Budget 2023 proposes to amend the Canada Transportation Act to increase the extended interswitching limit in the prairie provinces on a pilot basis. This policy is a step in the right direction for Canadian shippers and Canada’s economy.
Extended interswitching is a measure which gives shippers who are physically located on a single rail line the ability to seek competing service from the next closest railway within a certain distance. This balances negotiations in a way that encourages better service or pricing for the benefit of entire supply chains.
Extended interswitching is a vital tool for Canadian shippers that is proven to increase competition while lowering costs to shippers and consumers. Ultimately, extended interswitching will strengthen Canada’s reputation as a reliable shipper and help grow our economy.
Increased Competition
Businesses will have access to a larger pool of rail providers, promoting competition and helping to drive down transportation costs.
Improved Efficiency
More options mean businesses can find the most efficient and cost-effective ways to move their goods to market, leading to greater productivity and profitability.
Better Access to Markets
By expanding the reach of interswitching, businesses will have greater access to new markets and customers, providing opportunities for growth and expansion.
Interswitching has been a common practice since the early 1900’s and railways are experts at managing the complexity of rail operations and working collaboratively to interswitch efficiently. Canadians should have full confidence that railways will be incentivized through competitive forces to apply creativity and ingenuity to resolve any operational challenges that may arise as a result of competing for their customers business. In fact, with competitive forces at play, railways with excess capacity will have the ability to attract new customers and traffic through lower rates or better service offerings. In that case, extended interswitching will reduce congestion by moving traffic from a full capacity railway to a railway with excess capacity.
The railways are fully compensated for their actual cost of switching. Regulated interswitching rates are calculated using the railway data supplied by the railways. There are three parts to the rate development; Financial cost data, time study information and traffic volumes. These calculations are done by the Canadian Transportation Agency, who is required to set the rates to reflect any long-term investment needed in the railways so they can invest in their network. Compared to regular duopoly rates, interswitching rates could be less of a revenue center, but that does not make them unfair or unprofitable. The purpose of extended interswitching is not to give shippers access to cheap regulated rates – it is simply a tool to increase competition and forces railways to compete on price.
Poor rail service is often the result of underinvestment by railway companies in power (locomotives) and crew (people). This happens because railways currently don’t have competition in most places along their network of track, so they are able to drive down costs (fewer employees and assets) without the threat of loss of business. Extended Interswitching gives shippers the option to call in another railway if the one they are physically located on doesn’t deliver good service. The end result will be railway companies reinvesting in people (more jobs) to make sure competitors don’t take their business away. It should also help current railway employees who are often stretched thin or face premature layoffs/late callbacks.
However, extended interswitching does move the needle in the right direction for shippers in their negotiations for better rates and service than they would otherwise have in its absence. Even if only a small amount of grain (or possibly no grain at all) has moved through an interswitch, the very presence of an interswitch option has achieved exactly what the provision had intended to do - create competition. This underscores the real benefit of extended interswitching limits. While shippers may not choose to ship with the competitor, the fact that the option exists encourages a better level of service and more competitive pricing from the rail lines that exist in an effective monopoly without it.
A pilot trial to increase the extended interswitching limit in the prairies has been proposed under Budget 2023. When done right, this pilot will promote fair competition, reduce transportation costs and increase access for Canadian goods.
To further strengthen this policy, the Government of Canada can:
Dear [MP],
I am writing today to voice my support for the extended regulated interswitching measures announced in the 2023 federal budget.
Extended regulated interswitching is a measure which gives shippers who are physically located on a single rail line the ability to seek competing service from the next closest railway within a certain distance. This balances negotiations in a way that encourages better service or pricing for the benefit of the entire supply chain.
These measures are a positive step. To further strengthen this policy, the Government of Canada can:
Extended regulated interswitching is a vital tool for Canadian shippers that is proven to increase competition while lowering costs to shippers and consumers. I urge you to support these important measures that will strengthen Canada’s reputation as a reliable shipper and help grow our economy.
Sincerely,
CC: Hon. Chrystia Freeland, P.C., M.P.; Hon. Marie-Claude Bibeau, P.C., M.P.; Hon. Mary Ng, P.C., M.P. ; Hon Jonathan Wilkinson, P.C., M.P. ; Hon. Omar Alghabra, P.C., M.P.; Mr. Peter Fonseca, M.P.; Mr. Terry Beech, M.P.; Mr. Jasraj Singh Hallan, M.P.; Mr. Daniel Blakie, M.P.
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FACT: Poor rail service is often the result of underinvestment by railway companies in power (locomotives) and crew (people). This happens because railways currently don’t have competition in most places along their network of track, so they are able to drive down costs (fewer employees and assets) without the threat of loss of business. Extended Interswitching gives shippers the option to call in another railway if the one they are physically located on doesn’t deliver good service. The end result will be railway companies reinvesting in people (more jobs) to make sure competitors don’t take their business away. It should also help current railway employees who are often stretched thin or face premature layoffs/late callbacks.