that the terms and conditions related to asset use charges are unreasonable because they allow CP to collect fees even when a customer is not at fault, contrary to long-recognized principles of rail demurrage. In particular, Canada Malting argues that they allow CP to charge a customer for delays caused by a third party and for delays caused by CP.

[55] Canada Malting submits that demurrage should only be chargeable to the party responsible for a delay, and that charging a customer for delays outside of its reasonable control does not encourage efficiency. It argues that CP, a class 1 rail carrier that wields significant market power, is in a better position than its customers to influence third-party supply chain participants, because CP can negotiate with and offer more effective financial incentives to those third parties.

[56] In the case of delays caused by CP, Canada Malting raises the following issues with Tariff 2:

  • Items 11 and 13 provide no relief for the “ripple effect” caused when CP fails to deliver the railcars that were ordered and the customer must delay ordering in additional railcars until that service exception is corrected. Tariff 2 only provides demurrage relief for railcars CP failed to deliver and not for subsequent railcars that the customer is unable to order because it is awaiting delivery of railcars that should have arrived on a prior service day.
  • Items 11 and 13 do not provide demurrage relief for service failures lasting more than one month. Canada Malting submits that when a railcar is subject to a service exception and CP does not deliver the car over the course of a month, Canada Malting receives zero credits for the service exception.
  • Items 11 and 13 purport to allow CP to collect demurrage on railcars that CP neglected to deliver to Order by Quantity facilities, such as the Calgary plant. Canada Malting submits that it is charged demurrage because CP delivers railcars that arrive more recently at the local serving yard instead of cars that arrived earlier. The railcars that remain in the local serving yard continue to accrue demurrage. It further claims that CP sometimes moves cars from Canada Malting’s own storage tracks to its loading or unloading track instead of delivering railcars from the serving yard, where they continue to accrue demurrage. Canada Malting submits that it incurs demurrage that it cannot avoid as a result of these practices.
  • Items 11 and 13 do not prevent CP from charging an extra debit as if a railcar remains in a local serving yard when it delivers the railcar to a customer facility after midnight.
  • Items 11 and 13 purport to impose demurrage on days when CP does not provide rail service. Canada Malting points out that CP unilaterally decided to provide rail service to its facilities only on certain days of the week, yet charges demurrage during non-service days.
  • Items 11 and 13 provide zero free days for private cars destined to Closed Gate facilities, such as the Thunder Bay plant. Canada Malting claims that, in some cases, customers have “mere hours” to order in the railcars for their facilities because they must order the cars on the same day that they are constructively placed in CP’s local serving yard in order to avoid demurrage charges.
  • Item 15 permits CP to assess asset use fees at its sole discretion for railcars held, staged, or unable to continue, but it does not define or explain what constitutes holding or staging a railcar and it does not state that Item 15 charges will not be levied when CP is responsible for the hold.

[57] Canada Malting submits that to correct these issues, Tariff 2’s approach to asset use relief should state that:

  • CP’s customers are only assessed asset use fees when they are at fault;
  • demurrage credits are allocated in real time rather than reconciled at the end of a statement period;
  • in the event of a service exception, and so long as the facility has the capacity to accept the railcar(s), demurrage on railcars that CP fails to deliver ceases until the railcars are actually placed at the customer’s facility; and
  • every other railcar in the local serving yard that is under constructive placement or pending constructive placement at the time of a service exception receives a number of credits equal to the number of days until CP next provides service to the facility.

CP

[58] CP submits that Tariff 2 appropriately assigns fault for extended asset use by assigning fault to customers except in situations when CP causes the delay. It argues that this is true even when the delay is caused by a third party, for the following reasons:

  • CP is often unable to determine that a third party caused a delay and is only able to demonstrate that it was not at fault.
  • CP’s customers have a contractual relationship with the third parties and can use this relationship to incentivize efficient behaviour by incorporating appropriate terms into contracts.
  • CP’s customers rent CP’s assets and are therefore properly liable for any extended use of those assets.

[59] Concerning the “ripple effect” resulting from a service exception, CP argues that its demurrage relief system is more consistent than the one proposed by Canada Malting “…in matching asset use to what would have resulted had the service exception not occurred.”

[60] CP argues that the issue concerning service exceptions lasting more than a month is not a complaint about the reasonableness of Tariff 2 within the authority of the Agency under section 120.1 of the CTA, but rather an allegation that CP has failed to comply with the terms of Tariff 2, which should be addressed in a court of law. CP also argues that, in the event of a service exception, it is incumbent on the customer to avoid congestion, reset the pipeline, and support efficient asset use. CP’s demurrage relief methodology accordingly “…applies within the one-month statement period, unless there are insufficient railcars on the statement to capture the number of railcars not placed as a result of a service exception.” In those instances, CP claims that its tracking carries forward to the next statement period.

[61] CP submits that demurrage charges are not affected by whether CP delivers older or more recently arrived railcars. Asset use time ends on whichever railcars CP delivers and continues on whichever railcars remain in the local serving yard. Delivery of older arrived railcars versus newly arrived railcars impacts which railcars incur demurrage but not the total amount of demurrage charged.

[62] CP explains that, if it moves railcars from a customer storage track instead of delivering railcars that are in the local serving yard, this is treated as a local service exception and relief would be applied as long as the railcars in the local serving yard were ordered prior to the deadline for that service day. If customers have not done so, it is not treated as a service exception.

[63] CP disputes that, at the time Canada Malting filed this application, Tariff 2 failed to provide relief when railcars were delivered after midnight. For Open Gate and Order by Quantity facilities, Tariff 2 automatically assigned an extra credit to railway-supplied loads, private empties, and private loads, which was intended to offset the risk that a customer would incur an incremental debit because railcars were delivered after midnight. For Closed Gate facilities, an order placement (ORPL) code was applied under Tariff 2 to a railcar that the customer ordered. Asset use was suppressed to ensure that there was no risk of an incremental debit accruing as a result of CP delivering the railcars after midnight. Under the new version of Tariff 2, a railcar delivered after midnight to any type of facility (including Closed Gate facilities) receives a credit, but credits are no longer applied automatically to all railcars destined to Open Gate and Order by Quantity facilities.

[64] CP admits that there are examples in its records in which railcars were placed at the Thunder Bay plant after midnight but did not have an ORPL code applied. CP states that this situation typically arises in one of three ways:

  • oversupply, where the railcars would have incurred asset use charges in the local serving yard if they had not been brought into the facility;
  • railcar substitution, where CP delivers a railcar other than the railcar that the customer ordered and the ORPL would remain on the railcar originally requested in the yard, suppressing asset use on that railcar; or
  • railcars were requested via a non-standard method (i.e., telephone).

[65] In these scenarios, CP explains, it is possible for an incremental debit to accrue due to delivery after midnight; however, the incremental debit would have either occurred in the local serving yard regardless, or it is the result of Canada Malting not following established ordering processes.

[66] CP submits that only charging demurrage on service days is unreasonable and unworkable given that:

  • transparent service schedules and railcar tracking technology are available to customers to make these charges avoidable;
  • CP’s assets are used by the customer for the entire period; and
  • CP suppresses all asset use when it misses placing railcars on a scheduled service day.

Analysis and determinations

[67] Canada Malting claims that many specific terms and conditions in Tariff 2 are unreasonable, which the Agency has grouped into the following issues:

  1. Asset use charges under Items 11, 13 and 15 when a customer is not at fault;
  2. Ripple effects caused by CP service exceptions;
  3. Service exceptions that last longer than a month;
  4. Demurrage on railcars CP neglected to deliver to Order by Quantity facilities;
  5. Extra debit for railcars delivered after midnight;
  6. Demurrage charges on non-service days;
  7. Zero free days for private railcars destined to Closed Gate facilities; and
  8. Railcars held, staged or unable to continue.

