Railway Association of CanadaRailway Association of Canada

Border Rail Challenges: Improved Border Rail Challenges: Improved Integration to Foster North Integration to Foster North

American Security and TradeAmerican Security and Trade

Presentation to the Canada – U.S. Transportation Presentation to the Canada – U.S. Transportation Border Working Group MeetingBorder Working Group Meeting

Vancouver, BCVancouver, BC

December 5December 5thth , 2002 , 2002

www.railcan.cawww.railcan.ca

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OUTLINEOUTLINE• About the RACAbout the RAC

• Trade and RailTrade and Rail

• The Border: Policy ContextThe Border: Policy Context

• The The BorderBorder: Markets and: Markets and Challenges Challenges

• What Rail OffersWhat Rail Offers

• Rail Solutions: IntermodalRail Solutions: Intermodal and Border Initiatives and Border Initiatives

• Rail Can Do MoreRail Can Do More : 20 : 20/20 Vision/20 Vision

• ConlusionConlusions for the Borders for the Border

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• We are the Canadian Rail Industry: 5We are the Canadian Rail Industry: 577 members members

• Represents virtually all Railways operating in Canada todayRepresents virtually all Railways operating in Canada today– Class 1s (CN and CPR)Class 1s (CN and CPR)– Short linesShort lines– Inter-city Passenger (VIA)Inter-city Passenger (VIA)– Commuter Commuter – Tourist Tourist

• Together members carryTogether members carry– 4.2 million carloads annually4.2 million carloads annually– 1.7 million containers and trailers1.7 million containers and trailers– 51 million commuters, inter-city and tourist train travelers51 million commuters, inter-city and tourist train travelers

ABOUT THE RACABOUT THE RAC

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ABOUT THE RAC - ABOUT THE RAC - CANADACANADA

• The industry operates The industry operates close to 50,000close to 50,000 kilometres of track and kilometres of track and employs employs 4141,000 people…another 50,000 employed in supply ,000 people…another 50,000 employed in supply industry in many communitiesindustry in many communities

• $10 billion contribution to the economy$10 billion contribution to the economy

• Over 60% of Canada`sOver 60% of Canada`s goods goods moving by surface (ton-kms) moving by surface (ton-kms) depend on rail to reach their marketdepend on rail to reach their market

• 300300 million ton million tonnenes of rail freight are s of rail freight are originatedoriginated every year – every year – equivalent to over equivalent to over 1818 million truckloads million truckloads

• Considerable deregulation since 1987 with very positive Considerable deregulation since 1987 with very positive resultsresults

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CANADA - A TRADE DEPENDENT CANADA - A TRADE DEPENDENT NATIONNATION

• Over 40% of GDP comes from exports. Highest in G-8Over 40% of GDP comes from exports. Highest in G-8. Rail moves . Rail moves about half.about half.

• NAFTA volumes, now massive, were growing at 10% per year until NAFTA volumes, now massive, were growing at 10% per year until 20012001

• Ports of Vancouver, Montreal and Halifax key for international trade Ports of Vancouver, Montreal and Halifax key for international trade (vital to North American economy) in Canada(vital to North American economy) in Canada

• Numerous Canadian industries are consolidating and integrating into Numerous Canadian industries are consolidating and integrating into a continental structure under NAFTAa continental structure under NAFTA

• Canada is a convenient entry point for others looking to access the Canada is a convenient entry point for others looking to access the growing NAFTA marketplacegrowing NAFTA marketplace

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THE BORDER : POLICY CONTEXTTHE BORDER : POLICY CONTEXTcont’dcont’d

• Transportation Systems are becoming globally seamless Transportation Systems are becoming globally seamless andand logistics and new e-technologies, are changing logistics and new e-technologies, are changing conduct of businessconduct of business

• Customers look at overall efficiency, cost and reliability of Customers look at overall efficiency, cost and reliability of transparent integrated supply chains; increasing transparent integrated supply chains; increasing importance of “J-I-T” and intermodal deliveriesimportance of “J-I-T” and intermodal deliveries

• Efficient and cost-effective border is criticalEfficient and cost-effective border is critical

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THE BORDER: MARKETS AND RAIL THE BORDER: MARKETS AND RAIL ROLEROLE

• Canada is leading export market for 38 US states, and with Canada is leading export market for 38 US states, and with NAFTA, a North American rail industry is emerging. NAFTA, a North American rail industry is emerging.

