CN 'disturbed' by proposed Canadian legislation increasing regulation, oversight for rail grain transportation, including new rules for extension of interswitching limits in rail industry; CEO says action could cause financial harm to CN

Sandy Yang

MONTREAL , March 27, 2014 (press release) – Company particularly disturbed by proposed interswitching changes that could undermine rail viability, investment and harm Canadian economy

CN (CNR.TO) (CNI) expressed disappointment with Canadian government legislation tabled today by Agriculture Minister Gerry Ritz and Transportation Minister Lisa Raitt to increase regulatory intrusion and oversight for rail grain transportation, and to introduce new rules for the extension of interswitching limits in the rail industry.

Claude Mongeau, CN president and chief executive officer, said: "CN is disturbed that the government has decided to punish railways with re-regulation for an outsized crop and winter conditions totally beyond their control. The legislation does not address the root cause of the current grain situation and will do little to move more grain, now or in the future. We also have deep concerns about the potential consequences of the government's proposed new interswitching rules."

Interswitching involves the transfer of traffic from the lines of one railway to the lines of another railway. Currently, where a shipper is served by only one railway, the shipper is entitled to transfer its traffic to another railway at a regulated rate set by the Canadian Transportation Agency if the shipper's facility (either at origin or at destination) is located any point within a 30-kilometre radius of where the two railways connect.

Mongeau said: "The government is opening the door to extended interswitching limits for specific regions or goods without any due process to assess the potential consequences for railways and the Canadian economy. This action could hit Canada's railways by opening their business to unfair poaching by U.S. railways without any reciprocity. Beyond causing financial harm to CN, it could drain traffic away from Canadian ports and cause the loss of jobs, reduce investment and undermine tax revenues across Canada ."

In addition, the legislation would give the Canadian Transportation Agency a highly intrusive role in railway operating matters in arbitrating service-level agreements for specific shippers, with the potential to cause costly inefficiencies in the system.

"CN firmly believes that commercial incentives and effective supply chain collaboration are the best ways to promote rail investment in infrastructure and resources to transport increased volumes of grain and other freight."

Mongeau said the ministers' action represents a missed opportunity to take an even-handed approach and encourage supply chain collaboration. Instead, they decided to subject railways to an unnecessary layer of reporting, oversight and regulation that can only result in greater rigidity in the supply chain and undermine innovation.

"If the government is going to go through with this legislation, we urge it to also subject grain elevator companies to greater regulatory oversight in order to ensure proper coordination and adequate resource allocation, with a view to creating surge capacity when crops are more sizable than the norm."

Mongeau concluded: "It's a sad day for Canada when the government decides to hit one sector of the economy in order to placate a vocal constituency, instead of fostering sound commercial solutions to strengthen Canada's transportation infrastructure."

CN is a true backbone of the economy, transporting approximately C$250 billion worth of goods annually for a wide range of business sectors, ranging from resource products to manufactured products to consumer goods, across a rail network spanning Canada and mid-America. CN - Canadian National Railway Company, along with its operating railway subsidiaries -- serves the cities and ports of Vancouver , Prince Rupert, B.C. , Montreal , Halifax , New Orleans , and Mobile, Ala. , and the metropolitan areas of Toronto , Edmonton , Winnipeg , Calgary , Chicago , Memphis , Detroit , Duluth, Minn. / Superior, Wis. , and Jackson, Miss. , with connections to all points in North America . For more information on CN, visit the company's website at www.cn.ca.

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