Letter Decision No. LET-R-144-2012

In 2010, CP rolled out its Local Service Reliability Program (LSRP) to its Winnipeg based customers. The majority of CP’s customers moved from ordering individual cars (Closed Gate) to automatically receiving cars at their sidings (Open Gate).

Under the Open Gate delivery model, CP will automatically spot cars to customers’ sidings within 48 hours of arrival, unless advised otherwise. Closed Gate customers must order in cars before CP will deliver them. CP notifies customers once a car arrives at its Winnipeg Yard. The customer receives a daily e-mail with a list of shipments that are “available for placement.”  When the customer is informed that the shipment is available for placement, it must order the shipment at the first available service opportunity or CP will apply constructive placement/demurrage charges. Once a car is ordered for placement, the demurrage clock is suspended and the clock is not turned on again until the car is actually placed.

Russel is designated as a Closed Gate customer. Russel receives shipments for unloading Monday to Friday only and is on CP’s 15:00 hours service schedule. Russel must place an order for the cars it wishes to receive that day prior to CP’s assigned 10:00 cut-off time. CP will then deliver those cars to Russel (Yard/facilities) between 17:00 hours and 22:00 hours.

Under CP’s LSRP, if a car has been in CP’s Yard for 48 hours without being ordered for placement, it will be “Constructively Placed” (PCON’d) and demurrage debit days will start accumulating. After a car had been in a yard for 120 hours and has not been ordered for placement, the car will be moved to a Short-Term Holding Track (STHT) and the corresponding charges assessed. As per Tariff 2, item 11, demurrage charges are assessed on a debit/credit basis at a rate of $87.00 per day. As per Tariff 2, item 23, STHT switching charges of $462.00 per car apply to a maximum of $5,027 for a block of cars. The STHT switching charges are applied twice; once for the car to be moved onto an STHT and once to move out of the STHT. Demurrage debit days still accumulate while a car is on an STHT.

As a Closed Gate customer, Russel is notified when a loaded car arrives. At this time, the 120‑hour ancillary clock starts. Although not expressly written in the Tariff, both CP and Russel state that the car is not available for ordering for the first 24 hours that it arrives at the CP’s Yard as CP uses this time to process the car. Only after the 24-hour processing time elapsed would Russel be entitled to order in the car for placement. It has 96 hours to do so (96 hours being the difference between 120 and 24). Pursuant to CP’s 120‑hour provision, the car is moved to an STHT where switch charges apply pursuant to CP’s Tariff due to the car dwelling beyond 120 hours on the active track.

ISSUES

1. Is CP’s current 120‑hour provision unreasonable to the extent that the ancillary clock starts prior to a car being available for ordering?
2. Is CP’s current practice of moving cars to an STHT after 120 hours reasonable?
3. Is the charge of $462 per car and a maximum of $5,027 per block for movement on to and again for movement off an STHT reasonable? 

The LAW

Russel has made a complaint pursuant to section 120.1 of the CTA with respect to the legality of CP’s Tariff 2, Item 23.

Section 120.1 states:

If, on a 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(1), 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.

POSITIONS OF PARTIES

Russel

Russel asserts that this new 120-hour storage clause is unreasonable as a railway company should not be entitled to start an ancillary clock prior to a shipment being made available for placement.

Russel argues that the inbound cars are moved from the active tracks to the serving tracks, which can on any given day also be designated as STHT when it suits CP. Russel states that in order to access an ordered car, which in Russel’s case is most likely located in the back of the serving track (first in-last out), it is charged extra for this switch. Russel adds that simply moving the traffic located in front of the requested cars out of the way and to an adjacent track to access this car is simply switching. In Russel’s view, CP designating other serving track (i.e., adjacent track) as a holding track is unfair. It is simply part of the local crew car gathering process.

Russel requests that the Agency find that CP’s current practice of designating any track as a STHT is an unfair practice. Russel submits that the STHTs should be pre-designated tracks that should have been provided to the local customer base prior to the start or implementation of this LSRP.

Russel states that the movement of cars on to a STHT is really the switching portion of an inclusive activity to the freight rate and the customer has the full right to request any specific car under the closed gate scenario where demurrage constructive placement charges can be applied. Moving a car to adjacent tracks is nothing more than normal yard activity already paid for and covered off in the original freight charges. The railway company, as part of the freight rate paid, must place the car accurately for loading or unloading at the customer’s facility to fulfill its common carrier obligations.

Russel is of the opinion that cars moved to STHT should not be based on time but rather conditions at the yard. If there is room at the yard, the car should not be moved simply because it has been there for 120 hours. Russel states that CP has advised it that cars would only be moved to STHT tracks in situations of adverse operational issues like excessive congestion at the yard.

