Letter Decision No. LET-R-29-2019

THE INVESTIGATION PROCESS

[1] The Agency initiated an investigation into possible freight rail service issues in the Vancouver area on January 14, 2019. Consistent with the requirements of subsection 116(1.11) of the CTA, which gives the Agency this “own motion” power, the authorization of the Minister of Transport was received.

[2] The investigation is made up of two phases. The first phase was the information-gathering phase, which began with the issuance of letter decisions to railway companies and shipper associations and the appointment of an Inquiry Officer. The Inquiry Officer prepared a first report based on the information and data submitted in response to the letter decisions. The Agency gathered additional information during an oral hearing in Vancouver on January 29 and 30, 2019, and through subsequent submissions from participants. This additional information is summarized in a second and final report from the Inquiry Officer, which is appended to this Decision. The first phase of the investigation has now concluded.

[3] The second phase focuses on matters identified by the Agency as warranting further examination, based on the record before it, and begins with the issuance of this Decision, which directs the Canadian National Railway Company (CN) and the Canadian Pacific Railway Company (CP) to respond to specific questions, and provides other participants with an opportunity to do so as well. CN, CP and other participants will then be provided an opportunity to reply to those answers, at which point the record will be closed. Both the answers and replies will be made available to the public, unless a confidentiality request in respect of certain information is submitted by a participant and granted by the Agency.

[4] The investigation will conclude with the issuance of the Agency’s final decision on the issues identified in this Decision. In that final Decision, the Agency will make a determination on whether the railway companies have fulfilled their service obligations with respect to freight rail service in the Vancouver area. If the Agency determines that a railway company has not done so, it may make an order based on the remedies set out in subsection 116(4) of the CTA.

THE RECORD CURRENTLY BEFORE THE AGENCY

[5] The record currently before the Agency comprises documents and data submitted by participants (some of which are subject to confidentiality orders by the Agency), the transcript of the oral hearing, and the two reports from the Inquiry Officer.

[6] A key point that emerges from the record is that shortfalls or delays in the transportation of traffic primarily affected terminals on the North Shore of Vancouver (North Shore). For example:

1. Cargill Ltd. (Cargill) received 83 percent of their planned scheduled deliveries during the period from October 2018 to January 2019.
2. Richardson International Limited (RIL) received 80 percent of their planned scheduled deliveries during the period from October 2018 to December 2018.
3. Chemtrade Logistics Inc.(Chemtrade) received 75 percent of their empty car orders during the period from October 2018 to January 2019.
4. A portion of the cars received by Chemtrade and Univar Canada Inc. (Univar) were not the proper car type for the commodity that it intended to ship during the period from October 2018 to January 2019.
5. The four North Shore terminals and customer facilities sampled (Cargill, Chemtrade, Fibreco Export Inc. [Fibreco] and RIL) had additional capacity to receive cars from CN during the period from October 2018 to January 2019.
6. Lynnterm had under-utilized railcar unloading capacity, even while volumes of cars destined to Lynnterm grew at Thornton Yard.

[7] The evidence further suggests that these shortfalls and delays in the transportation of traffic were related in part to congestion at CN’s Thornton Yard in October and November 2018.

[8] The number of cars dwelling in Thornton Yard that were destined to the North Shore increased by 186 percent between October 1, 2018 and its peak on December 13, 2018. During the same period, there were changes in car volumes arriving into Thornton Yard, including:

1. a 16 percent increase in intermodal platform cars;
2. an 18 percent increase in cars destined to be interchanged with BNSF Railway Company (BNSF) in Vancouver;
3. an 11 percent increase in grain cars destined to the North Shore; and
4. a 16 percent increase in wood pulp cars destined to the North Shore.

[9] The record shows that between September and December 2018, CN and CP imposed several embargoes under the Association of American Railroads system. These embargoes can be broadly categorized into three groups:

1. CN informed shippers on September 21, 2018 of its intention to place embargoes on paper and wood pulp cars shipped to Vancouver transload terminals later in the year, and started to impose embargoes on wood pulp terminals in late November 2018. CN’s submission at the oral hearing indicates that CN did so “to assist in the proactive management of boxcar shipments from origin mills to the various Vancouver and surrounding area destination terminals.” CN also stated at the oral hearing that this process was a form of “metering” traffic, and was done because wood pulp shippers do not manage shipments to ensure receiving terminal capacity in the manner that shippers of other commodities do.

In its submission of February 8, 2019, the Forest Products Association of Canada (FPAC) stated that “while permits were initially allowed under all of the CN embargoes shown in Figure 1, CN amended them to remove the shippers’ ability to apply for permits for a period of time in December”. FPAC also stated that “While FPAC is not in a position to provide comprehensive statistics on permit requests, mills operated by several FPAC members (representing in the aggregate well over 20% of the total number of issued pulp permits referenced in CN’s reply presentation) indicate they received only between 50 and 60% of the permits for which they applied.” FPAC indicated that CN’s permits are issued for specific days that may not align with scheduled car delivery times.

2. Starting in late November 2018, CN imposed embargoes on traffic destined for the New Westminster interchange with BNSF (CN005018 on December 2, 2018) and three terminals receiving various commodities. CN005118 with an effective date of November 30, 2018 was issued for traffic destined to Fibreco in North Vancouver receiving various commodities related to canola, cake or meal and rape seed. CN005218 with an effective date of December 6, 2018 was issued for traffic destined to Surrey Distribution Center receiving various commodities. CN000119 with an effective date of January 3, 2019 was issued for traffic destined to Ray-Mont Logistics receiving various commodities. In its presentation at the oral hearing, CN submitted correspondence that it sent to shippers on December 4, 2018 that states that:

“CN is experiencing service issues in the greater Vancouver area because of high levels of railcars (loads and empties) for local customers/terminals as well as for the New Westminster interchange… The situation has forced us to take extreme measures such as shutting down the pipeline to the New Westminster interchange (BNSF & UP).”