1. Asset use charges under Items 11, 13 and 15 when a customer is not at fault

[68] As previously discussed, extended asset use clearly imposes costs on rail carriers, although it may be challenging to fully quantify those costs. Under Canadian law, as established by Canadian National Railway Company v Neptune Bulk Terminals (Canada) Ltd., 2006 BCSC 1073, a rail carrier can only enforce its tariff when it enters into a contract that incorporates the terms of the tariff. Consequently, CP cannot charge a third party for extended use of its assets if it does not have a contract of carriage with that party as either a shipper or receiver.

[69] By asking that CP be precluded from charging its customers for third party delays, Canada Malting is arguing that CP should forego reimbursement of its costs, even though the costs arise because a shipper sent railway assets to a third party that in turn mismanaged them. This is at odds with the cost recovery objective of asset use charges. It would remove any incentive for either a shipper or a third party to correct mismanagement of railway assets, by delaying additional traffic that the receiver does not have the capacity to accept. There would also be no incentive for a shipper to use its commercial relationship to encourage the third party to alter its behaviour.

[70] The Agency accepts that in many situations where a shipper incurs demurrage as a result of a third party (unless there is an event of force majeure, which is already addressed in Tariff 2), the shipper has a commercial relationship with that third party and, thus, has some leverage (e.g., to negotiate an enforceable clause in a contract that requires reimbursement) to encourage that third party to operate efficiently. In other situations, even in the absence of a contractual relationship, shippers may have some ability to avoid incurring demurrage (e.g., the removal of protestors or trespassers from the tracks on the shipper’s property).

[71] By claiming that CP can incentivize third parties without charging its customers for the extended asset use, Canada Malting is essentially arguing that CP should not only forego charging for its costs, but that it should also incur additional expenses to incentivize the third party to efficiently use railway assets that the customer sends to it. It is difficult to accept this position given that, in many instances, the shipper—not CP—has the commercial relationship or leverage with the third party.

[72] With respect to industry practice, CP’s approach to fault appears to be consistent with CN’s. Canada Malting claims that CP’s approach is not in line with industry practice in the U.S., where by law carriers can recover demurrage and asset use charges from third parties with whom they do not have a contractual relationship. However, Canada Malting’s claim that the U.S. Surface Transportation Board (STB) rejected CP’s asset use approach appears to be overstated. The STB indicated that demurrage charges have to be assessed on a case-by-case basis. It has not assessed CP’s demurrage policy. Regardless, in Canada, CP can only charge a party with which it has a contract of carriage. Therefore, consistent industry practice across Canada and the U.S. may not be possible on this issue.

[73] In light of the above, the Agency finds that charging customers asset use fees for delays caused by third parties is consistent with the objective of the charges, to incentivize the efficient use of railway assets, and is therefore not an unreasonable term and condition.

[74] Conversely, the Agency is of the view that assessing asset use charges to customers for reasons attributable to the rail carrier is unreasonable, allowing the carrier to recover costs that it incurred due to its own actions. This practice also creates no incentive to encourage efficient customer behaviour in these circumstances.

[75] At the time Canada Malting filed its application, Tariff 2 did not expressly state that asset use charges would not be assessed to a customer when CP was the cause of extended asset use. The Agency notes, however, that Item 10 now states that “when extended use of railway supplied cars or CP track occurs for reasons not attributable to CP, asset use fees may apply”. While this is an improvement over the previous version of the Tariff, the Agency is of the view that Tariff 2 needs to be clearer and therefore directs CP to propose wording, for the Agency’s approval, indicating that asset use charges will not be assessed when the extended asset use is for reasons attributable to CP.

[76] The Agency notes that the evidence suggests that Canada Malting has made inefficient use of railway assets. For example, Canada Malting filed evidence showing that it regularly elected against ordering into its Calgary plant the number of railcars that it had the capacity to accept. It therefore appears to have incurred some self-imposed demurrage, which undermines its position that CP’s asset use charges are well in excess of what is needed to incentivize efficient use of railway assets. It also suggests that the amounts of demurrage Canada Malting has been charged are due, at least in part, to the significant number of instances of demurrage, rather than the size of the charges themselves.

[77] The evidence also suggests that CP is not delivering a significant proportion of railcars on time. Inconsistent service from CP, combined with terms and conditions that do not always provide appropriate relief for CP service exceptions, also partially explain why Canada Malting has been charged so much for extended asset use.

[78] Notwithstanding the above, the Agency finds that Tariff 2 generally explains responsibility for extended asset use in an unclear manner. Namely, Item 16, which outlines asset use responsibility for demurrage and holding charges, states that in Canada, the party responsible for asset use fees is the “origin loader” or the “destination unloader” or “a third party as mutually agreed in writing”. It does not specify when the origin loader versus the destination unloader is responsible. This type of ambiguity is unnecessary and makes Tariff 2 less clear than it should be.

[79] In comparison, the Agency notes that CN’s Optional Services – Carload CN 9000 – AC (S8) Effective October 1, 2019 (CN’s Tariff 9000) provides greater clarity on asset use responsibility than does CP’s Tariff 2. CN’s Tariff 9000 indicates that asset use charges will be assessed to:

  • shippers for railcars to be loaded;
  • the consignee for railcars to be unloaded or for railcars en route; or
  • any other third party mutually agreed to in writing with CN to accept responsibility for all asset use charges.

[80] CN’s Tariff 9000 adds that in circumstances where the Canadian consignee is misidentified in the shipping documents or the consignee is located outside Canada or the U.S., the shipper will bear the responsibility for payment of the asset use fees.

[81] The Agency finds that the lack of clarity in Tariff 2 concerning asset use responsibility is unreasonable. The Agency directs CP to propose wording, for the Agency’s approval, to update Item 16 in a manner similar to CN’s Tariff 9000.

[82] The changes identified above are necessary to ensure that CP’s tariff addresses fault in a reasonable way.

2. Ripple effects caused by CP service exceptions

[83] In service exception situations, where CP has not delivered the railcars that a customer has ordered, the evidence before the Agency suggests that Tariff 2 does not provide any relief for the ripple effect for Closed Gate facilities, such as the Thunder Bay plant, and only partially provides relief for the ripple effect at Open Gate or Order by Quantity facilities, such as the Calgary plant.

[84] Once a railcar is constructively placed in a local serving yard, the only way that Closed Gate facilities can suppress asset use is to order the railcar. At the time Canada Malting filed its application, Tariff 2 indicated that railcars destined for those facilities would receive credits to suppress asset use from the time they were ordered until the time they were actually placed. Given that customers have limited capacity to accept railcars, they may not be able to order additional railcars if they are still awaiting receipt of railcars ordered for a prior service day. Since asset use is only suppressed on a railcar after it is ordered, it seems that Tariff 2 does not always provide demurrage relief to Closed Gate facilities when the customer is unable to order a railcar for reasons attributable to CP.

[85] Whether Open Gate and Order by Quantity facilities are provided demurrage relief for the ripple effect is less clear. The tariff provision is brief and CP’s submissions to the Agency were unclear on this issue.

[86] At the time Canada Malting filed its application, Tariff 2 indicated that if CP missed placing railcars during scheduled service, CP would add incremental credits to those railcars from the date they were intended to be placed until the time that they were actually placed. Asset use would be suppressed on the railcar(s) last added to the pool of railcars available in the local serving yard at the time of the service exception.

[87] This approach appears to address the ripple effect on railcars that are already in a local serving yard at the time of the service exception. The customer should, generally speaking, pay no more demurrage than it would have if no service exception had occurred.

[88] However, it appears that Tariff 2 does not address the ripple effects on railcars that arrive in the local serving yard after a service exception has occurred. In such circumstances, the customer may be unable to order in the recently arrived railcar because they are awaiting receipt of a railcar that should have been delivered on a prior service day. The recently arrived railcar would not form part of the pool of railcars that were in the serving yard at the time of the service exception and, accordingly, would not appear to be entitled to demurrage relief.

[89] The Agency finds that this is unreasonable.