Russel states since the beginning of the LSRP in Winnipeg, it has questioned CP’s contacts repeatedly concerning the charges for moving cars to an STHT after 120 hours even when this car is not available for placement for the first 24 hours. Russel questions CP’s policy that an ancillary related clock is started on shipments prior to that shipment being made “Available for Placement” to a customer/consignee.

Russel states that if CP requires 24 hours to properly position shipments for delivery, the 120 hours should not start until the car is actually available for placement by the customer. Russel submits that this practice leads to unfair additional switch charges.

Furthermore, Russel should be able to request any car that has been made available to it without incurring extra costs to move the car from the STHT. This is part of CP’s common carrier obligations. Russel submits that the $462 amount is excessive in relation to CP’s actual costs. The charge is a new source of revenue for CP while demurrage is still being charged on top.

Russel explains that since the implementation of this new program, it has been assessed over $70,000 for these 120-hour switching assessments where the ancillary clock had started prior to the cars being available for placement.

Russel submitted some calculations with respect to CP’s costs. It states that the actual average daily cost for a two person belt-pack crew including crew wages, locomotive maintenance and fuel would be in the $600 range and for a three person crew would be in the $750 range. As such, if a crew moves more than two cars to a temporary storage track on a shift at the current rate of $462 per car, they have in fact more than covered CP’s actual costs of operations. Russel states that while CP alludes to the fact that its block movement charge of $5,027 is not considered excessive, in relation to actual costs, it certainly is from Russel’s perspective.

Russel further claims that CP performs car movement costing tests in which it determines the actual cost every time it touches a car (switch or move within yard limits). The data Russel has is four years old but it submits that at that time the costs would have been approximately $25 per car. Even though costs would be higher today, it would be nowhere near the $462 that CP currently charges. Russel states that even if CP might not deem this to be excessive, Russel certainly does.

Furthermore, Russel submits that by quoting another railway company’s applicable tariff to justify charges, CP does not make it a fair activity, but rather constitutes excessive over charging by the railway company.

With respect to the block charge of $5,027, Russel states that where continuous blocks of cars are moved within the same singular movement, only one switch charge is valid and therefore only one should be assessed. Russel requests that the Agency order CP to halt the practice of applying Tariff 2, item 23 on a per car basis only if and when the shipments are handled on a per car per movement basis.

Russel further states that customers whose shipments are targeted to move and be assessed under Tariff 2, item 23 must be Railway Service Failure Free for a period of 120 hours (five days) plus whatever the standard yard equipment processing time is at railway location. In the case of Winnipeg presently, that would equate to 144 hours (six days). The railway service failures are to include Failure to Switch, Delays at Interchanges, Railcar Bunching or any other attributable railway service failure which has caused delays to shipments and therefore the congestion CP is attempting to clear.

CP

CP states that short-term holding was introduced in 2010 as part of its new LSRP. It allows CP to keep its yards fluid to deliver cars in the most efficient manner, which is beneficial to all customers.

CP adds that the STHT process is applied to move cars that have been in the yard for more than 120 hours from active tracks to holding tracks. CP does not believe that it is prudent to wait until there is a situation of extreme congestion before taking action to support yard fluidity. The STHT process is based on time, not yard conditions.

According to CP, customers are provided 120 hours to order a car once it arrives at a yard. To avoid extra costs of continually switching cars that have not yet been ordered for placement, CP then moves these cars to an STHT where switching occurs only once a day. CP asserts that it accepts that there are inherent costs of doing business but that it cannot afford to be used as a gratis storage facility for customers that fail to manage their own pipelines. CP submits that allowing cars to perpetually dwell in CP yards has a negative impact on all customers and industry across the country. This is a question of rail yard safety, efficiency and the impact on shippers.

Furthermore, CP states that the STHT is not always a pre-designated track but rather, can change depending on yard conditions, but wherever the car is placed within the yard is not relevant to the customer. The physical location of these holding tracks is not determinative; the critical feature is that the tracks are not dynamic and are only switched once per day. It is the fact that the car has been dwelling on active tracks for 120 hours that impairs CP’s ability to maintain fluid activity within its Yard.

CP explains that it sends an arrival notification when a car arrives in its Yard. For closed gate (POR) customers, like Russel, cars are available for placement 24 hours after arrival into the controlling station (yard). CP maintains that these 24 hours are necessary to co-ordinate moves within the Yard, through the Yard and allow the railway company and the customer to prepare for placement of the shipment. CP must ensure that it can process the car in a safe and secure manner and that the customer has the required resources to process the car. CP submits that this process also allows 24 hours for the customer to plan for accepting the car.

