Rail competition pilot may not be renewed amid parliamentary break

MONTREAL — An obscure but hard-fought — and hard-lobbied — battle over railway competition has steamed back to the surface.

A pilot project mandating so-called extended interswitching that aims to give farmers, manufacturers and wholesalers more choice in their rail service is set to expire before a prorogued Parliament returns, with shippers and railways squaring off over its demise.

Interswitching refers to the transfer of cargo between two railway companies at a point where their tracks meet. Extended interswitching is when Company A must transport that cargo farther along its own tracks to a point where it meets the rails of Company B. The latter then picks up the freight and continues on the main journey.

The pilot, which began in 2023, expanded the interswitching limit to 160 kilometres from 30 kilometres in the three Prairie provinces for an 18-month period.

The practice seeks to spur competition and lower prices, as operators shipping from a grain elevator on Canadian National Railway Co. tracks, for example, could choose to have the freight transported by Canadian Pacific Kansas City Ltd. instead if the rate is better and a handoff point is within range.

The experiment is set to expire on March 20, four days before the House of Commons returns from prorogation and would need to be renewed via legislation to continue.

“The evaluation of the pilot project is ongoing,” said Transport Department spokeswoman Sau Sau Liu.

Grain Growers of Canada executive director Kyle Larkin says the new rule has drastically increased the number of producers with access to two railways rather than one, enhancing competition and efficiency on the tracks.

“It’s the only policy that can promote competition between the dual monopolies that we see across the Prairies,” said Larkin, whose group represents more than 70,000 farmers.

“Because grain elevators are tied to specific rail lines and because they can dictate the terms and dictate the price, that means the extra cost that shippers are having to incur is passed down the value chain to grain farmers.”

Larkin also argued that a lack of competition breeds inefficient rail operations, which can lead to backlogs at grain elevators.

Canada’s two railway giants, however, say the policy does more harm than good.

The Railway Association of Canada, which represents CN and CPKC, said shippers already enjoy some of the lowest freight rates globally and called extended interswitching a “failed policy” that should be scrapped.

U.S. railroad operators can now reach into Canada and snap up shipments handed over involuntarily by domestic railways, costing employees their jobs, the group warned. Teamsters Canada, which represents 16,000 railworkers, has also raised the spectre of layoffs.

“From the get-go, there have been no new competitive options created with extended regulated interswitching in place,” the railway association said in an emailed statement.

The policy causes “harmful market distortions” to freight rates, added CPKC spokesman Patrick Waldron.

The move will also prolong transit times, boost diesel emissions and raise costs for consumers and producers, according to the railways.

Some industry groups sought to highlight contradictions in the claims.

John Corey, president of the Freight Management Association of Canada, questioned how a policy that creates no new competitive options could also fling open the gates to U.S. competitors.

“The railways have just finished telling us that they have the lowest rates in the world. If you have the lowest rates, how can somebody eat your lunch?” he asked.

“All they have to do is match the price of the competing railway and they’ll keep that traffic for themselves.”

The railways say their customers have opted to stick with them, revealing clients’ contentment with the status quo and the new policy’s failure to stir up change.

“With two months left to the pilot, not a single customer has used (extended interswitching) with CN since it was introduced back in September 2023,” said spokeswoman Ashley Michnowski.

However, shippers say the reason they haven’t gone with another railway is that many were in multi-year contracts that expire after the pilot does.

Grain shippers were “very reluctant” to dance with another partner under the program because “they haven’t wanted to risk their relationship” with the original rail company once extended interswitching ends, said Larkin. He is one of many shippers calling for an extension of at least two and a half years.

Extended interswitching has been tried before. The Conservative government launched a three-year trial in 2014.

The move caused no major operational challenges for railways, according to the Western Grain Elevator Association. Shippers also pointed to the railways’ rising profits in the years that followed.

During the first pilot, less than one per cent of the grain was interchanged within 160 kilometres of the shipping point, said association executive director Wade Sobkowich.

Nonetheless, the railways did not hold back on attempts to influence politicians in the run-up to the second pilot project kickoff in 2023.

Lobbyists with Canadian Pacific had 96 meetings with public office holders in the first four months of 2023, the same number it posted through all of 2022, according to the federal lobbyist registry. More than 30 involved civil servants – mainly Transport Canada’s – or ministerial offices. Another 10 were sit-downs with House of Commons or Senate transport committee members. The Railway Association of Canada filed 17 lobbying reports in the first five months of 2023 compared with seven for the entirety of 2022.

The budget bill that ushered in the pilot project passed in June 2023.

This report by The Canadian Press was first published Jan. 20, 2025.

Companies in this story: (TSX:CNR, TSX:CP)

Christopher Reynolds, The Canadian Press