[90] Although Tariff 2 was amended since Canada Malting filed its application, the evidence is either contradictory or is unclear about what CP does in practice. The Agency therefore directs CP to explain the mechanics of the amendments it made to Tariff 2 that suggest that demurrage relief is now calculated in the same way regardless of the gate status of the facility. Further, the Agency directs CP to explain whether demurrage relief ceases after a specific amount of time even if CP has not corrected the service exception.

[91] The Agency also directs CP to propose wording, for the Agency’s approval, clearly stating that, in the event of a service exception, demurrage relief will be such that CP customers will not incur any more demurrage than they would have had if there had been no service exception, including for any railcars that a customer is unable to order because they are still awaiting receipt of railcars that CP failed to deliver on a prior service day.

3. Service exceptions longer than a month

[92] Canada Malting claims that it receives zero credits when a service exception extends beyond a calendar month. CP argues that this issue is outside of the Agency’s authority under section 120.1 of the CTA. The Agency disagrees.

[93] Given that the amount of demurrage relief a customer is owed is tied directly to the number of credits it receives, and the version of Item 10 in force at the time that Canada Malting brought its application indicates that credits are not transferable beyond a calendar month, the Agency finds that CP’s practice of letting credits expire or cease to accumulate after a certain amount of time is a term and condition of Tariff 2 subject to review under section 120.1 of the CTA.

[94] The latest version of Tariff 2 specifies, “Relief applied past the end of a calendar month is carried over to the following month’s invoice”, which appears to address the issue of credits carrying over from one month to the next. However, it is unclear for how long credits accumulate under the updated Tariff 2. The evidence before the Agency suggests that it is more likely than not that CP does not provide relief for service exceptions extending beyond a month. The Agency therefore finds that the updates to Tariff 2 do not resolve the issue raised in Canada Malting’s application and that Tariff 2 is unreasonable insofar as it does not clearly provide relief for service exceptions that extend beyond a month.

[95] The Agency also notes that CP’s argument that customers have an obligation to help recover from a CP service exception appears to suggest that the worse the service exception, the more a customer will be responsible for helping CP to recover. The Agency finds that it is unreasonable for CP to assess demurrage charges on the railcars it fails to deliver until it has rectified the service exception.

[96] The Agency directs CP to ensure that the wording it is required to propose under issue 2 above—clearly stating that CP customers will not incur any more demurrage than they would have if there had been no service exception—also takes into account situations where service exceptions extend beyond the calendar month. Customers should not incur more demurrage as a result of the timing or the length of a service exception.

4. Demurrage on railcars CP neglected to deliver to Order by Quantity facilities

[97] The Agency finds that Canada Malting has not demonstrated that delivering recently arrived railcars to Order by Quantity facilities, instead of railcars that arrived earlier in local serving yards, is an unreasonable practice. The order in which railcars are delivered generally does not affect the overall amount of demurrage charged. If CP delivers the newly arrived railcars, demurrage continues to accrue on the older railcars, but stops (or does not accrue at all) on the newly arrived railcar. If CP delivers the older railcars, then demurrage stops on those railcars but continues (or begins) on the newly arrived railcars.

[98] While this finding is not true in situations where CP does not provide demurrage relief beyond the calendar month when a service exception has occurred, the Agency has already found this practice to be an unreasonable term and condition. Once credits no longer expire, no further remedy will be required.

[99] The Agency accordingly finds that delivering newly arrived railcars instead of older arrived railcars is not an unreasonable term and condition, as long as demurrage relief is provided until any service exception is corrected.

[100] Canada Malting’s issue with CP moving a railcar from a customer storage track instead of delivering a railcar from the local serving yard is mostly resolved. The Agency is satisfied that CP treats these situations as service exceptions and provides demurrage relief for the railcar that remains in the local serving yard. The Agency also finds that CP does not charge additional switching fees, contrary to Canada Malting’s submissions. However, Tariff 2 does not explain these practices, which the Agency finds to be unreasonable.

[101] The Agency directs CP to propose wording, for the Agency’s approval, stating that when CP moves a railcar from a customer storage track instead of delivering a railcar from the local serving yard, CP will treat this situation as a service exception and that demurrage relief will be provided for the railcar that remains in the local serving yard. The Agency also directs CP to propose wording, for the Agency’s approval, to amend Tariff 2 to indicate that the railcar that is moved from the customer storage track will not incur additional switching fees.

5. Extra debit for railcars delivered after midnight

[102] Canada Malting has not demonstrated that Open Gate and Order by Quantity facilities pay more demurrage because Tariff 2 does not prevent CP from allocating a debit to a railcar as if it was still in the local serving yard when it is delivered to a facility after midnight.

[103] Changes made to Tariff 2 during the course of this proceeding affected how credits are allocated to offset debits that might otherwise accrue when railcars are delivered to Open Gate and Order by Quantity facilities after midnight. At the time Canada Malting filed its application, railcars destined to these facilities automatically received an extra credit to offset the risk that a customer would incur demurrage debits if the railcar was delivered after midnight. Under the new version of Tariff 2, a railcar delivered after midnight to any type of facility (including Closed Gate facilities) receives a credit, but credits are no longer applied automatically to all railcars destined to Open Gate and Order by Quantity facilities.

[104] The Agency is satisfied that, while credits are no longer applied automatically to all railcars delivered to Open Gate and Order by Quantity facilities, they are applied in a manner that ensures that a customer does not pay demurrage when railcars are delivered to those facilities after midnight.

[105] With respect to Closed Gate facilities, at the time Canada Malting filed its application, an ORPL code would be applied when one of these facilities ordered in a railcar. The ORPL code immediately suppressed asset use so the customer would, generally speaking, not incur additional demurrage if railcars were delivered after midnight.

[106] However, the evidence before the Agency indicates that there were some instances in which railcars delivered to Closed Gate facilities after midnight did not have an ORPL code to suppress asset use. These included instances of railcar oversupply, railcar substitution, and railcars ordered by non-standard methods.

[107] In the case of oversupply, CP indicates that there are instances where there are too many railcars in the local serving yard and some must be brought to the customer, even though they were not ordered. These railcars, CP advises, continue to incur demurrage even though they have been delivered to the customers. The Agency finds that this is unreasonable. If a railcar is delivered to a customer for a purpose unrelated to the customer’s needs, such as to relieve congestion, it should not generate demurrage as if it were still in the local serving yard.

[108] For railcar substitution, CP advises that there are situations in which it delivers a different railcar than the one the customer ordered. CP suppresses asset use on the railcar that the customer ordered, which remains in the local serving yard, while asset use continues on the railcar that CP delivered. This practice is difficult to justify. CP has not done what the customer asked it to do, and the practice of allocating debits to a railcar already delivered to the customer’s facility is unnecessarily complicated and likely to generate confusion for both CP and the customer. The Agency accordingly finds that it is an unreasonable term and condition.

[109] To address demurrage issues related to delivery after midnight of railcars that the customer has not ordered to a Closed Gate facility, the Agency directs CP to propose wording, for the Agency’s approval, indicating that, in the situations described above:

  • any railcar that the customer did not order will receive a credit if it is placed at the facility after the scheduled local service switch; and
  • any railcar that the customer ordered which remains in the local serving yard will be treated as a service exception such that the railcar accrues credits until it is delivered to the facility.

[110] For railcars ordered by non-standard methods, CP explains that the railcar can continue accruing demurrage even though the customer has taken possession of the railcar. The debits the customer incurs appear to be a penalty for ordering railcars by non-standard methods, rather than actual demurrage. While the Agency is not opposed to penalties for customers not following required processes, the Agency finds that it is unreasonable that these penalties are not explained in Tariff 2. The Agency directs CP to propose wording, for the Agency’s approval, which clarifies the purpose of the penalty in Tariff 2, so that it is clear that it applies even if customers have already taken possession of a car delivered after midnight.

6. Demurrage charges on non-service days

[111] Canada Malting argues that CP should only be permitted to charge demurrage on the days it provides service to the customer. If this argument was accepted, then a customer that receives railway service on 6 days in a 14-day period would expect to only pay demurrage for 6 of those 14 days, whether it be for railway-supplied railcars or privately owned railcars. The Agency finds that such an approach would not encourage efficient use of railway assets.

