Introduction

In May 2022, Transport Canada characterized Canada’s freight rail system, which “mov[es] more than 332 million tons of essential Canadian goods each year,” as a key component of the country’s supply chain. These goods are transported in rail containers, and those that are exported internationally and imported from abroad are moved in such containers by sea. Moreover, in February 2021, the United States (U.S.) International Trade Commission stated that shipping routes originating in East Asia had experienced among the highest increases in freight rates since the onset of the COVID‑19 pandemic.

On 27 September 2022, the House of Commons Standing Committee on International Trade (the Committee) adopted a motion to study the potential trade implications of transporting goods in rail containers. During two meetings held on 7 October and 18 October 2022, the Committee’s witnesses comprised representatives from: a trade association for Canada’s port authorities; a port authority; a railway; and four Canadian firms. As well, the Committee received a brief from Essex Terminal Railway/Morterm Limited.

The first section of this report provides the witnesses’ observations about certain challenges encountered during the pandemic when transporting goods in rail containers, while the second section presents their views about Government of Canada actions that could facilitate this transportation. The final section contains the Committee’s thoughts and recommendations.

Transporting Goods in Rail Containers

Witnesses spoke to the Committee about the availability of rail containers for transporting goods, the infrastructure that is needed to move those containers, the costs of transporting goods in this way, and labour shortages in Canada’s freight rail sector.

A.   Availability of Rail Containers

Quorum Corporation pointed out that, at the pandemic’s onset, certain shipping firms reduced the number of empty rail containers available to North American exporters by requiring operators of container and rail terminals to return all empty containers—particularly those from the Asia-Pacific region—to their country of origin. As well, Quorum Corporation estimated that—as of 7 October 2022—the Port of Vancouver's “monthly total of loaded export containers dropped by 33% compared with the average in the same 12 months in 2019 and 2020, while the number of [rail containers] moved out [empty] increased by 96%."

AGT Food and Ingredients Inc. remarked that Canada’s agriculture and agri-food exporters need adequate access to rail containers to transport their goods. Moreover, AGT Food and Ingredients Inc. argued that the number of containers available for transporting goods from Western Canada depends on the “willingness” of shipping firms to allow these containers to “stop in [W]estern Canada empty to be filled with [agriculture and agri-food goods].”

The Vancouver Fraser Port Authority mentioned that, throughout the pandemic, discussions have occurred domestically about the need for “some policy change” to ensure that more empty rail containers are available to transport goods destined for export, and specifically advocated a market-based solution. In the Vancouver Fraser Port Authority’s view, imposing fees or “punitive levies” on shipping firms to induce them to increase the number of empty containers available in Canada would be “hugely destructive to trade.”

B.   Infrastructure

In a brief submitted to the Committee, Essex Terminal Railway/Morterm Limited drew attention to three factors affecting the ability of firms to access or move rail containers to transport goods destined for export: outdated infrastructure at certain Canadian ports; container shortages; and labour shortages. The brief added that, as of 9 November 2022, the Windsor Port Authority lacked the infrastructure needed to load and unload rail containers from one mode of transport to another.

N. Tepperman Limited commented that the infrastructure at a number of Canadian ports has not been “updated quickly enough” to be able to process the rising number of rail containers arriving at them. In particular, N. Tepperman Limited observed that some port infrastructure was built in the early 1970s, when the capacity was approximately 2,500 rail containers per ship, which is lower than the current capacity of up to 25,000 of these containers per ship.

AGT Food and Ingredients Inc. asserted that several firms in Canada’s agriculture and agri-food sector, some of which are located 2,000 to 3,000 kilometres from the nearest seaport, depend on rail and road infrastructure to transport their goods. Calling for greater investments in in-land infrastructure for loading and unloading rail containers, AGT Food and Ingredients Inc. referred to its partnership with the Canadian National Railway Company to construct an in-land container terminal. According to AGT Food and Ingredients Inc., the construction of that terminal allowed empty containers that were transiting from Chicago and Toronto to Vancouver to be filled with grain.

Quorum Corporation identified a number of challenges associated with transporting Canadian grain in rail containers over long distances to the nearest seaport, and subsequently shipping the grain to foreign customers. In Quorum Corporation’s opinion, Canadian grain exporters rely on an “efficient transportation and logistical system” to be able both to deliver their grain to market and to compete with foreign firms.

Highlighting that there is an “urgent” need to increase Canada’s rail transportation capacity “to support restoration of [the country’s] supply chain fluidity” and the movement of rail containers, GCT Global Container Terminals Inc. was concerned that longer container dwell times and greater congestion could occur at certain Canadian container and rail terminals if railway firms do not move containers in a timely manner. GCT Global Container Terminals Inc. also contended that any obstruction to moving rail containers on any rail line connected to new and existing container terminals could create backlogs, and added that these terminals are not meant to be “warehouses” for storing rail containers.

