Building Competitiveness: A New Transportation Vision for Canada

Kamal Hassan, CEO, Applied Location, and Director, The Empire Club of Canada; Shahriyar Nasir, Senior Student, Bloor Collegiate Institute; Reverend Vic Reigel, Christ Church Brampton; Bart J. Mindszenthy, APR, Fellow CPRS, Partner, Mindszenthy & Roberts Corp., and Past President, The Empire Club of Canada; Cliff Mackay, President and CEO, The Railway Association of Canada; Charles Winograd, President and CEO, RBC Capital Markets; The Hon. John Manley, Senior Counsel, McCarthy Tétrault LLP, and Former Deputy Prime Minister and Minister of Finance, Government of Canada; Heather Ferguson, President, The Hearing Foundation of Canada, and Director, The Empire Club of Canada; Mike Lambert, CFO, Canadian Pacific Railway; Ron Tepper, President and CEO, Consolidated Fastfrate Inc.; Dan Fortin, President, IBM Canada Ltd.; and Stanley H. Hartt, Chairman, Citigroup Global Markets Canada Inc., and Director, The Empire Club of Canada.

Introduction by John Niles

Past Presidents, Directors, Rev. Reigel, honoured guests and members of the Empire Club of Canada:

It was in 1924 Sir Edward Beatty, the first Canadian-born president of the CPR who himself was involved in building the Royal York, spoke to the Empire Club of Canada for the second time during a time of disagreement and disquiet with the city and the CPR. He quoted D'Arcy McGee, a man born in Ireland who came to Canada and became an ardent prophet of Canada's greatness and in 1860 addressed the Quebec House of Assembly in a speech notable for the often-quoted simile:

"I see in the not remote distance one great nationality, bound like the shield of Achilles by the blue rim of ocean."

Two years later in the same assembly he made another speech in which he said: "All we have to do is, each for himself, to keep down dissensions which can only weaken, impoverish and keep back the country; each for himself to do all he can to increase its wealth, its strength and its reputation; each for himself, you and you, gentlemen and all of us, to welcome every talent, to hail every invention, to cherish every gem of art, to foster every gleam of authorship, to honour every acquirement and every natural gift, to lift ourselves to the level of our destinies, to rise above all low limitations and narrow circumscriptions, to cultivate that true catholicity of spirit which embraces all creeds, all classes and all races, in order to make of our boundless province, so rich in known and unknown resources, a great new Northern nation."

He spoke with such eloquence to later bring home the point that despite the problems that present themselves in life, the CPR was and will always be about helping Canadians "to lift ourselves to the level of our destinies."

It is now my pleasure to introduce our guest speaker today--Fred Green, President and Chief Executive Officer of Canadian Pacific Railway.

Fred's career with CPR spans almost 30 years and covers all aspects of the railway's business.

As a result, Fred has a unique insight into the North American transportation sector, wide knowledge of Canadian industry, and a deep appreciation of the essential role transportation plays in driving Canada's competitiveness and forging our links with our international trading partners.

Born in Newfoundland and raised in Montreal, Fred joined CPR in Montreal in 1978 after graduating from Concordia University's commerce program.

Since then, his career has taken him across Canada--from the Maritimes to Ontario, the Prairies to the Pacific Coast, where he served in senior management positions in railway operations, sales and marketing, merchandise, and yield and asset performance.

He managed CPR's reorganization in 1996, overseeing the move of the company's head office team from Montreal to Calgary, one of the largest head office moves in Canadian history.

Fred was promoted to Executive Vice-President and Chief Operating Officer in 2004, and in May this year he was appointed to the top job at CPR--a landmark year in which the company is celebrating the 125th birthday of its incorporation.

Fred is CPR's 16th president, a post that has been held by some of the most famous names in the history of Canadian enterprise.

It is also worth noting that Fred is only the third CPR president to address the Empire Club. Sir Edward Beatty spoke to the Club twice--in 1919 and again in 1924; and Bob Emerson spoke in 1966.

In his 1919 speech, Sir Edward Beatty said: "Intelligent and serious discussion of all phases of transportation activity in connection with Canada's development are essential."

This was true then, and it is still true today.

Ladies and gentlemen, please welcome Fred Green.

Fred Green

Thank you very much, Dr. Niles, and good afternoon everyone. Thanks also to the Empire Club for inviting me to speak today. I'm honoured that you've given me this opportunity.

Befitting the president of one of North America's leading railways, I arrived in Toronto yesterday by train. CPR freight train, that is! And I'll tell you more about my journey in a moment.

But as I travelled here I reflected on the fact that it's been 40 years since a president of CPR has spoken to the Empire Club and I was thinking about why that is.