CP indicates that Russel orders the cars that it requires by specific car number and therefore the onus is on Russel to order cars for placement within 48 hours of receiving arrival notification in order to avoid any demurrage charges.

CP indicates that the charge identified in Tariff 2, item 23 is assessed once to move the car to the STHT and then a second time to move the car out of STHT when the car is ordered for placement (462 x 2 = $924). CP submits that the $462 is not derived on a cost plus basis but as an incentive for customers to manage their pipelines so that cars do not dwell in CP yards. Invoices always show to or from which track cars have been moved. CP states that this charge is less than the $490 that CN charges for the same service.

CP also states that Tariff 2, item 23 does provide block rates when it moves cars to and from short-term holding. According to the Tariff, CP will charge $462 per car to a maximum of $5,027, which means that if a customer has more than 11 cars in a block, the customer will not pay for the additional cars in that block.

CP states that in the event of a railway company caused service exception, it will provide a seven day reprieve to the customer and will not switch cars to an STHT during this seven day period. Any demurrage charges would be adjusted as well. In the event of a dispute, the customer has 30 days from the time the invoice was issued to dispute the charges using the Demurrage application.

ANALYSIS AND FINDINGS

Section 120.1 of the CTA requires the Agency to make a determination on reasonableness of a charge or associated terms and conditions. The word “reasonable” is not defined in the CTA nor is there any legislative definition of what constitutes an unreasonable charge or associated terms and conditions. To assess whether a charge and associated term or condition of carriage is “unreasonable,” the Agency applies a balancing test, which requires that a balance be struck between the rights of the party subject to the terms and conditions of carriage, and the particular carrier’s statutory, commercial and operational obligations.

Furthermore, subsection 120.1(3) of the CTA provides that the Agency shall take into account the following factors in determining the reasonableness of a charge:

1. the objective of the charges or associated terms and conditions;
2. the industry practice in setting the charges or associated terms and conditions;
3. 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
4. any other factor that the Agency considers relevant.

There is no established test for determining when a charge and associated terms or conditions reaches a level of unreasonableness. Therefore, reasonableness is determined on a case-by-case basis and relates to an objective sense of what is just and proper in a given circumstance. What is reasonable in some circumstances may not be reasonable in other circumstances. The Agency is of the opinion that “reasonableness” is a factual question, which can only be answered objectively on a case-by-case basis.

As stated in Decision No. 273-R-2012, section 120.1 of the CTA has been designed to allow one or more shippers to challenge a charge and associated term or condition imposed by a railway company, which they believe is unreasonable. The burden of proof rests, on a balance of probabilities, with the applicant. Once the party that bears the legal burden of proof has presented sufficient evidence to make its arguments persuasive, an evidentiary burden will shift to the opposing party. This requires the opposing party, in this case CP, to respond to the issues raised by adducing evidence supporting its position. At the outset, the legal burden of proof lies with Russel to prove its case.

Issue 1: Is CP’s current 120‑hour provision unreasonable to the extent that the ancillary clock starts prior to a car being available for ordering?

The evidence establishes that once a car arrives into the CP controlling station, it is placed on an active track and CP sends the arrival notification to the customer but that car can only be ordered 24 hours after arrival as CP needs time to plan and prepare the car for placement.

Pursuant to Tariff 2, item 23, after a car has been on an active track in CP’s yard for 120 hours and has not been ordered for placement, the car will be moved to an STHT. This 120-hour provision has been referred to by the parties as the “120-hour ancilliary clock”.

The Agency notes that this 120-hour ancillary clock starts when the car arrives at the yard, not when the customer is entitled to order the car for placement. In fact, even though Russel is advised when a car arrives in CP’s yard, it cannot order it at that time. Cars will be available for placement only 24 hours after arrival. CP explains that this time is required for operational reasons. It is CP’s position that these 24 hours are necessary to co-ordinate moves within the Yard, through the Yard and allow it and the customer to prepare for placement of the shipment. CP submits that this process also allows 24 hours for the customer to plan for accepting the car. The Agency also notes that during those 24 hours that CP requires to prepare the car for placement, no demurrage charges or other charges are applied to the customer. After 24 hours from arrival elapses, Russel may avoid demurrage charges if it orders cars for placement within the following 24 hours, after which time demurrage starts to accumulate. If, 96 hours after arrival, a car has not been ordered for placement, the customer will be notified that it has a further 24 hours to order the car before it is moved to an STHT. Once the car has been on the class track for 120 hours (five days), it is moved to an STHT until it is ordered.

