Managing the Border:The Railway Role and Transportation Policies to Facilitate Trade: Managing the Border: The Railway Role and Transportation Policies to Facilitate Trade Public Policy Forum Roundtable on Borders, Transportation and Trade Toronto, April 11, 2001


OUTLINE: OUTLINE Rail Contribution to a Trading Nation North/South Markets and Rail Role Canada’s Competitive Advantage What Rail Can Offer Economic and Policy Challenges Vision for Future Conclusions for the Border


1. Rail Contribution to a Trading Nation: 1. Rail Contribution to a Trading Nation Over 50 railways participating in the "new economy" of Canada, employing 43,000 people 5.5 million carloads of freight and containers and 52 million passengers by rail using latest "state-of-the-art" technologies Rail industry going through a resurgence characterized by:


Slide4: -- 270% productivity growth since mid '80s -- freight rates down by 35% since mid '80s -- significant re-investment, returning to necessary levels -- tremendous short line growth, revived passenger/commuter sector $10 billion annual contribution to an economy that is becoming more trade-based -- 42% of Canadian GDP is exported; rail moving about half


2. North/South Markets and Rail Role: 2. North/South Markets and Rail Role Canada is leading export market for 35 US states, and with NAFTA, a North American rail industry is emerging. Over $1.5 billion of goods traded daily with the US at an annual growth rate of 13% (since NAFTA inception) From 1992 to 1999, exports to the US rose from 77% to 86% of Canadian total Rail handles a significant share of surface traffic across the border


Slide6: US TRADE GROWTH BY REGION 1998 13% 20% 23% 43% Total: $473 billion Over 2.5 times 1988 figure


Slide7: CANADIAN EXPORT CARRIERS TO U.S. Source: Statistics Canada, 1999 70% Truck (for hire) 27% Rail BY VALUE, 1999 3% Marine


Slide8: Source: Statistics Canada, 1999 27% Marine CANADIAN EXPORT CARRIERS TO U.S. BY VOLUME, 1999 41% Truck (for hire) 32% Rail


Slide9: Ontario corridors handle 65% of all Canada/US trade by value, and 80% of US-destined rail traffic moves through Ontario gateways Importance of just-in-time and intermodal deliveries increasing Current customs, regulatory, infrastructure investment and fiscal policies concerning border impede flow of goods -- safety is being threatened, not enhanced


3. Canada's Competitive Advantage: 3. Canada's Competitive Advantage Canada has expanding global strength from its relationship with the US -- the world's largest market The weak Canadian dollar assists Canadian exporters, but camouflages some disabilities An educated population and falling debt levels set stage for sustained growth Canada is a convenient entry point for others looking to access the growing NAFTA marketplace


4. What Rail Can Offer: 4. What Rail Can Offer User-pay corridor capacity potential for traffic growth, as option to public sector underfunding Larger Canadian railways have strategically extended their reach into the US through acquisition and alliances Railways working hard to develop their corridors:


Slide12: --heavier welded rail --extended sidings/passing tracks --better signalling and tunnel expansion --upgraded bridges --new locomotives (more power fuel efficient and environmentally-friendly) --links with Mexico Trade route advantages for offshore container movements to/from US locations: --Europe - Chicago via Halifax and Montreal --Asia - Chicago via Vancouver


Slide15: N/S intermodal systems evolving, with new technology and market-based innovations being tested and introduced: --new roll-on/roll-off and piggy back systems --introduction of high-capacity, double-stack container cars and multi-level auto carriers --expansion of high-throughput intermodal terminals with sophisticated inventory control --new information technology and e-customs clearance Safe mode of transport for people and goods through dedicated, private corridors Seams are disappearing


5. Economic and Policy Challenges: 5. Economic and Policy Challenges Numerous Canadian industries are consolidating and integrating into a continental structure under NAFTA NAFTA trade means goods can move over Canadian or US routings Inherent cost disadvantages on the Canadian side of the border: --many industries have location disadvantages --size and density of economy hamper scope and scale efficiency


Slide17: Economic vs. social philosophy in Canada -- railways are still politically expedient "targets" Railways face economic regulation even where competitive service options exist, and are not taxed like other businesses compared to the US


Slide18: Effect of Taxes on Canadian Competitiveness with US Rail, 1999 Note: Calculation in accordance with Vancouver Round Table methodology that compares CN and CPR in Canada with pro forma equivalent railways in the US. Legend Employment/ Payroll Taxes Property Taxes Fuel & Sales Taxes Canada US 95.6 185.8 21.1 281.4 139.9 Cdn. $ millions 54.0 129.4 35.3 87.5 (Source: CPR) ($1 US = $1.48 Cdn) 300 250 200 150 100 50 0 51% higher in Canada


Slide19: High taxation and regulatory gaps with US reduce competitiveness because of: --increased operating costs --decreased earnings available for investment to improve productivity Significant growth projections are challenging transportation infrastructure, and innovative options required To date, many equate corridors and gateways singularly with highways


Slide20: Eastern Border Transportation Coalition estimates that $2.9 billion required to expand Ontario trade highways Projected Growth Between 1995-2020:


Slide21: US has introduced TEA-21, a $217 billion transportation program that includes a component for intermodal spending US-Canada customs/inspections practices at border constraining Canadian route advantages Movement of labour force and rail equipment also restricted


6. Vision for Future: 6. Vision for Future Tomorrow's economy will need more of what Canada produces; significant border traffic expected Canadian economic success requires the most cost-effective, efficient and reliable transportation system in the world Canadian policy and regulation should provide continental competitive balance to meet Canadian needs within NAFTA


Slide23: A comprehensive Surface Transportation Policy should be: -- international in vision -- national in scope -- multi-modal in concept The strategic importance of Canadian transportation infrastructure should be viewed as an investment, not a cost


Slide24: Modern, efficient, low cost railways will be key; and density of Canadian infrastructure can be improved Ultimate test: are Canadian policies and practices contributing to competitiveness vis-à-vis the US? Our transportation network must be ready for the 21st Century, and railways must be able to facilitate/stimulate cross-border trade


7. Conclusions for the Border: 7. Conclusions for the Border Canadian trade success with the US requires: -- pro-competitive investments -- elimination of economic distortions -- streamlined regulation -- overall efficiency in transportation networks Rail can help solve some of the challenges facing other transport sectors -- reduce major public costs and ongoing government liability implied by highway renewal -- attract private investment (and reduce border highway congestion)


Slide26: Initiatives include: -- moving customs inspections away from the border to reduce delays -- further automation of export declaration process -- development of "common" US/Canada database and processes to support electronic clearance -- cross-designation and greater sharing of personnel -- increased use of common facilities and infrastructure to provide border services A new vision and policy approach should also address regulatory and fiscal differences to enhance Canadian competitiveness