I wondered:

Is it because no one spends any time thinking about railways unless they are stopped at a level crossing or are awakened from a deep sleep by a train whistle--hopefully not at the same time!

Is it because the topic of freight transportation lacks cachet or controversy?

Or perhaps people think that our national transportation system isn't facing any major challenges and the status quo will serve us well for many decades to come.

If the reason for CPR's prolonged absence from the Empire Club podium is the former, it hurts, but I can live with it. But if it's the latter, that hurts too, because on many fronts it's simply not the case that the status quo is acceptable and if left unchanged it will hurt us all.

Canada's transportation system and gateways--our network of ports, railways, highways, bridges, seaways, and border crossings--all have a major impact on our nation's economy and our nation's productivity and competitiveness.

This can be a very positive impact--enabling Canada's economy. It can also be a negative impact--acting like a governor on Canada's economic engine.

This network may be "behind the scenes" for most Canadians, but how efficiently it is working and what happens to it in the future affects the lives of all Canadians and, therefore, it should be top of mind for all of us.

My railway journey over the last couple of days brought me from Chicago, crossing the border at Windsor, and then to Toronto.

Windsor is the busiest international trade gateway in North America. It is Canada's single largest border crossing for trade and traffic with the United States. Today, more than 25 per cent of all Canada-U.S. trade crosses the border at Windsor. The goods that annually cross the Detroit River by bridges and tunnels are valued in the hundreds of billions of dollars.

Seeing the Windsor Gateway firsthand is a powerful reminder of why efficient and secure transportation networks and gateways are vital to Canada's economic productivity and competitiveness.

My company is keenly aware of two critical facts:

Forty-seven per cent of the bulk, merchandise and intermodal traffic we carry will pass through a port; and
Another 27 per cent will traverse at least one border crossing.

If we can agree that all our trade gateways are critical to our nation's competitiveness and prosperity--and I'm sure we can--we must also acknowledge that we have many improvements to make--and quickly.

Just last month, B.C. Premier Gordon Campbell spoke to the Empire Club about the Asia-Pacific Gateway and Corridor initiative. CPR fully supports this initiative and we plan to be a leading player in making it a reality.

We at CPR understand the importance of Asian trade. We landed our first Asian cargo at Vancouver in 1886. Now, 120 years later, we are moving ever-growing volumes of consumer goods arriving in containers from China and other Asia-Pacific countries, and transporting natural resources to tidewater to feed the offshore markets that are hungry for Canada's coal, potash, sulphur and grain.

The opportunities for this country are huge--but let there be no doubt Canadians need to create the most modern and efficient gateway on the North American Pacific coast if we are to realize our economic potential.

The Asia-Pacific Gateway and Corridor initiative is a good start, but it is only part of the picture.

We need to broaden our perspective. We need initiatives that address all of Canada's transportation system and gateways because this infrastructure is the lifeblood of our economy. And given this--we need to dramatically speed our "time to market" for the initiatives we choose to pursue.

I've spent my entire career in the transportation industry and for the last decade Canadians have been talking, and I emphasize talking, about the need to upscale our transportation and border infrastructure to meet the demands of a bright future.

That future has already arrived so how have we done getting ready for it? Is our infrastructure as efficient and secure as it needs to be? While we've made some progress, which might at best earn barely a passing grade, there clearly remains much room for improvement.

Does our collective infrastructure have the quality and capacity to ensure we can capitalize on the economic growth opportunities we see coming in the next five, 10 or 20 years?

No, I don't believe it does. Far more important than my opinion is what I hear from some of our Asian customers. They are wondering if Canada is really open for business.

We are experiencing a capacity crunch at many points in the system and there are many reasons for it--both past and present.

For example, North American railways now have considerably less track miles than was the case in the 1950s.

Why? In the 1950s nearly half of all railway capacity was for passenger service. During the late 1950s and through the '60s, the new publicly funded highway system put short haul, inter-city passenger rail service in decline. At the same time, jet travel put long-distance passenger service in decline.

You might not know this, but railroading is the world's most capital-intensive business--17 to 18 per cent of every revenue dollar is reinvested every year.

And so, when passenger volumes declined and surplus capacity was created--all railways did the same thing--we picked up the surplus track and used it to reduce our annual reinvestment requirements on other parts of our network.

It was the right thing to do but it did take freight handling capacity out of the North American transportation system.

I'm happy to say that the railway environment has changed--and very quickly. In response to rapidly rising demand for their services, North American railways have invested tens of billions of dollars to replace worn out tracks but--additionally--we've also invested to increase capacity. But even this huge investment has allowed us to increase capacity only incrementally.