• Over $1.5 billion of goods traded daily with the US Over $1.5 billion of goods traded daily with the US

• From 1992 to 1999, exports to the US rose from 77% toFrom 1992 to 1999, exports to the US rose from 77% to 86% of 86% of Canadian totalCanadian total

• Rail handles a significant share of surface traffic across the Rail handles a significant share of surface traffic across the border; Ontario Corridors handle 65% of all Canada/US trade by border; Ontario Corridors handle 65% of all Canada/US trade by value, and 80% of US-destined rail traffic moves through value, and 80% of US-destined rail traffic moves through Ontario gatewaysOntario gateways

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CANADIAN EXPORT CARRIERSCANADIAN EXPORT CARRIERS

RailRail44 %44 %

TruckTruck56 %56 %

Truck – Rail Surface Export Share to the USTruck – Rail Surface Export Share to the USVolume 1999Volume 1999

Source: Transport CanadaSource: Transport Canada CN AND CPR ARE TRULY CN AND CPR ARE TRULY NORTH AMERICAN NORTH AMERICAN

COMPANIESCOMPANIES

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OutcomesOutcomes• Events of “September 11Events of “September 11thth” have underlined security and impact ” have underlined security and impact

of U.S. response on Canadaof U.S. response on Canada

• Economic slow-down was exacerbated, but Canadian domestic Economic slow-down was exacerbated, but Canadian domestic economy has reboundedeconomy has rebounded

• Canadian exports to U.S. declined $ 7.8 Billion in 2001; most Canadian exports to U.S. declined $ 7.8 Billion in 2001; most decline was by truck and airdecline was by truck and air

• Careful control and processing of individuals crossing bordersCareful control and processing of individuals crossing borders

• Need for new spending by governments (Federal Budget and 30 Need for new spending by governments (Federal Budget and 30 Point Border Accord)Point Border Accord)

THE THE BORDERBORDER:: CHALLENGES CHALLENGES

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THE BORDER: CHALLENGESTHE BORDER: CHALLENGES

Competitive implications:Competitive implications:• With US/Cda trade barriers having fallen, competition faced by With US/Cda trade barriers having fallen, competition faced by

railways intensified through the ’90s:railways intensified through the ’90s:

- Modal and product sourcing competition has - Modal and product sourcing competition has

intensifiedintensified

- Transport regulations in Canada have given shippers - Transport regulations in Canada have given shippers wider access to competing railways wider access to competing railways

- While Canadian railways have dramatically - While Canadian railways have dramatically improved their productivity, U.S. gains even improved their productivity, U.S. gains even

betterbetter• U.S. Budget proposing more for transport security while cutting U.S. Budget proposing more for transport security while cutting

highways (-26%); intent is better use of existing road and rail highways (-26%); intent is better use of existing road and rail integration (TEA-21 reauthorization) in U.S.integration (TEA-21 reauthorization) in U.S.

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THE BORDER: CHALLENGESTHE BORDER: CHALLENGESAdditional, emerging implicationsAdditional, emerging implications• Risk ofRisk of significant tightening of US security posture at Canadian significant tightening of US security posture at Canadian

border; U.S. Customs threatening to step up rail inspections at border; U.S. Customs threatening to step up rail inspections at border (vs. secure, inland terminals where service delays would border (vs. secure, inland terminals where service delays would be minimal)be minimal)

• Long term Canadian economic performance closely tied to Long term Canadian economic performance closely tied to border efficiency; potential for disinvestment border efficiency; potential for disinvestment

• Tremendous pressures on key corridors; massive spending on Tremendous pressures on key corridors; massive spending on roads required (infrastructure costs to governments)roads required (infrastructure costs to governments)

• Commensurate congestion, land use, gas consumption and Commensurate congestion, land use, gas consumption and emission concerns growingemission concerns growing

• Business as Usual not sustainableBusiness as Usual not sustainable

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WHAT RAIL OFFERSWHAT RAIL OFFERS• Dedicated, private and controlled corridors, own police serviceDedicated, private and controlled corridors, own police service

• Small, professional and stable workforce for volumes handledSmall, professional and stable workforce for volumes handled

• User pay; mini reliance on publicly funded highwaysUser pay; mini reliance on publicly funded highways

• Environmental sustainabilityEnvironmental sustainability

• Most cost effective mode over longer distance/rail is also moving into Most cost effective mode over longer distance/rail is also moving into shorter haul movementsshorter haul movements

• Safe mode of transport for people and goodsSafe mode of transport for people and goods

• New scheduled ‘just-in-time’ serviceNew scheduled ‘just-in-time’ service

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WHAT RAIL OFFERS (Cont’d) WHAT RAIL OFFERS (Cont’d)

• ““Transborder rail operations were not affected by Transborder rail operations were not affected by interruptions and/or long delays at the border after interruptions and/or long delays at the border after the September 11 attacks on the United States. the September 11 attacks on the United States. Streamlined, electronic exchange of rail traffic Streamlined, electronic exchange of rail traffic information occurs before arrival at border locations. information occurs before arrival at border locations. Such a comparative advantage may explain the Such a comparative advantage may explain the uninterrupted flow of transborder traffic and, also, the uninterrupted flow of transborder traffic and, also, the slight increase in Canada’s rail trade with the United slight increase in Canada’s rail trade with the United States observed from October to November of 2001 States observed from October to November of 2001 compared with 2000.”compared with 2000.”