The Association of Canadian Port Authorities stated that, since the pandemic’s onset, longer container dwell times at Canadian ports have delayed certain domestic firms' access to imports arriving by sea. Moreover, the Association of Canadian Port Authorities said that, as of 18 October 2022, the Port of Montreal had experienced a “backlog of containers on the ground, sometimes with an average dwell time of up to 40 days.”

The Association of Canadian Port Authorities, the Canadian National Railway Company, GCT Global Container Terminals Inc., Quorum Corporation and the Vancouver Fraser Port Authority commented on the space available at Canadian container terminals to store rail containers. For example, the Association of Canadian Port Authorities indicated that, as of 18 October 2022, the space available at certain Canadian ports for storing these containers was “scarce.” As well, Quorum Corporation maintained that “just about every city in Canada as well as the United States has had to make room for empty containers” because of an inability to move these containers to their final destinations.

Acknowledging Transport Canada’s efforts at the pandemic’s onset to address rail container backlogs through cooperation among relevant stakeholders, the Canadian National Railway Company described its actions to expand storage capacity for such containers at certain intermodal terminals in Montreal and Toronto, including through establishing several “third party” storage yards in Toronto. According to the Canadian National Railway Company, the backlogs in Montreal were cleared by the end of August 2022, with most of those in Toronto addressed by the end of September 2022.

The Vancouver Fraser Port Authority drew attention to proposed and ongoing infrastructure projects aimed at meeting several goals: expanding storage capacity for rail containers at a number of its container terminals, including one located at Burrard Inlet, British Columbia; addressing transportation bottlenecks; and improving road and railway access to these terminals. Additionally, the Vancouver Fraser Port Authority observed that the capacity of the Centerm terminal at Burrard Inlet will increase by 60% when the expansion project is completed.

Finally, GCT Global Container Terminals Inc. claimed that “Canada has container terminal capacity available to meet current and future demands well into the 2030s.” GCT Global Container Terminals Inc. also remarked that, in 2018, it invested about $300 million in a “semi-automated intermodal rail yard densification project” to expand the storage and rail capacity of one of its container terminals in British Columbia.

C.    Costs

N. Tepperman Limited estimated that the cost of moving a rail container filled with goods from Asia to Canada increased from approximately $3,500 prior to the pandemic to about $30,000 in early 2022. Furthermore, N. Tepperman Limited indicated that—as of 6 October 2022—the cost of moving a 40-foot rail container by sea from Shanghai to Seattle was $2,015, while the cost from Shanghai to Vancouver for a comparable container was $7,000.

AGT Food and Ingredients Inc. and N. Tepperman Limited were concerned about the decision by some shipping firms to increase significantly the costs of moving rail containers to Canada from abroad, with N. Tepperman Limited using the term “price fixing” and suggesting that these higher transportation costs contributed to a doubling of certain goods’ prices in early 2022. N. Tepperman Limited also highlighted that, in May 2022, a number of shipping firms attempted to “force” certain Canadian furniture firms to sign a three-year contract at a shipping rate of $16,500 per rail container, a rate that—as of 7 October 2022—was about $7,500.

AGT Food and Ingredients Inc. underscored that rising costs have affected its ability to use rail containers to transport certain agriculture and agri-food goods. Moreover, AGT Food and Ingredients Inc. said that, as of 7 October 2022, the Governments of Canada, Australia, New Zealand, the United Kingdom and the United States had launched inquiries about “cartel behaviour, price-fixing and steamship line competitive behaviour.” Indicating that no international regulatory body oversees the global shipping sector, AGT Food and Ingredients Inc. contended that national governments are “very critical” to ensuring that agriculture and agri-food exporters have “a level and competitive playing field.”

Quorum Corporation identified factors that, at the pandemic’s onset, contributed to rising costs to transport goods in rail containers. In Quorum Corporation’s view, shipping firms sent fewer container ships to Canada, resulting in a “whole bunch of loaded containers on the docks in Vancouver and Prince Rupert, and to an extent in Montreal.” Quorum Corporation mentioned that certain Canadian exporters had to pay high storage fees and financial penalties to store these containers, with AGT Food and Ingredients Inc. characterizing ancillary charges as “massive parts of [its] cost base” and expressing concern that—as of 7 October 2022—some of these charges equaled “what [it paid] for containers.”

