Rail Monopoly Costs Forest Products Industry $280 Million Per Year
May 02 2007, Ottawa, ON
Avrim Lazar, President and CEO of the Forest Products Association of Canada (FPAC) will address the Senate Committee on Transport and Communications today as part of its study of Bill C-11, An Act to amend the Canada Transportation Act and the Railway Safety Act and to make consequential amendments to other Acts. He will call for an increase in competition within the railway freight system and new measures to provide shippers with the means to challenge unreasonable costs imposed by the railways.
“The forest products industry pays over $280 million annually in excess freight costs due to the monopoly power of the railways,” says Mr. Lazar. “It is time for the government to take action. The lack of competition over significant parts of the rail system results in significantly higher transportations costs for Canadian shippers, particularly those in remote areas that are ‘captive’ to the railways. This affects both rates and service at the majority of our mills across the country.”
For an export-dependent economy such as Canada’s, delivering products to markets swiftly and economically is a key to competitiveness. The forest products industry is the largest user of rail transport in Canada, contributing over $2 billion annually to rail revenues. A recent report by Travacon Research Limited notes that where there is effective competition for rail traffic, payments to railways should not exceed 20% of railway variable costs based on volumes shipped. FPAC members, however, paid out an additional $280 million dollars over and above these “competitive” costs as a result of being captive shippers.
“Like other exporting sectors of Canada’s economy, the forest products industry faces vigorous competition from low-cost producers in other countries for both domestic and international markets,” continues Lazar. “Uncompetitive and unreasonable transportation costs and poor service resulting from the lack of effective competition are undermining the industry’s competitive position. Quite simply, a competitive rail network will greatly benefit not only the forest products sector but also Canada’s export sector more broadly.”
Bill C-11 does not provide shippers with any additional protections against unreasonable tariff and ancillary rates increases, or disputes of quality of service issues. The industry is seeking amendments to the Canada Transportation Act, in particular the expansion of Final Offer Arbitration (FOA) to give shippers a more effective commercial remedy in dealing with the railroads’ cost and service.
“It is imperative that Final Offer Arbitration provision be strengthened to enable shippers to challenge unreasonable and arbitrary rate hikes and ancillary charges are often non-negotiable,” concludes Lazar.
Download a copy of the Travacon Research Limited Report.
FPAC is the voice of Canada’s wood, pulp and paper producers nationally and internationally in government, trade and environmental affairs. Canada’s forest industry is an $80 billion dollar a year industry that represents 3% of Canada’s GDP. The industry is one of Canada’s largest employers, operating in over 320 Canadian communities and providing nearly 900,000 direct and indirect jobs across the country.
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For more information, contact:
Isabelle Des Chênes
Director, Communications
Forest Products Association of Canada
(613) 563-1441 ext: 323
ideschenes@fpac.ca