CN indicated that these embargoes were triggered by the level of congestion at that time.

3. CP imposed three embargoes in the fall of 2018. Two embargoes with an effective date of December 10, 2018 (CPRS002318 and CPRS002418) were placed on traffic that was destined for the CN interchange, to be delivered by CN to various Vancouver terminals receiving various commodities. The third embargo with an effective date of December 21, 2018 (CPRS002518) was applied on traffic destined for Columbia Containers Ltd. receiving various commodities. CP indicated that in all cases, these embargoes were a direct response to CN embargoes, which created undue pressure on the CP system.

QUESTIONS TO PARTICIPANTS

[10] The Agency has determined based on the record before it, including evidence of shortfalls and delays in the movement of certain traffic to terminals, that a number of matters related to CN’s and CP’s service warrant further examination in the second phase of the investigation.

[11] Accordingly, the Agency directs CN, and provides other participants identified in the appended distribution list with an opportunity, to respond to the following:

1. Did CN provide the highest level of service in respect of its obligations under sections 113 to 115 of the CTA that it could reasonably provide in the circumstances, having regard to considerations listed in subsection 116(1.2) of the CTA; notably, whether and the extent to which:

• CN had in place, and activated, adequate contingency plans to respond to rising congestion in Thornton Yard;
• CN deployed sufficient crews and locomotives to provide the requested service as the volume of traffic increased, particularly for yard assignments at Thornton Yard, Lynn Creek Yard and McLean (West Vancouver) Yard;
• CN appropriately considered and implemented a full range of traffic management measures to deal with increased volumes of traffic, such as sending certain traffic bound for the North Shore through West Vancouver by way of Squamish and Prince George rather than Thornton Yard; assembling manifest traffic destined to the North Shore in yards other than Thornton Yard, Lynn Creek Yard and McLean Yard; and using available car storage space at North Shore terminals;
• the placement of embargoes on wood pulp traffic (embargoes CN004318, CN004418, CN004518, CN004618, CN004718, CN004818 and CN004918) was exceptional rather than routine in nature, proportionate, targeted and non-discriminatory;
• the placement of embargoes on other traffic (embargoes CN005018, CN005118 and CN005218) was exceptional rather than routine in nature, proportionate, targeted, and non-discriminatory;
• a lack of coordination regarding delivery levels and timing between certain shippers and the terminals with which they have contracts contributed to shortfalls and delays in the delivery of traffic to the North Shore;
• there are improvements to railway infrastructure in the Vancouver area that would help reduce congestion issues, which CN has the ability to undertake either on its own or in partnership with others, that have not been initiated to date.  

[12] The Agency further directs CP, and provides other participants identified in the appended distribution list with an opportunity, to respond to the following:

2. Did CP provide the highest level of service in respect of its obligations under sections 113 to 115 of the CTA that it could reasonably provide in the circumstances, having regard to considerations in subsection 116(1.2) of the CTA; notably, whether and the extent to which:

• the placement of embargoes on certain traffic (embargoes CPRS002318, CPRS002418 and CPRS002518) was exceptional rather than routine in nature, proportionate, targeted and non-discriminatory; and
• there are improvements to railway infrastructure in the Vancouver area that would help reduce congestion issues, which CP has the ability to undertake either on its own or in partnership with others, that have not been initiated to date.  

DIRECTION

[13] CN, CP and other participants who wish to provide an answer to the Agency’s questions above are directed to submit their responses to the Agency before 5:00 p.m. Gatineau local time on March 26, 2019.

[14] On March 29, 2019, the responses will be posted on the page of the Agency’s website dedicated to the Vancouver Freight Rail Investigation (https://otc-cta.gc.ca/eng/2019-vancouver-freight-rail-investigation) under the heading, Submissions in Response to Decision No. LET-R-29-2019.

[15] Participants identified in the appended list will then have until 5:00 p.m. Gatineau local time on April 8, 2019 to submit a reply to other participants’ responses. A reply can only address issues raised in the responses and must not raise new issues, arguments or evidence not related to the responses. Participants’ replies will be posted on the same website page under the same heading.

CONFIDENTIALITY

[16] All submissions from participants will form part of the public record of this investigation unless a confidentiality request is made to, and granted by, the Agency. If participants believe that any of the information being submitted is commercially sensitive and/or that the public release of any of the information could potentially cause it specific direct harm, a request for confidentiality can be filed, supported by a clear rationale.

[17] Two versions of the document(s) containing the information claimed as confidential must be filed with the request: an un-redacted version and a version with redactions of the information claimed as confidential. The first version should indicate, by highlighting or other means, what information was redacted from the second version.

[18] The request should also indicate whether the participant wishes for access to the unredacted version of the document(s) to be restricted to: (1) the Agency only, (2) the Agency and railway companies participating in the investigation, or (3) the Agency and all of the participants in the investigation.

The Agency applies a three-step approach in its consideration of whether to grant, in full or in part, or deny a request for confidentiality:

• The first step is to determine whether the document is relevant to the investigation.
• The second step is to determine whether specific direct harm would likely result from the disclosure of the information claimed as confidential.
• The third step is to determine whether the public interest in having the document disclosed outweighs the specific direct harm demonstrated.

SUBMISSIONS AND CORRESPONDENCE

[19] Any submissions, questions, or other correspondence in regard to this matter should refer to Case No. 19-00189 and be filed through the Rail Inquiry e-mail address: Enquete.ferroviaire-Inquiry.rail@otc-cta.gc.ca.