[112] The Agency finds that daily demurrage charges encourage the customer to accept railcars on the first service day that they are made available. If a customer can store excess railcars at CP’s local serving yard and pay demurrage charges only on service days, the customer would have little incentive to:

  • use railway assets more efficiently;
  • add capacity at its facility to store more railcars, particularly if the customer only needs additional storage for periods of high fluctuating demand;
  • pay for long-term railcar storage along with the cost to transport the railcars to and from the long-term storage location; or
  • downsize the size of its private railcar fleet if the fleet exceeds what the customer can realistically accommodate at its facility.

[113] In light of the above, the Agency finds that it is not unreasonable for CP to charge demurrage on non-service days.

7. Zero free days for private railcars destined to Closed Gate facilities

[114] Canada Malting submits that Tariff 2 is unreasonable because Item 13 provides customers with no free days for privately owned railcars destined to Closed Gate facilities. To avoid demurrage charges, customers must order these railcars on the same day that they are constructively placed. According to Canada Malting, this provides it with mere hours in some cases to order in those railcars.

[115] This issue appears to be moot, as the revised version of Tariff 2 indicates that asset use for both railway-supplied and privately owned railcars begins 24 hours after constructive placement of the railcars at the local serving yard, regardless of the gate status of the facility. The Agency nevertheless finds it appropriate to rule on this issue because CP could change Tariff 2 at any time to revert to the previous text.

[116] Contrary to Canada Malting’s position, the tariff in effect at the time that it filed its application appears to have provided customers with a reasonable amount of time to order in railcars before they began accruing demurrage. CP constructively placed railcars on service days prior to the cut-off time for a facility to request railcars. Once railcars were constructively placed, customers had until 11:59 pm that day to order them. If the customer did so, credits began to accrue, which offset the debits the railcars also accrued while in CP’s local serving yard. The railcars would be delivered on the next service day, at which point both debits and credits would stop accruing.

[117] Canada Malting’s Thunder Bay plant receives service on Monday, Wednesday, and Friday and has an order cut-off time of 11:00 am on service days for railcars to be delivered the same day. Assuming a railcar arrived at CP’s local serving yard at 10:00 am. on Monday and was immediately constructively placed, Canada Malting would have until 11:59 pm that night to order the railcar and would have until Wednesday to actually accept the railcar. It would therefore have over 12 hours to order the railcar and 2 days to receive the railcar without incurring demurrage charges on the railcar.

[118] If a railcar arrived at the local serving yard before the next service day, Canada Malting would have up until 11:59 pm on the next service day to order in the railcar without incurring demurrage charges.

[119] CP customers can also avail themselves of CP Customer Station, an online portal that indicates the progress of inbound railcars. In many instances, this tool provides a customer with at least a few days while the railcar is in transit to plan its operations even before railcars arrive at the local serving yard. Despite Canada Malting’s claim that it can be risky to order a railcar in advance of constructive placement due to CP’s unpredictable service, the evidence shows that, in [REDACTED], Canada Malting ordered [REDACTED] of its inbound traffic prior to constructive placement thereby [REDACTED].

[120] Canada Malting argues that customers, especially Closed Gate facilities, require railcars on very specific days and cannot risk ordering a railcar from the local serving yard unless they know they will receive the railcar when needed. It also claims that that it may not be practical for CP’s customers to order in a railcar after the cut-off time but before 11:59 pm on a service day because they may not be able to accommodate the railcar on the following service day. This suggests that Canada Malting intends to use CP’s local serving yard for storage and wants free credits to lower the associated demurrage bill.

[121] In light of the above, the Agency finds that it is not unreasonable that the previous version of Tariff 2 provided no free days for private railcars destined to Closed Gate facilities.

8. Railcars held, staged, or unable to continue

[122] Canada Malting claims that Tariff 2 is unreasonable because:

  • it does not define what it means to hold or stage a railcar;
  • Item 15 permits CP to assess asset use fees at its sole discretion; and
  • Item 15 does not state that charges will not be levied when CP is responsible for the hold.

[123] Canada Malting has not explained why a customer would be unable to comprehend or would have a different understanding than CP of whether railcars were held or staged. It did not, for example, provide a real or hypothetical example of a situation where a customer would need to argue that a railcar was not actually held or staged. Without any elaboration of its allegation, the Agency finds that Canada Malting has not demonstrated that Tariff 2 is unreasonable because these terms are not defined.

[124] The Agency notes that Tariff 2 has been revised to remove the statement that indicated charges could be levied at CP’s sole discretion and to clarify that charges apply when railcars cannot continue moving for reasons not attributable to CP. The Agency is satisfied that these revisions, together with the Agency’s order to clarify asset use responsibility, appropriately address concerns regarding the terms and conditions associated with holding or staging charges.

2. Are the switching and handling charges and associated terms and conditions in Tariff 2 unreasonable?

[125] Canada Malting’s arguments concerning the switching and handling charges set out in Items 23, 31, 32 and 46 of Tariff 2 fall into the same two general themes as the demurrage charges, which are addressed in turn below.

CP’s switching and handling charges are excessive when considered alongside estimates of CP’s costs

Positions of the parties

Canada Malting

[126] Canada Malting argues that the switching charges imposed by CP are unreasonable because they are excessive. Canada Malting submits that these fees should largely reflect the costs to CP for performing the switch, plus a 20-24% contribution margin to fixed costs. This, Canada Malting submits, is the level at which charges would be set if CP had competition in the market. However, charges under items 23, 31, 32 and 46 are set well above this level. In addition, Canada Malting argues that CP’s switching and handling charges significantly exceed third-party switching benchmarks.

[127] Canada Malting compares CP’s switching and handling charges to data from Commtrex and PFL, shortline railway companies that switch railcars in and out of storage yards for a fee. According to Canada Malting, the fees charged by these companies range from $200.70 to $401.40 per car, with the average switching charge being $289.90 per car. Canada Malting argues that all of CP’s switching charges under Tariff 2 significantly exceed these benchmarks.

[128] In its costs analysis, Canada Malting estimates that CP’s long run variable cost (LRVC)—a costing concept used to calculate and analyze underlying costs for particular railway operations and to assess rates—to perform an additional switch is $286.28 per car. In comparison, under Item 23, CP charges $535 per car when railcars must be moved within a CP yard or moved one way between a CP yard and customer facility. According to Canada Malting, this provides CP with a contribution 87% above its LRVC.

[129] Canada Malting submits that CP’s switching charges are even more excessive when CP combines them with Item 31 and 32 charges. Item 31 is a $110-per-car handling charge that applies when CP must perform an additional switch because CP cannot place railcars at a customer’s facility. Item 32 is a $110-per-car handling charge that CP levies when it cannot pick up railcars at a customer’s facility. According to Canada Malting, CP receives $645 per car when an Item 31 or 32 surcharge is added to an Item 23 switch, which equates to a 125% contribution above CP’s LRVC.

CP

[130] CP explains that the pick-up and delivery of railcars at a customer’s facility is included in its freight rates. Tariff 2 switching and handling charges apply when CP’s local crews and locomotives are used to perform additional services as follows:

  • Item 23 addresses movement of railcars within CP’s local serving yard or between the serving yard and the customer’s facility for a variety of reasons, such as when a railcar cannot be placed at a facility for reasons not attributable to CP (e.g., the facility gate was closed or locked); when railcars have been delivered for loading but are returned empty to the serving yard; or when railcars must be moved to a short-term holding area within CP’s local serving yard to relieve congestion because they have dwelled in the serving yard longer than 96 hours for reasons attributable to the customer.
  • Items 31 and 32 are designed to address the incremental handling, resources and time lost at origin or destination when railcars cannot be placed or picked up as planned for reasons not attributable to CP, such as when there is a lack of space at the customer’s facility or when a customer releases a railcar but it is not ready to be lifted when CP arrives at the facility. They are sometimes combined with other charges.
  • Item 46 governs additional handling when CP cannot continue to move railcars in transit for reasons not attributable to CP (e.g., held by customs, rejected by another railroad or overloaded), and the railcars must be switched out of the way of other traffic.