The evidence establishes that the 120-hour ancillary clock is divided as follows: 

0-24 hours	(car arrived in CP’s Yard, Customer Notified but cannot order, no demurrage or other charges apply)
24-48 hours	(Car can be ordered for placement, no demurrage )
48-96 hours	(Car can be ordered for placement, demurrage starts to accumulate
96 hours	Client is notified that it only has 24 hours to order before the car is moved to STHT, demurrage continues to accumulate
120 hours and beyond	Car moved to STHT,  switch charges apply, demurrage continues

According to item 23 of Tariff 2, charges will be assessed to a customer for the movement of cars on to an STHT when those cars have dwelled beyond 120 hours due to reasons attributable to the customer. It is uncontested that customers are not provided 120 hours to order the car but instead, have 96 hours as CP needs the first 24 hours to process the car. The Agency is satisfied that CP has demonstrated that it requires 24 hours upon arrival to properly process cars before a customer can order them for placement. Therefore, Russel must show that 96 hours is an unreasonable amount of time for customers to order cars for placement to avoid the movement of cars to an STHT.

Although it is clear that Russel’s position is that it should be entitled to 120 hours to order cars for placement, it has not established that by being provided less time (i.e., 96 hours), it is subject to unreasonable terms or conditions. The Agency specifically took into account that CP needs time to process cars when they arrive into its controlling station and that no charges or demurrage are assessed to the customer during that time.

Consequently, the Agency finds that Russel has not established that CP’s current 120-hour provision is unreasonable to the extent that the ancillary clock starts prior to a car being available for ordering.

Issue 2: Is CP’s current practice of moving cars to an STHT after 120 hours reasonable?

Under CP’s LSRP, its customers are either designated as Open Gate or Closed Gate customers and are subject to extra handling charges in certain situations, specifically where a car is within the controlling station for 120 hours or more. In that situation, CP removes the car from the active class tracks and moves it onto an STHT where switching occurs only once a day. CP explains that the objective of this is to maintain fluidity within its yards and that the most effective way to do this is to keep the active tracks available for incoming cars to be processed and delivered and not to wait until congestion is building to start moving stagnant cars to storage tracks.

Russel disagrees with CP’s policy to move cars to an STHT simply because the car has been at the yard for 120 hours. It states that the movement of cars from active tracks to holding tracks should be based on conditions at the yard and should be included in CP’s operating costs. The Agency is of the opinion that CP’s objective is an important factor to consider and agrees with CP that it would be inefficient to continuously switch cars around on active tracks when after 120 hours a customer has given no indication of when it would order the car for placement.

With respect to Russel’s argument that CP should have pre-designated STHT tracks rather than CP being able to designate any track as an STHT, the Agency is of the opinion that it should be left to the railway company to determine its own yard configuration, and that flexibility may be required. The Agency agrees with CP that the location of these holding tracks is not determinative of whether the car should be moved off the active tracks.

The Agency agrees with Russel’s contention that when it orders a car, simply moving the traffic located in front of the requested car out of the way and to an adjacent track to access this car is part of the local crew switching process. However, this assumes that the car is ordered within a reasonable time frame. Where a car has remained more than 120 hours on active tracks for reasons attributable to the customer, the Agency agrees with CP that the railway company should have the right to move that car to a storage track until such time as the car is ordered by the customer.

The Agency finds that Russel has not demonstrated that the practice of assigning cars not ordered for placement to an STHT on the basis of time passed (in this case 120 hours), rather than on conditions in the yard,  is unreasonable.

Russel further states that customers whose shipments are targeted to move and be assessed under Tariff 2, item 23 must be Railway Service Failure Free for a period of 144 hours (six days) in the Winnipeg area. CP states that in the event of a railway-caused service exception, it will provide a seven day reprieve to the customer and will not switch cars to an STHT during this seven day period and any demurrage charges would be adjusted as well. There is no evidence that these terms and conditions are unreasonable.

Therefore, the Agency finds that Russel has failed to establish that CP’s current practice of moving cars to an STHT after 120 hours is unreasonable.

Issue 3: Is the charge of $462 per car and a maximum of $5,027 per block for movement on to and again for movement off an STHT reasonable?

As per Tariff 2, item 23, CP charges a fee of $462 per car to a maximum of $5,027 for a block of cars moved into a shorter term holding area due to car dwelling beyond 120 hours due to reasons attributable to the customer and the subsequent movement out of the short-term holding area.

