Canadian National, regulator disagree on breaching service obligations

Image credit: Canadian National

Canadian National (NYSE: CNI) plans to appeal a determination by a federal regulator that the railway breached rail service obligations last fall at the congestion-prone Port of Vancouver.

The Canadian Transportation Agency (CTA) found that CN breached its level of service obligations because CN said in September 2018 that it would impose embargoes on wood pulp shipments. CTA contends this was several months before rail congestion actually emerged at the Port of Vancouver, according to an April 15 statement.

CTA said the railway chose to restrict traffic when those embargoes took effect in December 2018 instead of “making every reasonable effort to deal with” congestion and rail service issues. The agency wants CN to develop and submit a plan that addresses future traffic surges in Vancouver and how the company will seek to avoid or minimize using embargoes.

CN said in response that it would appeal CTA’s decision in federal court. The railway said its actions were “an appropriate and necessary measure.” CN also said the agency confirmed that efforts to regulate traffic flow were often justified and that other embargoes were beyond CN’s control.

Canadian regulators launched an investigation over rail service at the Port of Vancouver on January 14, 2019 in response to shippers’ concerns over congestion at the busy port last winter. CTA investigated shippers’ claims by looking at rail service at the port and at CN’s Thornton Yard from October 2018 to January 2019.

Two other railways being investigated during the same period for potential service breaches, Canadian Pacific (NYSE: CP) and BNSF (NYSE: BRK), were not found to breach their service obligations.

The Port of Vancouver can be prone to rail service issues partly because the port’s physical plant is constrained by the surrounding city and its residential areas. Canada also relies on the port to export key commodities such as grain to Asia. Severe winter weather conditions can also restrict rail activity heading to the port.