[131] CP submits that Canada Malting’s cost estimates are unreliable because they do not adequately reflect CP’s costs, and the proposed contribution margin is arbitrary. CP claims that Canada Malting relies on a costing review that is too outdated to be of assistance; the contribution margin used by the Agency for calculating interswitching rates; and a statement from CP that the contribution margin included in the interswitching rates should be a minimum of 25% to provide full cost recovery. It argues that the Agency’s interswitching rates provide no indication of the tariff rates that arise with effective competition.

[132] CP argues that switching fees are determined by market forces, not using the “cost-plus” method proposed by Canada Malting. Given that the Agency must consider industry practice pursuant to subsection 120.1(3) of the CTA, CP submits that its fees are reasonable when compared to those of other class 1 rail carriers, a more appropriate comparator than services provided by shortline railway companies. CP submits that Item 31 and 32 charges are not fees for performing a switching service, but instead are fees it charges for work that it must perform in addition to its regular switching activities. According to CP, the charges also serve as a penalty or incentive for customers to take appropriate corrective action to minimize instances in which this type of additional work is necessary.

Analysis and determinations

[133] As previously discussed, subsection 120.1(3) of the CTA requires the Agency to consider the objective of the charges and their associated terms and conditions, industry practice in setting those charges and any other factor that the Agency considers relevant.

[134] The Agency is of the view that the objectives of demurrage charges—to provide some compensation to a railway company for inefficient handling of railcars and to incentivize efficient use of railway assets—are equally relevant to the switching and handling charges at issue.

[135] Canada Malting again proposes a cost-based approach for assessing the reasonableness of the charges set out in Items 23, 31, 32 and 46 of Tariff 2, arguing that the charges should reflect CP’s costs plus a contribution margin to fixed costs based on an LRVC of 20-24%. It estimates CP’s costs based on the fees charged by two shortline railway companies for switching railcars in and out of storage. However, the Agency is not convinced that the shortline switching services are appropriate comparators for the charges at issue.

[136] Canada Malting’s approach treats the switching and handling activities in isolation, as if they do not involve any additional costs to CP. However, Item 23 switching charges apply where the intended purpose of the activity has been frustrated, and Item 46 charges apply when an issue with a railcar disrupts the flow of other traffic. Both activities result in inefficiencies in CP’s operations, and create additional work for CP beyond the switching activities themselves.

[137] In contrast to the rates set for the charges under Items 23 and 46, Tariff 2 charges are generally lower for activities that CP does not seek to discourage. For example, the charge under Item 21 to move a railcar from one track to another or to a different point on the same track within the customer’s facility is $210. By comparing the rate for this charge with the rates at issue, it is clear that one of the objectives of the switching and handling charges is to discourage inefficient behaviour by CP’s customers, as described above. The Agency accepts that, to encourage the efficient use of rail assets, CP’s fees must be set at a high enough level that customers do not consider them to be a lower-cost alternative to efficiency.

[138] CP has provided the following table in which it compares its switching and handling fees with rates of other North American class 1 rail carriers:

Table: Inter/Intra-Terminal Switch Rates Among Class 1 Rail Carriers

CP CN NSFootnote * UP CSXT BNSF KCS
$535 $610 - $990 $371 - $1,744 $515 - $800 $550 $400 $515 - $745

[139] The fees charged by CP fall within the range of fees charged for similar operations by other class 1 rail carriers. Although Canada Malting argues that this fact alone does not establish that the charges are reasonable because the other railway companies may also have market power over their customers, industry practice is an important factor that the Agency must consider when assessing whether a charge is unreasonable, even if it is generally not considered to be determinative.

[140] The Agency also finds that Canada’s Malting’s reliance on a contribution margin to fixed costs of 20-24% LRVC as part of its “cost-plus” analysis is misplaced. The Agency previously used 20-24% LRVC in determining regulated interswitching rates, based on an assumption that in a competitive environment, rail carriers would charge rates for their services that were generally reflective of their costs. However, interswitching rates are not established with the objective of discouraging interswitching activities.

[141] In light of the above, the Agency finds that Canada Malting has not demonstrated that CP’s switching and handling charges are unreasonable.

Terms and conditions associated with switching and handling charges are unreasonable

Positions of the parties

Canada Malting

[142] According to Canada Malting, Tariff 2 should be amended to clarify that Items 23, 31, 32 and 46 can only be charged when the customer is directly at fault for the additional switching and handling, and to define the concept of “additional handling”.

[143] Canada Malting submits that Items 23, 31, and 32 are vaguely worded and allow CP to levy charges that it and other CP customers cannot avoid. Canada Malting argues that it is unreasonable that there is no statement in these tariff items that a customer must request these services or be at fault for these charges to apply.

[144] In addition, Canada Malting submits that Item 46 is unreasonable because it can also be applied in certain circumstances that are not attributable to the customer, including “a car that must be removed from a train”, “a car set-off at an unplanned location”, and “a car rejected by another railroad at interchange”. Canada Malting also claims that Item 46 requires clarification because it does not define the “additional steps” that CP would need to take to ensure that a railcar is switched out of the way of other traffic.

[145] Canada Malting submits that the approach to fault for switching and handling charges is not consistent with CP’s internal guidance documents, which provide that the charges only apply when the customer is at fault. Canada Malting submits that the approach to fault outlined in CP’s guidance material should be stated explicitly in Tariff 2 in order for it to be reasonable.

[146] Canada Malting also objects to Item 24, which is a $110 charge for “special order requests”, when an Order by Quantity or Open Gate customer orders a specific railcar by car ID in priority over other available railcars. Because CP’s freight rates include one switch to deliver the railcar to the customer’s facility, it submits that there are not necessarily any additional costs associated with CP delivering railcars selected by the customer versus cars that CP selects. Canada Malting argues that CP wants to be paid under Item 24 to conduct a destination switch that it has already been paid to do via the freight rate for the movement of the railcar.

CP

[147] CP points out that Tariff 2 expressly states that switching charges “will be assessed to the party requesting or requiring the service”, and states that the same is true for handling charges. It states that no charges are assessed when the need for switching and handling arises from CP’s actions, only when the customer requested the additional switch or because the additional switch was necessary due to an issue caused by the customer.

[148] CP submits that it is difficult to envision a situation in which Item 31 charges (unable to place) or Item 32 charges (unable to pick up) would not be the fault of the customer. It argues that customers are responsible for providing safe and unimpeded access to their facilities and for ensuring that railcars are properly loaded, unloaded, and secured prior to release.

[149] CP submits that the same is true for Item 46 charges, which apply when a railcar cannot continue in transit and must be switched off of a train for reasons beyond CP’s control.

[150] CP submits that Canada Malting has not provided a single example of a situation where CP has charged or would charge switching or handling fees where it is not reasonable to do so.

[151] CP argues that Item 24 charges serve to deter Open Gate and Order by Quantity facilities from ordering railcars by car ID on a recurring basis. It claims that Open Gate and Order by Quantity facilities have certain advantages over Closed Gate facilities, including order cut-off times that are closer to their service time and more time to receive railcars before demurrage begins to accrue. In contrast, Closed Gate facilities have the ability to pick specific railcars by car IDs.

[152] CP explains that, under the previous version of Tariff 2, when a railcar was ordered by car ID for placement, an ORPL code was applied against the railcar immediately, which suspended asset use. Thus, when an Open Gate or Order by Quantity facility ordered a railcar by car ID, the asset use for that railcar was suspended but it retained the extra credit allotted to all railcars destined to Open Gate and Order by Quantity facilities, which resulted in a net benefit to the customer. Under this system, the Item 24 charge served to dissuade customers from attempting to benefit from the net credit and later cut-off times of an Open Gate or Order by Quantity facility while requesting specific railcars on a recurring basis.

