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Pierre Gratton is President and CEO, Mining Association of Canada.
The rail and mining industries have a dependeant relationship. Without rail freight service, mining companies would be challenged to operate since Canada’s vast geography doesn’t exactly make delivering products to ports and smelters easy. And without the mining industry, the railways would lose their biggest client.
Our industries are a natural fit, but issues over market power have complicated our relationship. As a general rule, the more competition, the more likely customers will receive better service at lower prices. No competition breeds market power, which results in high prices and leaves customers with no alternate provider to turn to – repercussions of what’s known as a natural monopoly.
The Canadian railways are often considered a typical example of a natural monopoly. The high costs of laying track and servicing Canada’s vast geography have resulted in a lack of competition among the railways – Canadian Pacific (CP) and Canadian National (CN). To further aggravate the issue, the remote locations of mining operations often mean shippers are limited to just one of the two railways, and frequently stranded without alternative shipping methods. Given that mining companies already pay significant freight rates to ship goods across the country, this exacerbates the situation.
Fortunately, the Government of Canada appears ready to make regulatory changes to the Canadian Transportation Act (CTA) that could help solve the issues of railway market power. To date, the CTA has largely been ineffective at protecting shippers against high prices and spotty service. Under the current CTA, railways unilaterally impose rates and have no obligation to provide any particular level of service.
A recent report commissioned by the federal government, the Rail Freight Service Review, acknowledges that “it has long been recognized in transportation law that regulations are required to address the potential abuse of market power by the railways” in Canada. The review also highlights data that illustrate common issues faced by shippers of all industries.
For the rest of this column, please go to the National Post website: http://www.nationalpost.com/Miners+need+better+rail+freight+deal/7091392/story.html