Speeding Up The Rails

Commentary, Frontier Centre, Transportation, Uncategorized

The railroads’ poor performance in transporting Prairie farmers’ grain to ocean terminals is chronic and well documented. The most recent collapse in service took place during the winter of 1996-97 when as much as $115 million disappeared from farmers’ pockets because of backlogs and delays in the system.

The railroads blamed it on bad weather. The fact that most commodities made it to port on time during that tough winter indicates a crucial deficiency in this argument. A more convincing explanation might point to the rate caps on hauling grain that were retained after the railroads were deregulated, and the Crow subsidy was cancelled. They survive as a quaint relic in a system whose overall performance has been splendid since the changes.

True to the Canadian penchant for studying things to death, the official response has been as slow as the train service for grain farmers. The long-delayed Estey inquiry will finally convene this summer and report its findings before Christmas.

The early history of Western Canada, with its volatile farmers’ movements, focused on the belief that grain producers were held hostage to the whims of powerful grain and rail companies. We ended up with a system that was both expensive and inefficient. A legal framework based on regulation and price controls stifled the Prairie economy and left us all the poorer.

Is there a way out? From Britain comes an intriguing alternative that diluted the railroads’ power by separating out the ownership of different system components. In 1994, the rail beds and tracks became a separate company called Railtrack, which is privately owned but under the oversight of a regulator. That office permits Railtrack to charge access fees and requires it to maintain and modernize its physical infrastructure, and to encourage and promote railway services.

A number of European countries have embraced this model, based on a 1991 directive from the European Commission which outlined this mix of policies:

  • Distance the business of rail operations from government;
  • Separate the provision of capital-intensive rail infrastructure from the commercial operation of railway services; and
  • Improve co-ordination between national rail networks.

France also voted to split its rail network into a separate, but still government-owned, companies. Portugal, Spain, the Netherlands, Belgium, and Germany are all heading in that direction.

This solution parallels a similar thrust in other industries that used to function as natural monopolies. In the United Kingdom, twenty companies compete to supply electricity and prices are falling as a result. The power grids remain under the control of a board that exists to guarantee open access to the providers of the commodity. A similar concept applied to telephones would separate control of the wire and switching infrastructure from companies that perform the actual services.

According to the Wall Street Journal, the Railtrack experiment has been a singular success: "For the first time in decades, Britain’s train system can make long-term plans for railway investment without being subject to the whims of the national Treasury. Government subsidies are dropping, service is improving, some fares are falling and rail companies floated on the stock market are making their owners rich."

Saskatchewan’s NDP government will recommend a policy of common railway running rights to Justice Estey, and a number of grain producers’ organizations are also looking at the idea’s potential. If CN and CP can not do the job, a dose of competition through open access might do the trick. Farmers have nothing to lose but the extra cost of the ships that wait for grain.