CN Rail warns Ottawa, no new or extended regulations on railways

CN chief executive Claude Mongeau gets set to start the company's annual meeting Tuesday, April 26, 2016 in Montreal. (THE CANADIAN PRESS/Ryan Remiorz)

MONTREAL -- Canadian National Railway is calling on Ottawa to refrain from imposing or extending service regulations on the country's railways that it fears will stifle innovation and discourage investment.

Chief executive Claude Mongeau says railway managers, not government agencies, are the best ones to decide on the trade-offs needed to ensure an efficient service.

"The request of having every dimension of service regulated and arbitrated by the Canadian Transportation Agency is a slippery slope," Mongeau said in an interview after the company's annual meeting.

Requiring the agency to become involved in the "minutiae" of railway operations would be a recipe for ending commercial solutions and natural rivalries between carriers that drive the best service, he said.

He criticized customer proposals that would extend interswitching rights to 160 kilometres, saying it would allow U.S. railways to take traffic away from Canadian companies without any compensation or reciprocity.

All customers would like to have the system designed for their particular benefit, but only railways can make the decisions about what's needed for the entire network, he said.

"We should not listen to those who advocate without facts -- those who are looking to swing the agenda their way to get regulatory leverage," he told shareholders.

Mongeau also rejected those who claim railways are monopolies that dictate service levels.

He says CN Rail (TSX:CNR) faces growing competition from its Calgary-based rival Canadian Pacific, along with U.S. carriers, trucks and ships. However, he added that customer safeguards and proper regulations are legitimate in places with no customer choices.

Meanwhile, Mongeau said he was confident the new Liberal government would ultimately take a "fact-based approach" in responding to changes to the Canada Transportation Act proposed in a report by former cabinet minister David Emerson that was tabled in February.

Mongeau said he broadly agrees with Emerson's findings and said he is willing to partner with CP Rail (TSX:CP) or other industry participants to press for changes that would help Canada's transportation infrastructure.

But he criticized the previous government's intervention a couple of years ago that forced Canadian railways to move a bumper grain crop by imposing minimum volume requirements.

"Very late in the game they introduced a number of regulatory changes that were not well thought out frankly and not supported by the facts and will undermine innovation and investment in the rail industry if they are not repealed in due course."

Mongeau said he was disappointed that the Trudeau government had postponed for one year the repeal of those provisions while it reviews the Emerson report.

Failure to rescind the regulations will discourage railway investment, the Montreal-based railway said.

Canada's largest railway transported record volumes of Western Canadian grain in the 2014-2015 crop year, some five per cent more than during the record 100-year crop a year earlier.

Transport Minister Marc Garneau's office didn't immediately return requests for comment.

David Montpetit, chairman of the Western Canadian Shippers Coalition, declined to comment on Mongeau's assertions, saying the group is polling members by June before responding to the Emerson report.

However, he said the coalition favours making interswitching changes permanent.