[153] CP also argues that unanticipated requests to “cherry pick” a specific railcar in a shortened time frame requires incremental effort by CP to coordinate and execute. The Item 24 charge is therefore also meant to account for the incremental work effort involved in fulfilling the customer’s request.

[154] For context, CP’s evidence indicates that [REDACTED] of railcars placed at [REDACTED] were invoiced for Item 24 charges over an [REDACTED].

Analysis and determinations

Fault under Items 23, 31, 32 and 46

[155] The Agency agrees with the principle that CP customers should not be assessed switching and handling charges for reasons attributable to CP.

[156] The preambles to Items 23, 31, 32, and 46 in Tariff 2 indicate that the charges “…will be assessed to the party requesting or requiring the service.” Given this wording, a CP customer could “require” additional switching and handling and be assessed charges for reasons attributable to CP. The Agency finds this unreasonable. Although Canada Malting suggests that Tariff 2 should be revised to incorporate further detail from CP’s internal guidance documents, the Agency finds that this proposed solution is unnecessary and would render Tariff 2 unwieldy.

[157] The Agency therefore directs CP to propose wording for the Agency’s approval indicating that charges will not be assessed to customers when the need for additional switching and handling is attributable to CP.

[158] The Agency finds that it is not unreasonable for CP to charge its customers for reasons attributable to a third party, for the same reasons set out earlier in this decision.

[159] The Agency is not convinced by Canada Malting’s arguments that there is a need to define terms used in Item 46. The Agency is of the view that the meaning of this item is reasonably clear as it is currently written.

Special Order Requests under Item 24

[160] The Agency finds that Canada Malting has not demonstrated that Item 24 is unreasonable. The Agency recognizes that selecting one specific railcar rather than a railcar from a pool of railcars will often involve additional work for CP. It is reasonable for CP to recover its costs for this work.

[161] The Agency also finds that it is reasonable for CP to set this charge at a level to discourage Open Gate and Order by Quantity facilities from making special order requests. Facilities with these gate statuses have some advantages over Closed Gate facilities, although these appear to have diminished in the time since Canada Malting filed its application: while all railcars destined to Open Gate and Order by Quantity facilities used to receive an incremental credit automatically, this is no longer the case under the revised version of Tariff 2.

[162] The Agency also recognizes that some Open Gate and Order by Quantity facilities, including Canada Malting’s Calgary plant, must order some railcars by specific car ID, due to the nature of their business. However, the Agency is satisfied, based on the evidence before it, that this situation represents a very small volume of Canada Malting’s traffic and of the overall traffic that CP moves to these types of facilities.

[163] The Agency concludes that it is not unreasonable for CP to design this charge to discourage Open Gate and Order by Quantity facilities from making special order requests while they continue to benefit from other features of their gate status.

3. Is Tariff 2 unreasonable because it does not expressly allow shippers to select their facility service model?

Positions of the parties

Canada Malting

[164] According to Canada Malting, it is unreasonable that Tariff 2 does not permit CP’s customers to select whether they are an Open Gate, Order by Quantity, or Closed Gate facility.

[165] Canada Malting submits that the Order by Quantity gate status of its Calgary plant serves CP’s operational convenience and that if it had been given the choice, it would select Closed Gate status. While far from perfect, Canada Malting claims that Closed Gate status for the Calgary plant would eliminate some of the issues it raises in its application, including:

  • the problem of CP delivering newly arrived railcars instead of older arrivals;
  • receiving no demurrage relief for service exceptions lasting over a month; and
  • having to pay Item 24 charges when it must order in specific barley railcars.

[166] According to Canada Malting, there is little risk of customers selecting the wrong gate status because doing so would result in them paying more demurrage.

CP

[167] CP argues that the determination of gate status is not subject to review under section 120.1 of the CTA because it is not a charge or an associated term or condition under Tariff 2.

[168] CP explains that Tariff 2 does not dictate a facility’s gate status, although the asset use provisions of Tariff 2 operate differently depending on the gate status. CP submits that a facility’s gate status is an “operational” decision and that CP does not unilaterally decide gate status. Rather, it claims that it works with its customer to determine the most appropriate model for the customer’s facility.

[169] According to CP, the most appropriate model for a facility depends on a number of factors, including but not limited to the following:

  • the facility’s predominant ordering requirements (i.e., whether the facility must order specific cars on a recurring basis);
  • the facility’s track capacity and whether CP can effectively monitor that facility’s current and expected capacity;
  • the cut-off time for requesting railcars and facility loading/unloading practices; and
  • customer behaviour regarding pipeline management.

Analysis and determinations

[170] The Agency considers the determination of a customer’s gate status to be a term and condition within the meaning of section 120.1 of the CTA because gate status governs a customer’s charges and obligations under Tariff 2. That said, the Agency finds that Canada Malting has not demonstrated that Tariff 2 is unreasonable because it does not allow shippers to unilaterally choose the gate status of their facility.

[171] The gate status of a customer’s facility has the potential to impact not just that individual customer, but also the efficiency of operations in CP’s local serving yard and CP’s ability to serve other customers that also rely on that yard. Allowing a customer to unilaterally make decisions that can potentially impact CP’s ability to meet its level of service obligations to other customers is unreasonable.

[172] Although Canada Malting argues that a customer is in the best position to select the best gate status for their facility, the customer may need time to determine that it is paying more demurrage than it would under a different model. Conversely, the negative effects of the wrong gate status for a facility would likely be felt quite quickly in the local serving yard, if it resulted in more railcars congesting the yard.

[173] Lastly, Canada Malting has not demonstrated that CP unilaterally imposes a facility model on its customers. In fact, the evidence shows that CP attempted to negotiate the gate status of Canada Malting’s Calgary plant, indicating that several operational issues at the Calgary plant would have to be addressed before CP could grant Canada Malting’s request to designate that plant as a Closed Gate facility. Based on this, the Agency concludes that the Calgary plant remains an Order by Quantity facility because Canada Malting has not addressed those operational issues.

[174] In light of the above, the Agency finds that it is reasonable that CP customers cannot unilaterally select the gate status of their facility.

4. Is the 25% surcharge on “miscellaneous invoices” in Tariff 2 unreasonable?

[175] Under Item 73, CP invoices its customer for the cost of a fine, fee or other penalty (a penalty) imposed on a railcar by a third party such as a government agency, or when a leaky railcar requires Hazardous and Environmental Support services, and levies an additional 25% surcharge for administration and handling.

Positions of the parties

Canada Malting

[176] Canada Malting argues that the 25% surcharge is unreasonable given that the actions required by CP in order to process a third-party penalty are entirely clerical, and the costs associated with invoicing the customer do not vary depending on the amount of the penalty. Canada Malting estimates that the cost of processing such a penalty ranges from $26-$42 per invoice. It objects that CP did not provide evidence of its costs and argues that if CP needs to recover its costs, then it should do so through court proceedings where it must bring evidence of those costs.

[177] Canada Malting refers to RCAP Leasing Inc. v Martin, 2016 ABQB 542 (RCAP Leasing), a recent Alberta court case which struck down a similar clause on the basis that a percentage-based administration charge that bore no relationship to the actual administrative and clerical work required constituted an unenforceable penalty. Canada Malting argues that the surcharge ought to be a flat amount that reflects the actual cost of the work.

[178] With respect to CP’s claim that the surcharge covers CP’s extension of credit and interest, Canada Malting suggests that this rate on an annualized basis, when combined with the 12% interest rate on overdue amounts under Item 94, is beyond the maximum percentage of interest permissible under the Criminal Code.

CP

[179] CP argues that the 25% surcharge is not intended to cover invoicing costs, but rather represents:

  • the credit extended by CP to pay the penalty for the customer;
  • the work of CP to mitigate the penalty and any resulting regulatory measures;
  • the cost to maintain an external support team to immediately address customer-caused safety issues; and
  • an incentive for customers to take necessary steps to avoid such penalties.