– (Transport Canada annual report 2001, p.119)(Transport Canada annual report 2001, p.119)

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CANADIAN TRADE WITH U.S. BY RAIL CANADIAN TRADE WITH U.S. BY RAIL CONTINUED TO GROW IN 2001CONTINUED TO GROW IN 2001

Data source: Transport Canada annual report

0

10

20

30

40

50

60

70

80

90

1999 2000 2001

mil

lion

s to

nnes

Rail Exports

Rail Imports

Rail Trade

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A RA RAILAIL NETWORK PARALLEL TO HIGHWAY SYSTEM NETWORK PARALLEL TO HIGHWAY SYSTEM

CSX

NS

NS

CN

CN

CP

CP

CP

(D&

H)

CP(D&H)

IMRL

UP

UP

IMRL

IMRL

BN

SF

BN

SF

UP

CP

CP CP

UP

UP

UP

BNSF

UP

UP

UP

UP

UPUP

UP

CS

X

NS (CP)

5

5

15

15 25

5 15

825

19

29

55

81

40

83

78

87

90

10

95

40

44

35

35

10

25

69

81

Portland

Detroit/Windsor

Sarnia

Chicago

Kansas City

OklahomaCity

CP

Dallas

Laredo

Eagle Pass

Miami

Washington DC

El Paso

Denver

Nogales

New York

Barstow

Colton

Sacramento

Salt LakeCity

Calgary

Winnipeg

Montreal

Buffalo

Minneapolis

Moose JawVancouver

Mexicali

* Railroad lines represented here are examples of major railway connections; other routes may also offer similar connecting service

RailroadLegend

Highway

Kingsgate

Huntingdon

Coutts Portal

NS

CN

New Orleans

EmersonDuluth Jct.

Memphis

RousesPoint / East Alburgh

BNSF

Sault.Ste-MarieCN (WC)

CN

NiagaraFalls

CN

Blaine

Massena

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RAIL SOLUTIONS: INTERMODALRAIL SOLUTIONS: INTERMODAL• Railways have made major investments in infrastructure and Railways have made major investments in infrastructure and

intermodal systems intermodal systems

• New technology and market-based innovations being tested New technology and market-based innovations being tested and introduced to shift over truck trafficand introduced to shift over truck traffic

• New fuel-efficient locomotives and innovative rolling stock (e.g. New fuel-efficient locomotives and innovative rolling stock (e.g. double stack container cars; constructed Sarnia tunnel, double stack container cars; constructed Sarnia tunnel, proposed tunnels in Detroit and Vancouver)proposed tunnels in Detroit and Vancouver)

• Short line railways have attracted traffic off the roads for short Short line railways have attracted traffic off the roads for short hauls and as feeders/distributors to the main line and hauls and as feeders/distributors to the main line and transborder rail systemstransborder rail systems

• Trucks have short haul service advantage, but face driver Trucks have short haul service advantage, but face driver turnover/shortage and road congestionturnover/shortage and road congestion

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RAIL RAIL SOLUTIONSSOLUTIONS : INTERMODAL : INTERMODAL (cont’d)(cont’d)

BenefitsBenefits • Promote greater use of existing rail capacity as an alternative to Promote greater use of existing rail capacity as an alternative to

costly expansion of highwayscostly expansion of highways– A train can take up to 280 trucks or 1000 cars off the roadsA train can take up to 280 trucks or 1000 cars off the roads

• Address public objectives for environment, fuel conservation, Address public objectives for environment, fuel conservation, safety and land usesafety and land use– Railways are up to 5 times more fuel efficient than trucks and Railways are up to 5 times more fuel efficient than trucks and

generate significantly less pollutiongenerate significantly less pollution

• Encourage the most efficient transportation output through a Encourage the most efficient transportation output through a combination of modes: help truckers address their challengescombination of modes: help truckers address their challenges

• Bottom line: reducedBottom line: reduced, travel time, shipping and goods transfer , travel time, shipping and goods transfer costscosts

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• Electronic commerceElectronic commerce

– Significant investment in information technologySignificant investment in information technology

– AuAutomated customs transactions and pre-filing systems in place for the tomated customs transactions and pre-filing systems in place for the vast majority of rail traffic … improved customer servicevast majority of rail traffic … improved customer service

• What else can be done? What else can be done? Better alignment of customs policies needed, Better alignment of customs policies needed, including:including:

1) Canada – U.S. external border for uniform 1) Canada – U.S. external border for uniform

inspection and security clearance of containersinspection and security clearance of containers