Finally, the Vancouver Fraser Port Authority commented that—as of 18 October 2022—the costs of moving rail containers from abroad by sea to North America’s West Coast had continued to decline, and added that the number of containers available to transport goods destined for export had increased. The Vancouver Fraser Port Authority stated that the high shipping rates to move containers from abroad to Canada at the pandemic’s onset was “a short-term problem,” with such rates now beginning to “normalize.”

D.   Labour Shortages

In the Association of Canadian Port Authorities’ opinion, labour issues are among the factors affecting firms’ ability to access rail containers and the supply of those containers. Similarly, N. Tepperman Limited asserted that labour shortages are affecting Canada’s freight rail sector.

According to Quorum Corporation, several North American firms on the West Coast that are involved in loading and unloading rail containers laid off “a lot of people” in 2021, and—as of 7 October 2022—were experiencing labour shortages. Quorum Corporation explained that these firms “are trying to get back into business” but are “having a difficult time getting people to come to work.”

Providing a different perspective, the Canadian National Railway Company said that it has not been affected by labour shortages, with most of its rail terminals being fully staffed throughout the pandemic. However, the Canadian National Railway Company noted its awareness of labour shortages at some terminals in the Port of Montreal.

Government of Canada Actions

In their comments to the Committee, witnesses identified Government of Canada actions that could affect the transportation of goods in rail containers. Their specific focus was: reporting, collecting and sharing certain information and data; financing; regulations; and other actions.

A.   Reporting, Collecting and Sharing Information and Data

The Association of Canadian Port Authorities described “supply chain visibility” as “knowing where the goods and containers are and where the bottlenecks and available capacity are.” The Canadian National Railway Company underscored that “supply chain partners” are not receiving certain data concerning rail containers, and indicated that they should receive information about a container’s destination, contents, weight and estimated date of arrival at a Canadian port once it leaves a foreign port. As well, Quorum Corporation pointed out that it is “wholly dependent” on the container-related information that port authorities generally provide voluntarily.

Regarding import-related data, the Canadian National Railway Company claimed that the Canada Border Services Agency’s “antiquated” information technology systems prevent the “pull[ing]” of such data, which—in any event—could not be shared because of limitations in the Canada Border Service Agency’s governing legislation. The Canadian National Railway Company suggested that the Canada Border Services Agency’s information technology systems and processes “prohibit flexibility in the supply chain.”

With a focus on the Canada Marine Act, Quorum Corporation said that some provisions address information and data, but also contended that the degree of disaggregation does not necessarily enable “any usable analytics or measures.” The Association of Canadian Port Authorities expressed its hope that future amendments to the Canada Marine Act and port modernization would enable Canada’s port authorities to fulfill their role within supply chains “more nimbly.” The Vancouver Fraser Port Authority mentioned its work with Transport Canada and other stakeholders to develop reporting and sharing “tools and processes” that could identify supply chain challenges and inform the development of solutions to them.

B.   Financing

Comparing federal funding for Canada’s airport authorities and port authorities, the Association of Canadian Port Authorities commented that the former can receive federal economic development funds, but the latter cannot. The Association of Canadian Port Authorities also asserted that many of Canada’s port authorities lack the funds needed to maintain ports. In the Association of Canadian Port Authorities’ view, port authorities are subject to borrowing limits that are difficult to change in a timely manner, and these authorities require “more tools” to be “nimbler in making the investments they want to make.” As well, the Association of Canadian Port Authorities highlighted the need for port authorities to have the financial ability to purchase land off-site to create storage facilities for rail containers.

The Vancouver Fraser Port Authority noted the significant benefits associated with projects that are partly financed by the National Trade Corridor Fund. According to the Vancouver Fraser Port Authority, it received $300 million in contribution funding “towards about a billion dollars' worth of road and rail infrastructure in [British Columbia’s] Lower Mainland.” Similarly, the Association of Canadian Port Authorities stated that some of its members have been assisted by the National Trade Corridor Fund, and added that “many of [their] projects have actually addressed many of the infrastructure gaps.” Characterizing the National Trade Corridor Fund as “fantastic,” the Association of Canadian Port Authorities observed that Canada’s port authorities have received nearly $1 billion.

The Canadian National Railway Company urged the Government of Canada to “streamline the process for infrastructure investment” in order to expand Canada’s trade, and expressed support for increased funding for port infrastructure, as well as rail and inland terminal capacity. Furthermore, the Canadian National Railway Company identified the National Trade Corridor Fund as a “good solution” for financing additional infrastructure.

C.    Regulations

Concerning the regulatory approval process undertaken prior to the construction of intermodal terminals, the Canadian National Railway Company stressed that the federal process for its Milton facility took six years to complete, including five years for the environmental assessment. The Canadian National Railway Company suggested that an additional three years will be needed to address “300 different conditions put on the approval.” In the Canadian National Railway Company’s opinion, the regulatory approval process should be changed so that Canadian firms can “get things done quickly.”