So, what else has contributed to Canada's capacity crunch? I refer to it--perhaps not charitably--as "regulatory gridlock." Appointed bodies can take five years or more to discuss, consult and conduct feasibility studies only to be in a position to announce an intention to eventually do something!

I have to ask, "Can we as a nation afford this?"

In the early 1880s, people imagined it would take 20 years to build the CPR. Sir William Van Horne himself described the wilderness on the north shore of Lake Superior as "two hundred miles of engineering impossibilities."

And yet CPR built the railway in just four years. Four years!

It's taken the Port of Vancouver more than four years to get provincial regulatory approval to build Berth 3 at Deltaport and thankfully, the Feds have just three weeks ago granted their approval.

We all know the Port of Vancouver is our principal gateway to the dynamic Asian economies and that we need more capacity now, yet we haven't begun construction. And, on top of this, demand exists for another container terminal. Who knows when this may be approved?

And the Bi-National Committee, charged with the responsibility of determining the solution to the Detroit-Windsor border-crossing crisis, has been at it for at least four years.

We're told to expect their recommendation sometime next year. This will lead to a five-year design, permitting and construction process.

We're told to expect new capacity to be in place by 2013 based on the simplifying assumption the Bi-National's recommendation is fully endorsed by the three levels of government on each side of the international border.

Perhaps this will happen; we can all reach our own conclusions.

Remember this gateway supports and enables 25 per cent of the trade between Canada and the United States. Is this really as fast as we can or should go given the high stakes?

Can we as a nation afford regulatory gridlock?

Surely there is an opportunity here for us to simplify and streamline our regulatory processes so that we speed decision making and implementation while at the same time adequately addressing the interests of all stakeholders.

Clearly, when it comes to improving and expanding Canada's transportation system and trade gateways, the time for talk is over. It's time for action.

Action is required now because Canada's market share is not a given. Ports on our Atlantic and Pacific coasts face stiff and growing competition for import traffic from ports in the United States and Mexico.

These U.S. and Mexican ports are pursuing the same European and Asian business that Canada is, but a simpler regulatory and tax environment is giving them an advantage.

Additionally, in the United States, the Senate is now considering a bipartisan bill that would offer tax incentives to expand the nation's freight railway capacity. Specifically, they are proposing a 25-per-cent tax credit for any business investing in new rail track, intermodal facilities, rail yards, locomotives or other rail infrastructure expansion projects.

Railroads, ports, shippers, trucking companies and other transportation-related businesses would be eligible for the credit.

This sort of initiative will incent, encourage and allow our NAFTA partners to invest more quickly and more heavily in infrastructure to capture what could be Canada's market share.

Action is required now to keep Canada competitive.

I was struck by a recent quote about improving Canada's global competitiveness that came from the World Economic Forum. It was suggested that instead of just "letting stuff happen," Canada should be making things happen.

Let me take a few minutes to provide some details on where my company is making things happen--specifically, by encouraging collaboration within the transportation sector and achieving efficiencies at our border with the United States.

I strongly believe that enhanced collaboration within our transportation sector offers Canada great potential to improve its productivity and competitiveness.

We need to view our ports, border crossings, railways, highways, seaways, and terminals for containers, automobiles and bulk commodities not as a collection of unconnected parts, but as the constituent parts of the same, interdependent transportation supply chain.

For the good of Canadian business and the Canadian economy, we must ensure that the whole transportation supply chain is healthy, robust, modern, integrated and working at maximum efficiency.

A single weak link in this chain is a problem for all of us. When it comes to Canada's competitive fight for international markets, we're all in this together.

In 2004, the whole North American transportation industry was presented with an interesting new challenge. That was the year that surging North American economies and international trade started to put strains on the capacity of our continent's surface transportation infrastructure and marine gateways.

CPR didn't wait around for "stuff" to happen. We took action--through consultation, collaboration and investment.

CPR responded to this new challenge by:

expanding our track infrastructure;
buying new locomotives and intermodal rail cars; and
collaborating with our competitors and other players in the transportation supply chain to improve efficiencies.

Before expanding our rail network, we consulted with our customers and governments.

We met with shippers--of bulk commodities like coal and grain, of intermodal containers and of merchandise freight, such as forest, industrial, consumer and automotive products--to fully understand the structural changes happening in these industries and what they saw as their long-term demand requirements.

We also talked with governments at all three levels and obtained federal government assurances that we could count on regulatory stability--a necessary pre-condition to major investment given the unpredictability of regulation over the preceding decades.

As a result of our successful discussions, in 2005, we started and completed a $180-million expansion of our Western Corridor between the Prairies and Vancouver, laying new sections of double track and building and extending sidings.