2) Customs inspections of shipments at destination or 2) Customs inspections of shipments at destination or

origin terminalsorigin terminals away from border away from border

3) Integrate systems to link Cdn and U.S. customs 3) Integrate systems to link Cdn and U.S. customs

computer and data systemscomputer and data systems

4) Pre-qualify low risk customers and their 4) Pre-qualify low risk customers and their

commoditiescommodities

• Customs needs to adhere to Border Accord approach of separating high Customs needs to adhere to Border Accord approach of separating high risk traffic from low – consistent with equitable treatment across all modesrisk traffic from low – consistent with equitable treatment across all modes

RAIL SOLUTIONS: BORDER INTIATIVESRAIL SOLUTIONS: BORDER INTIATIVES

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BORDER INTIATIVES - INLANDBORDER INTIATIVES - INLAND

A rail pre-screening system is needed for inland processing to A rail pre-screening system is needed for inland processing to complement external bordercomplement external border

100% VACIS screening (a tool with some limitations) at border will 100% VACIS screening (a tool with some limitations) at border will create serious safety, service delays and local disruption riskscreate serious safety, service delays and local disruption risks

Vast majority of domestic rail traffic includes BIG THREE auto Vast majority of domestic rail traffic includes BIG THREE auto companies, petro-chemicals, forest products and some other bulk: companies, petro-chemicals, forest products and some other bulk: these are C-TPAT companies with low risk cargothese are C-TPAT companies with low risk cargo

Targeting and examination of high-risk shipments should be performed Targeting and examination of high-risk shipments should be performed at key rail hub sites; plan incorporates risk targeting, VACIS screening at key rail hub sites; plan incorporates risk targeting, VACIS screening and comprehensive supply chain security (CSI principles)and comprehensive supply chain security (CSI principles)

Rail industry recently commended by U.S. agencies for being one of Rail industry recently commended by U.S. agencies for being one of first to develop a detailed security management plan: CN and CPR are first to develop a detailed security management plan: CN and CPR are C-TPAT and PIP registeredC-TPAT and PIP registered

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RAIL CAN DO MORE : 20/20 VISIONRAIL CAN DO MORE : 20/20 VISION

• Leave a smaller environmental footprintLeave a smaller environmental footprint

• Use parallel network to lessen highway congestion and land use Use parallel network to lessen highway congestion and land use consumption; expand system of hub and spoke transfer consumption; expand system of hub and spoke transfer terminalsterminals

• Facilitate N/S trade through dedicated corridors into the US Facilitate N/S trade through dedicated corridors into the US which can lessen bottlenecks at border crossingswhich can lessen bottlenecks at border crossings

• Trade advantage of primarily privately funded and maintained Trade advantage of primarily privately funded and maintained networks with complementary government fundingnetworks with complementary government funding

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RAIL CAN DO MORE : 20/20 VISIONRAIL CAN DO MORE : 20/20 VISION

• What are other ways for Canada to achieve increased What are other ways for Canada to achieve increased modal modal balancebalance? Policy changes include:? Policy changes include:– Tax harmonization/equityTax harmonization/equity

– Introduce innovative approaches to promote Introduce innovative approaches to promote environmental sustainability and efficiency, such as environmental sustainability and efficiency, such as incentives to use intermodalincentives to use intermodal

– Develop and implement a comprehensive national Develop and implement a comprehensive national Surface Transportation Policy: think transportation Surface Transportation Policy: think transportation solutions not just road-buildingsolutions not just road-building

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• Trade is critical to Canada’s economic performance – especially Trade is critical to Canada’s economic performance – especially Canada/U.S. – and harmonization more important than everCanada/U.S. – and harmonization more important than ever

• Trade success with the US requires:Trade success with the US requires:- pro-competitive investments- pro-competitive investments- elimination of economic distortions- elimination of economic distortions- streamlined regulation- streamlined regulation- overall efficiency in transportation networks- overall efficiency in transportation networks

• Border security must be enhanced yet trade must continue to flow, more Border security must be enhanced yet trade must continue to flow, more smoothly if possible (increase alignment of customs policies)smoothly if possible (increase alignment of customs policies)

• Intermodal key to medium/long haul traffic, improved border efficiency and Intermodal key to medium/long haul traffic, improved border efficiency and congestion, and meeting environmental goalscongestion, and meeting environmental goals

• Rail can help Rail can help solve some challenges facing other transport sectorssolve some challenges facing other transport sectorsand can help governments to reduce their public costs and liabilitiesand can help governments to reduce their public costs and liabilities

• Canada needs 20/20Canada needs 20/20 VisionVision to promote, invest in, and build a competitive to promote, invest in, and build a competitive systemsystem

CONCLUSIONCONCLUSIONS FOR THE BORDERS FOR THE BORDER