[180] In light of these objectives, CP’s position is that the surcharge, including the fact that it is percentage-based, is reasonable.

Analysis and determinations

[181] The Agency finds that Canada Malting has not demonstrated that the 25% surcharge included under Item 73 is unreasonable.

[182] Very little relevant evidence was filed in relation to this issue. Canada Malting’s arguments are largely hypothetical, including its interest rate calculations which are based on a scenario involving a customer consistently not paying overdue accounts.

[183] With regard to industry practice, the Agency notes that similar charges in CN’s Tariff 9000 not only address CN’s costs, but are also designed to penalize shippers for causing safety issues or for incurring other unforeseen costs. For example, when a penalty is imposed by customs, Items 8000 and 8020 of Tariff 9000 impose flat fees of $1000 and $2500 per railcar respectively, in addition to the penalty amount, asset use fees and switching fees. Under Item 14000 of Tariff 9000, the shipper must cover the costs associated with unsafe, overloaded or improperly loaded railcars and pay a flat fee of $10,000 per occurrence plus switching and asset use fees. Shippers must indemnify CN for any loss, damage or injury that results from railcar leaks under Item 14300 of Tariff 9000 and Item 15000 imposes a charge of $15,000 per railcar for leaks involving hazardous materials.

[184] Although CN’s punitive charges are based on a flat rate, this is not evidence that CP’s percentage-based approach is unreasonable. Canada Malting suggests that the surcharge ought to be a flat amount that reflects the actual cost of CP’s work, but has not explained how its cost-based approach would encourage a customer to avoid situations which attract Item 73 charges.

[185] Given that one of the clear objectives of the 25% surcharge is to act as a penalty or disincentive for a shipper, the Agency finds that Item 73 can be distinguished from the surcharge struck down in RCAP Leasing.

[186] Accordingly, the Agency finds that the 25% surcharge under Item 73 is not unreasonable.

5. Should the Agency use section 26 of the CTA to order CP to refrain from collecting unreasonable charges?

[187] Section 26 of the CTA states:

The Agency may require a person to do or refrain from doing anything that the person is or may be required to do or is prohibited from doing under any Act of Parliament that is administered in whole or in part by the Agency.

Positions of the parties

Canada Malting

[188] Canada Malting argues that section 120.1 obligates carriers not to impose tariffs that are unreasonable, and that CP is in violation of the CTA by imposing Tariff 2. It asks the Agency to make an order under section 26 of the CTA requiring CP to refrain from collecting charges under tariff items, or any other charges of the same nature, if the Agency determines that the tariff provisions underlying those charges are unreasonable. It cites Canadian Pacific Railway Company v Canexus Chemicals Canada, LP, 2015 FCA 283 (Canexus) as precedent for this request, given that the Agency made a similar order in that case.

CP

[189] CP argues that the Agency’s remedies to address an unreasonable tariff item are set out in subsection 120.1(1) and should be confined to those remedies alone. In particular, if the Agency finds that the charges, terms or conditions in CP’s tariff are unreasonable, it may establish new charges or terms and conditions, which CP is then obligated to implement on the basis of subsection 120.1(5). In CP’s view, granting Canada Malting’s request would amount to an order prohibiting CP from enforcing its contractual rights, which would be problematic for CP, given that Canada Malting has failed to make payments on invoices dating back to 2017 and the parties are actively involved in litigation in Alberta with respect to these defaults.

Analysis and determinations

[190] As the Federal Court of Appeal recognized in Lukacs v Canada (Transportation Agency) 2016 FCA 202, section 26 of the CTA provides the Agency with “broad powers to require a person to comply with the Act”. [Agency’s emphasis on “to comply with the Act”]

[191] Section 120.1 of the CTA allows shippers to challenge a tariff charge, or associated terms and conditions that they consider to be unreasonable. However, there is no provision in the CTA that expressly prohibits a railway company from imposing unreasonable charges or terms, or that expressly requires a railway company to impose only reasonable charges or terms and conditions. 

[192] The Agency's authority to respond to a complaint under section 120.1 of the CTA is also set out in that section: the Agency can, by order for up to one year, establish tariff charges or associated terms and conditions that are commercially fair and reasonable to the shippers who are subject to them as well as to the railway company that issued the tariff in which they are contained. Under subsections 120.1(5) and (6), the railway company must vary its tariff without delay to reflect the Agency's order, and it cannot vary the charges or associated terms and conditions established by the Agency until the order expires.  

[193] The Agency finds that the adjudication process set out in section 120.1 of the CTA and the remedies it provides are sufficient to address the issues identified with CP's tariff.

6. Should the Agency award costs to either party?

Positions of the parties

Canada Malting

[194] Canada Malting asks the Agency to award the costs of this proceeding to it. It claims that the issues that it brings forward are relevant to all of CP’s customers and that it does so in the public interest. It also claims that it has participated responsibly and significantly contributed to a better understanding of the issues.

CP

[195] CP argues that Canada Malting’s request for costs should be dismissed and that the Agency should instead award costs to CP. It accuses Canada Malting of initiating duplicative and wasteful litigation, given that these issues are already subject to a court proceeding in Alberta. CP claims that the audit report that Canada Malting submitted contains inaccuracies and is ultimately unhelpful. It also claims to have spent significant time and resources defending the application and attempting to provide the Agency with a fulsome understanding of the issues. CP submits that this is an exceptional circumstance where costs to it are warranted.

Analysis and determinations

[196] In deciding whether to award costs pursuant to section 25.1 of the CTA, the Agency considers whether a party has:

  • a substantial interest in the proceeding;
  • participated in the proceeding in a responsible manner;
  • made a significant contribution that is relevant to the proceeding; and
  • contributed to a better understanding of the issues by all parties before the Agency.

[197] The Agency may also consider other factors such as the importance and complexity of the issues; the amount of work; the result of the proceeding; and whether the “public interest” in the proceeding justifies an award of costs.

[198] As the party bringing this application, Canada Malting has a commercial interest in the proceeding. CP clearly has a substantial interest in this proceeding, because significant portions of its asset use program under Tariff 2 have been challenged, with the potential to significantly impact the efficiency of its operations across its network, its ability to meet its level of service obligations to other customers, and ultimately its profitability.

[199] Both parties generally conducted themselves in a responsible manner throughout the proceeding. However, each made a significant number of procedural requests which added to the complexity of an already complex proceeding, lengthened the proceeding, and added a large amount of materials to the record.

[200] Canada Malting claims to be acting beyond its own commercial self-interest, and some issues that it raised are in the interests of all CP customers, given that Tariff 2 is a published CP tariff. However, a number of Canada Malting’s concerns and proposed solutions do not necessarily reflect the interests of CP’s broader customer base. Moreover, Canada Malting’s positions demonstrated little appreciation of the need for CP’s network to run efficiently in the interests of all of its customers.

[201] The Agency finds that the public interest in the outcome of this case does not support an award of costs. Additionally, success on the merits is divided between the parties and there are no exceptional or extraordinary circumstances that would justify an award of costs to either party.

[202] Accordingly, each party will bear its own costs. The Agency therefore dismisses both requests.

Conclusion

[203] The Agency finds that:

  1. Asset use charges under Items 11, 13, and 15 are not unreasonable;
  2. Some of the terms and conditions associated with asset use charges under Items 11, 13, and 15 are unreasonable;
  3. Switching and handling charges under Items 23, 31, 32 and 46 are not unreasonable;
  4. Some of the terms and conditions associated with switching and handling charges under Items 23, 31, 32 and 46 are unreasonable;
  5. Item 24 is not unreasonable;
  6. It is not unreasonable that Tariff 2 does not allow customers to unilaterally select the gate status of their facility;
  7. The 25% surcharge on “miscellaneous invoices” under Item 73 is not unreasonable;
  8. The remedies set out in section 120.1 of the CTA are sufficient to address the issues identified with Tariff 2; and
  9. No award of costs is justified for either party.

