Canadian National and Canadian Pacific operate monopolies on significant parts of their railway networks. They enjoy almost unlimited power over rates and service in uncontested or "captive" markets and at present there are no market-based solutions to counteract that power. Why should Canadians care? Because unfettered railway monopoly power is undermining the competitiveness of a number of important Canadian industries, including suppliers of steelmaking and thermal coal, base metal concentrate and industrial minerals, lumber and pulp.
The best way to regulate a natural monopoly is to introduce competition by allowing others (a "guest" railway, in this case) to access the track infrastructure of the incumbent (the "host" railway) to vie for the business. Modern economies already do this with other network industries like telecom, cable and electricity and gas distribution.
This solution is commonly called "running rights" and it is not a new idea. The Australians have forged ahead with running rights, realizing efficiencies on various state rail systems. Railways throughout Canada and the U.S. grant each other these rights regularly, by agreement. In Canada, the statutory ability to compel those rights has been in force for over a century.
The economic case justifies it. Not every Canadian shipper needs running rights, as some already have truck or marine alternatives for the shipment of their products. For others who are captive to a single railway, limited running rights – subject to certain tests to ensure that the guest railway can demonstrate its fitness to operate a railway – may be appropriate. Of course, the guest railway would have to pay the host railway for track access and there may be debates over the appropriate level of that compensation.
All Canadian enterprises expect suppliers to compete to get their business; in the case of essential facilities like rail, it is critical. Easing access to railway infrastructure through limited running rights will improve Canada's international competitiveness and allow resource industries to take advantage of global value chains.
Despite increased fuel costs and a weakening economy, CN and CP are financially healthy. They are very viable enterprises, paying their capital expenditures and raising capital without difficulty. They are also incumbents on their own systems, in the same way the original telecom carriers are on theirs. New entrants have an inherent disadvantage. CN and CP should be able to compete against new entrants, and provide lower rates and better service to keep their customers.
It is simply in Canada's best interests for our resource industries to realize the benefits of competition generally. Equity dictates that rail carriers should not be preferred over those who are captive to rail.