The Agency agrees that Russel has the full right to request any specific car under the Closed Gate scenario where demurrage constructive placement charges can be applied and that the railway company, as part of the freight rate paid, must place the car accurately for loading or unloading at the customer’s facility to fulfill its common carrier obligations. However, the Agency does not agree that Russel should have as much time as it wants to order that car, without being subject to additional charges.

CP provides 120 hours from the time the car arrives for normal yard activities. The Agency agrees with CP that beyond that time, it is it the customer’s responsibility to pay for storage when the car is not ordered for placement during that time.

However, the Agency questions the reasonableness of the $462 charge that CP is assessing for the movement on to an STHT and again off of the STHT. Given the assumption that if the car is moved on to an STHT, it will eventually have to be removed as well, the charges, in all cases, amount to $924 per car.

Russel submits that the $462 that CP charges for STHT is excessive in relation to CP’s actual costs and is a new source of revenue for CP as CP continues to charge demurrage as well. Russel has provided the Agency with its own calculations of what it believes is a cost-based assessment of switching charges, which indicates that CP would only have to switch two cars to an STHT a day to recover its costs. Russel points out that the actual cost is closer to $25 per car. The Agency is of the opinion that Russel has not provided adequate documentation of how those calculations were derived such that the Agency could use them as a viable comparison to CP’s actual charge. However, it is sufficient to raise the question to CP on how the charge was derived. CP does indicate that the $462 is not derived on a cost plus basis but as an incentive for customers to manage their pipelines so that cars do not dwell in CP yards. The Agency is of the opinion that this reply is not sufficient to establish that CP’s actual charges for moving cars to an STHT are reasonable.

CP also indicates that the charge is lower than CN’s charge of $490. Russel responded that quoting another railway company’s applicable tariff, does not make it a fair activity. However, industry practice is a factor, among others, that the Agency considers pursuant to section 120.1 of the CTA. CN’s Tariff 9001 CDA-F, Supplement 2 - Switching Services, which was submitted by CP, indicates that $490 may be charged for intra-terminal switches which include switching between a point on CN’s line to another point on CN’s line within a switching district. However, this refers to switches requested by the customer. No reference could be found in this Tariff to a railway company initiated switch. The Agency is consequently unable to compare CN and CP’s charges as “industry practice in setting the charge.”

Although the Agency recognizes CP’s requirement to move cars to an STHT to maintain fluidity within its yards, the Agency requires supplementary information from CP that would aid in assessing the reasonableness of the charges and conditions.

The Agency notes that CP has not provided any supporting information on the reasonableness of its maximum charge of $5,027 for a block movement. A simple calculation indicates that the block would have to consist of 11 or more cars to receive any benefit from the block rate ($462 x 11 = $5,082).

PRELIMINARY CONCLUSION

As mentioned above, the Agency finds that CP’s current practice of moving cars on and off an STHT is not unreasonable. However, based on the information submitted in this case, the Agency is of the preliminary opinion that the amount charged for the movement of both cars and blocks of cars on to and off an STHT after 120 hours is excessive and unreasonable and therefore should be disallowed.

Before making a final order on this issue, the Agency provides CP an opportunity to show cause why the charges should not be disallowed, why the charges of $462/$5,027 are reasonable and why the conditions attached are reasonable, especially as demurrage is being charged simultaneously. Russel will also be given an opportunity to provide further comments.

DIRECTION TO SHOW CAUSE

Based on the above, CP is directed to show cause why its rates are reasonable.

CP is directed to:

1. submit data on how the $462 charge in item 23 of Tariff 2 has been developed along with the rationale for the chosen methodology and confirm that an actual movement of cars takes place in every circumstance in which the shipper is charged with a movement on to or off an STHT.  In particular, CP shall indicate whether it charges a movement when the track is designated as an STHT, in the event the cars have already been placed on that track and, if so, provide its rationale for this charge;
2. provide the rationale associated with the block rate of $5,027 which is also provided for in the Tariff;
3. submit information as to why it is necessary to apply the charge for both the movement onto an STHT as well as to move it off of the STHT.

TIMELINES FOR SHOW CAUSE

CP is required to respond to the above-noted direction by October 17, 2012, with a copy to Russel. The Agency provides Russel until October 29, 2012 to submit any final comments on CP’s submission. The Agency will then assess the information and make its final decision in this matter pursuant to section 120.1 of the CTA.

Should you require additional information, you may contact Kate Fillmore, Senior Analyst, by telephone at 819-953-8522, by facsimile at 819-953-8353 or by e-mail at Katie.fillmore@cta-otc.gc.ca.