[204] The Agency directs CP to propose for the Agency’s approval clear wording for Tariff 2 that provides that:

  • demurrage will not be assessed against a customer when the extended asset use is for reasons attributable to CP;
  • responsibility for asset use charges is allocated between customers or mutually agreed-upon third parties, in a manner similar to CN’s Tariff 9000;
  • where a service exception has occurred, demurrage relief will be provided such that CP customers will not incur any more demurrage than they would have if no service exception had occurred, including for railcars that a customer is unable to order because they are still awaiting receipt of railcars that CP failed to deliver on a prior service day and when service exceptions extend beyond a calendar month;
  • when CP moves a railcar from a customer storage track instead of moving a car from its local serving yard, CP will treat the situation as a service exception and provide demurrage relief for the railcar that remains in the serving yard, and will not charge additional switching fees in this type of situation;
  • when CP brings a railcar that the customer did not order to a Closed Gate facility after midnight, asset use will be suppressed for that car;
  • where CP delivers a different railcar in the place of a railcar requested by car ID, asset use will be suppressed on the railcar that was originally requested while it is in the local serving yard and the railcar that the customer actually received will not accrue demurrage;
  • debits for railcars requested via a non-standard method are not asset use charges and are applied because standard procedures have not been followed;
  • charges will not be assessed to customers when additional switching and handling is required for reasons attributable to CP.

[205] The Agency also directs CP to explain the mechanics of the amendments it made to Tariff 2 that suggest that demurrage relief is now calculated in the same way regardless of the gate status of the facility, and whether, under the current version of Tariff 2, demurrage relief ceases after a specific amount of time even if CP has not corrected the service exception, as the wording of the revised Tariff 2 seems to suggest.

[206] CP shall file the required explanations and the proposed wording and provide a copy of its submission to Canada Malting no later than 5:00 pm Gatineau local time on December 6, 2022. Canada Malting is provided an opportunity to comment on CP’s submission. Canada Malting shall have 15 business days following receipt of CP’s submission to file comments, if any, and provide a copy to CP.

[207] To the extent that any wording for Tariff 2 proposed by CP does not fulfill the requirements set out in paragraph 204 of this decision, the Agency would establish new terms and conditions for CP's Tariff 2 pursuant to subsection 120.1(1) of the CTA, substantively in the form set out in the Appendix to this decision.

[208] All correspondence should refer to Case 19-05957 and be filed through the Agency’s Secretariat email address at secretariat@otc-cta.gc.ca.
 


Appendix to Decision CONF-R-15-2022

To the extent that any proposed wording for Tariff 2 does not fulfill the requirements set out in paragraph 204 of this decision, the Agency would establish new terms and conditions for CP’s Tariff 2 as follows:

Asset Use

Item 10

The introduction to Item 10 of Tariff 2 would be replaced by the following text:

Demurrage events and terms Item 10

Shippers and receivers are responsible to coordinate rail shipments to ensure the efficient use of CP’s assets (including tracks, yards and railcars), which helps ensure network fluidity and availability of equipment. Despite this, extended use of CP railcars or storing privately-owned railcars on CP lines is sometimes unavoidable*. In such instances, railcars or network assets may be used for a fee called demurrage [details in items 10 to 13].

Demurrage will not be assessed to a customer when extended asset use occurs for reasons attributable to CP. Where a service exception has occurred, customers will not incur any further or additional fees for asset use than they would have had if no service exception had occurred. Specifically, asset use fees will not be assessed on any railcars that CP fails to deliver, or on any railcars that a customer is subsequently unable to order because they are still awaiting receipt of railcars that were not delivered on a prior service day, until the service exception has been rectified, including when service exceptions extend beyond a calendar month.

Key program events, terms and asset use trigger events are explained below:

The definition of “Credit/Debit Demurrage” under “Terms” in Item 10 of Tariff 2 would be replaced by the following:

Credit/Debit Demurrage—Debits incurred on equipment are offset against credits. Demurrage is charged when debits exceed the credits allotted for each specific location, for each specific activity [loading or unloading], for each specific type of car ownership [railroad or private] and for each specific commodity type [non-hazardous, hazardous or TIH/PIH]. Credits allotted for one location, activity, type of car ownership or commodity type cannot be used to offset debits incurred for another location, activity, type of car ownership or commodity type. Credits have no monetary value.

The note under “Terms” in Item 10 of Tariff 2 would be replaced by the following:

**Orders are to be submitted by cut-off through the Order-in Equipment tool in Customer Station [http://www.cpr.ca/en/customer-resources/customer-station]. A debit may be applied to a car requested via other methods as a penalty for not following standard procedures, rather than as an asset use fee.

Item 11

The following text would be added to the table in Item 11 entitled “Applicable credit days for railway supplied cars”

Moving a car from a storage track of an Order by Quantity facility rather than delivering a car from the local serving yard is a service exception. CP applies demurrage relief to the car remaining in the local serving yard. The car moved from the storage track does not incur additional switching fees.

In the same table, the following footnote would be added to the text “CP will automatically add credits to cars ORPL at a Closed Gate facility until they are PACT”:

When a car that is not ORPL is delivered to a Closed Gate facility, that car will not accrue demurrage as if it were still PCON. Any car ORPL continues to accrue credits until PACT.

In the same table, the following footnote would be added to the text “If CP misses placing cars on the scheduled local service switch, and cars are PCON, CP will automatically add incremental credits from the date the cars were intended to be placed until PACT”:

A car that the customer did not order will receive a credit if it is placed at a Closed Gate facility after midnight.

Item 13

The following text would be added to the table in Item 13 entitled “Applicable credit days for private railcars on CP track”

Moving a car from a storage track of an Order by Quantity facility rather than delivering a car from the local serving yard is a service exception. CP applies demurrage relief to the car remaining in the local serving yard. The car moved from the storage track does not incur additional switching fees.

In the same table, the following footnote would be added to the text “CP will automatically add credits to cars ORPL at a Closed Gate facility until they are PACT”:

When a car that is not ORPL is delivered to a Closed Gate facility, that car will not accrue demurrage as if it were still PCON. Any car ORPL continues to accrue credits until PACT.

In the same table, the following footnote would be added to the text “If CP misses placing cars on the scheduled local service switch, and cars are PCON, CP will automatically add incremental credits from the date the cars were intended to be placed until PACT”:

A car that the customer did not order will receive a credit if it is placed at a Closed Gate facility after midnight.

Item 15

The text of Item 15 of Tariff 2 would be replaced by the following:

Railcars held or staged will be allotted no free time or credit and are subject to the applicable asset use fees as indicated in Items 11 and 13 immediately upon being held or staged. Some examples of reasons why cars are held or staged include:

    • Customer request to have cars held or staged
    • Because the cars cannot continue moving

If a car is removed from a train in an unplanned location, Item 46 will also apply.

Item 16

The text under the heading “Canada” in the table in Item 16 of Tariff 2 would be amended to indicate the party responsible for asset use fees as follows:

    • The origin loader for railcars to be loaded;
    • The destination unloader for railcars to be unloaded or for railcars en route; or
    • A third party as mutually agreed in writing with CP.

Switching

The introductory text for the Switching section of Tariff 2 would be replaced by the following:

The pick-up and delivery of railcars at a customer’s facility for loading or unloading are included in the freight rate of the linehaul shipment. For additional switching services, such as turning railcars or moving them within a facility, customers have the option to hire a third party contractor or acquire the equipment necessary to perform this work themselves. When CP’s local crews and locomotives are used to perform these switching services, the below fees will be assessed to the party requesting or requiring the service. No fee will be assessed when additional switching is required for reasons attributable to CP.

Handling

The introductory text for the Handling section would be replaced by the following:

Issues can arise that prevent CP from handling railcars as planned or requested and require corrective actions to be taken. Charges for these corrective actions are assessed to the party requesting or requiring the service. No charge will be assessed when corrective actions are required for reasons attributable to CP.

Member(s)

Elizabeth C. Barker
Heather Smith
Date modified: