The Canadian railways, for their role in building the country, have been described as nation builders, the backbone of the national transportation system and key to the creation of Canada’s renowned grain industry. Regulation of this backbone industry, ongoing since 1879, has been initiated and undertaken with mixed results. Invariably, regulation left the shipper, the railways and the Canadian economy with lost efficiencies, opportunities and effectiveness.
Over the years, some 20 Royal Commissions have outlined the impact of over-regulation on the rail industry. Over-regulation has not been limited to Canada but rather has been a North American issue. The U.S. Congress looked to the poor result of over-regulation on the rail industry, the economy and its minimal effect on shippers. The 1980 Staggers Rail Act deregulated U.S. rail transportation. When Canada and the United States faced an almost bankrupt rail system in the wake of over-regulation, Canada took a middle-of-the-road approach, clinging tenaciously to its right to regulate.
The paper will review the history of grain/rail rate regulation and examine the effect of that regulation on shippers, railways and the Canadian economy. Next, it will study the revenue-cap regime—rate regulation’s last frontier—to assess whether the revenue cap has replicated the marketplace as it had promised to do. The third portion of the paper will outline the relationship between investment and regulation and productivity. The final section of the paper will deal with the deregulated grains industry and the effect of the revenue cap on the major stakeholders. This paper concludes that the continued regulation of freight rates in grain is an ill fit with a deregulated grains supply chain.
In its review of rail-rate regulation, this paper could do no better than return to the analysis provided in “‘The Holy Crow’ (And the Perverse Nature of Good Intentions)”1 by Professor Paul D. Earl of the Asper School of Business.
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