By doing so, we improved fluidity on this strategic corridor and increased rail capacity by between 13 and 15 per cent.

Importantly, we also recognized that non-capital solutions could play an important role in delivering the needed capacity--quickly.

That's why we also sought out opportunities for greater operational co-operation with our rail competitors and other players in the supply chain.

Over the past several years, CPR has formed co-operation arrangements with Canadian and U.S. railroads covering the full range of rail operations in central Canada, western Canada, and the northeastern and midwestern United States.

For example, CPR and CN have numerous co-production arrangements in the interior and Lower Mainland of British Columbia that are making the flow of freight to and from the Vancouver area ports much more efficient--and providing the needed capacity for economic growth.

CPR and our co-production partners remain fierce competitors in the transportation marketplace, proving that even competitors can find room to co-operate to implement "win-win" arrangements for a broader good--in this case greater capacity, smoother trade flows and improved service for our customers.

And our vision extends to other players in the supply chain.

Actions like these will help build Canada's productivity and competitiveness, but there's much more work in this area that can and will be done.

My second point is that for Canada to compete effectively on the international stage, we must ensure that the movement of goods between Canada and the United States is seamless and fluid. This should be obvious. The United States is our number-one trading partner.

Many of the goods that flow through our ports in Vancouver, Montreal and elsewhere either originate from or are destined for the United States. This means--of course--that we have to create and seize every opportunity to improve efficiencies at the Canada-U.S. border. This has become more difficult since the events of 9/11--and some believe the dual objectives of enhanced security and the free flow of goods in support of economic growth are at odds and can never be reconciled.

But I believe creating uniquely secure transportation corridors can be a source of competitive advantage for Canada's trade. I am pleased to say that both federal governments and my company have made some significant progress already.

I can point to a very good example right here in Ontario. Since 2001, CPR and the Government of Canada jointly invested to secure our railway's 7.5-kilometre rail corridor through Windsor to the U.S. border, installing a new state-of-the-art surveillance system along our corridor.

This work paved the way for the U.S. government to install their sophisticated Vehicle and Cargo Inspection System on the Canadian side of our Detroit Tunnel. The system scans contents of freight cars and containers for threats, including radioactive materials, weapons and explosives. This is done without stopping our trains--compromising neither the quality of surveillance nor the capacity of this critical transportation artery.

This is a simple example, but it does illustrate that "win/win" solutions are possible if issues are approached with both creativity and a sense of urgency.

Whether it's the Asia-Pacific Gateway and Corridor initiative, harmonization of actions at our gateways with the United States, or collaboration within the transportation sector, we are past the point of discussion and consultation. It is time to turn this vision of an efficient, integrated transportation and trade gateway system into a reality.

Canada wants to be competitive but many countries aspire to be competitive. Good companies, good people and good governments understand the need to be competitive. Great companies, great people and great governments have higher aspirations. They want to have a competitive advantage. That's what I want for my company. That should be our aspiration for Canada.

We can achieve our vision of an efficient, integrated transportation and trade gateway system by taking action through leadership, planning and investment.

We can achieve our vision with collaboration among all participants in the supply chain, collaboration that would see us co-ordinating our investments for the greater good of the whole supply chain and the Canadian economy.

And we can achieve our vision through collaboration between governments and the private sector, where governments would act as the catalyst and the private sector would plan robustly and implement--quickly!

The 125th anniversary of CPR's incorporation this year is a reminder of what we have achieved as a nation through collaboration between government and the private sector.

CPR was born because the government of the day had a vision to unite the country. However, the government realized it couldn't get there on its own. The government needed the private sector; and CPR's founders had a vision to build a railway that could be a viable business into the future.

It is hard to imagine CPR would have ever been built if Sir John A. Macdonald had been working on the next two-year plan, or if CPR's founders were thinking no further ahead than the next financial quarter.

They had to make some big bets on the country.

They needed bold vision.

And they needed to collaborate to realize that vision.

There have been other bold visions in our history--the Ontario canal systems; the St. Lawrence Seaway; the Trans-Canada Highway.

The Canada we live in today was built on bold visions.

We were, we are and we will be a trading nation.

I would like to see us again have the boldness to say, "This is how we want our port and transportation infrastructure to be 10, 25, 50 years from now"--and then have the conviction to follow through--with urgency!

I hope you agree with me that the time to make it happen is now.

Ladies and gentlemen, thank you very much for your kind attention today.

The appreciation of the meeting was expressed by Stanley H. Hartt, Chairman, Citigroup Global Markets Canada Inc., and Director, The Empire Club of Canada.