Regarding the regulation of shipping rates, the Vancouver Fraser Port Authority pointed out that “market intervention should be the last resort” because the market should “naturally correct [itself]” over time. Similarly, the Canadian National Railway Company underscored the need for market-determined rates. GCT Global Container Terminals Inc. explained that market demands have led shipping rates to decline since 2021, and maintained that—as of 18 October 2022—the market had “corrected itself.”

D.   Other Actions

The Association of Canadian Port Authorities commented that Canada needs a “future-proof transportation supply chain strategy” that is developed in consultation with relevant stakeholders and that considers climate change and other disruptions to supply chains. As well, the Association of Canadian Port Authorities remarked that the 2022 final report of the National Supply Chain Task Force recommends the development of such a strategy. Similarly, with the goal of mutual recognition of regulations, policies and processes, Essex Terminal Railway/Morterm Limited’s brief called on the Government of Canada to engage with the Government of the United States, and with Canada’s provinces, territories and other relevant stakeholders, during the development of a national transportation supply chain strategy.

GCT Global Container Terminals Inc. said that the Government of Canada has a role to play in facilitating “the collaboration that ultimately must be [undertaken] by supply chain partners.” GCT Global Container Terminals Inc. contended that this collaboration should include a “holistic approach and consider inland container storage, inland warehousing, and flex capacity.” GCT Global Container Terminals Inc. also mentioned that some recommendations in the 2022 final report of the National Supply Chain Task Force should receive “immediate actions.”

The Committee’s Thoughts and Recommendations

Canada’s freight rail sector is a significant contributor to the country’s economy and its prosperity, and goods that are exported and imported are often transported in rail containers. The Committee recognizes that the COVID-19 pandemic affected the country’s trade—both exports and imports—and that firms in certain sectors, including freight rail, and their employees experienced negative impacts. Although some pandemic-related challenges have been reduced or have ended, others persist and must continue to be a focus of efforts by governments and others.

A pandemic is one example of the types of shocks that can affect Canada’s economy. Others also exist. Mindful that ongoing vigilance is required to anticipate internal and external shocks, the Committee holds the view that strategies—comprehensive, forward-looking and adaptable—are needed to address challenges as they arise. From a trade perspective, two areas that should be satisfactorily considered in Canada’s national transportation strategy—currently, Transportation 2030: A Strategic Plan for the Future of Transportation in Canada, but future strategies too—are supply chains, and the transportation of exported and imported goods in rail containers. In addition to Transportation 2030, the Committee is aware of the recommendations contained in the 2022 final report of the National Supply Chain Task Force, including those relating to labour.

Canada needs an efficient transportation system, and freight rail transport—including to move goods in containers—is a critical part of that system. Transportation infrastructure that is adequate, well-maintained and modern contributes to the system’s efficiency and the cost-effective transportation of goods, whether for export or import. The Committee observes that maintaining the transportation infrastructure that currently exists, and investing in additional infrastructure, could strengthen the capacity to transport goods in rail containers. From the federal perspective, financing and regulatory approval processes are among the factors that affect such infrastructure.

Decisions should be made with due consideration given to available information and data. The Committee acknowledges the benefits of ensuring that timely and accessible information and data concerning transportation, including in relation to rail containers, is shared with relevant supply chain partners. The ability to do is affected by information technology systems and legislative provisions, among other elements.

Finally, transportation undertakings that cross provincial and territorial boundaries are an area of federal jurisdiction. In this context, the Committee notes that the Government of Canada has a role to play regarding labour issues—and their resolution—in the freight rail sector. At present, these issues include some labour shortages, the resolution of which could involve discussions among relevant stakeholders,

In light of the foregoing, the Committee recommends:

Recommendation 1

That the Government of Canada ensure that Canada’s national transportation strategy satisfactorily addresses identified needs in two areas: resilient supply chains; and the ability to transport goods in rail containers in a cost-effective and timely manner. In determining the strategy’s priorities in these two areas, the Government should consult relevant stakeholders during the development of measures and policies designed to achieve the following goals:

• maintain and enhance trade-related transportation infrastructure, regarding which consideration should be given to the availability and sufficiency of federal financing, as well as the requirements and timelines of federal regulatory approval processes for projects; and
• facilitate the reporting and collection of rail container—related information and data, and their timely sharing with relevant stakeholders in an accessible manner.

Recommendation 2

That the Government of Canada give timely consideration to the recommendations contained in the final report of the National Supply Chain Task Force, particularly those pertaining to labour, and to other proposals designed to address labour shortages in the freight rail sector.