PRESENTATION TO: THE PRESENTATION TO: THE GREATER TORONTO GREATER TORONTO

TRANSPORTATION CONFERENCETRANSPORTATION CONFERENCE

State of the Rail IndustryState of the Rail Industry““Rolling Into the Future”Rolling Into the Future”

Bruce R. Burrows, Acting President & CEOBruce R. Burrows, Acting President & CEOThe Railway Association of CanadaThe Railway Association of Canada

January 27, 2006January 27, 2006Toronto, OntarioToronto, Ontario

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OUTLINEOUTLINE

1.1. Who We AreWho We Are

2.2. Railways’ Role in CanadaRailways’ Role in Canada

3.3. The ChallengeThe Challenge

4.4. Meeting the ChallengeMeeting the Challenge

5.5. ConclusionConclusion

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We are the Canadian rail industryWe are the Canadian rail industry• Some 60 members: virtually all of the industrySome 60 members: virtually all of the industry

Core representation from all sectorsCore representation from all sectors• Class 1s: CN and CPRClass 1s: CN and CPR• Short lines: Over 40 across CanadaShort lines: Over 40 across Canada• PassengerPassenger

Commuter: GO, WCE, Capital Railway, AMTCommuter: GO, WCE, Capital Railway, AMT Intercity: VIA Rail CanadaIntercity: VIA Rail Canada Tourist: 8 across CanadaTourist: 8 across Canada

RAC = One industry voiceRAC = One industry voice

1. WHO WE ARE1. WHO WE ARE

4Canadian railways are continental, with global reachCanadian railways are continental, with global reach

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2. RAILWAYS’ ROLE IN CANADA2. RAILWAYS’ ROLE IN CANADAThe Economic EngineThe Economic Engine

• Contribute $10 billion annually to the economyContribute $10 billion annually to the economy

• Handle 65% of surface traffic; over 6 million carloads & containers Handle 65% of surface traffic; over 6 million carloads & containers annually; move 40% of GDPannually; move 40% of GDP

• Employ 36,000; Suppliers employ even moreEmploy 36,000; Suppliers employ even more

• Partner with key Canadian ports, core capacityPartner with key Canadian ports, core capacity– 39% of rail activity is import/export movements through ports39% of rail activity is import/export movements through ports

• Enhance mobility: more than 59 million passengers annuallyEnhance mobility: more than 59 million passengers annually

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• Vital to Economy & Global CompetitivenessVital to Economy & Global Competitiveness

– Basis for smart growthBasis for smart growth

– Diverts traffic off roads; less pollution, congestion, accidentsDiverts traffic off roads; less pollution, congestion, accidents– Coast to coast national carriers: vital to Canada’s industriesCoast to coast national carriers: vital to Canada’s industries

• Extension of Canada’s industry and resource baseExtension of Canada’s industry and resource base

• Efficient trans-border NAFTA movements; by-pass jamsEfficient trans-border NAFTA movements; by-pass jams

• Rail facing competition:Rail facing competition:

– US ports & railways: US Govt. support: e.g. SAFETEA & TaxUS ports & railways: US Govt. support: e.g. SAFETEA & Tax

– China: threatening to replace Canada as principal US supplierChina: threatening to replace Canada as principal US supplier

RAILWAYS’ ROLE IN CANADARAILWAYS’ ROLE IN CANADAThe Economic EngineThe Economic Engine

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RAILWAYS’ ROLE IN CANADARAILWAYS’ ROLE IN CANADA Passenger RailPassenger Rail

Intercity RailIntercity Rail

• Number of passengers up 10% since 1995Number of passengers up 10% since 1995

• Operating subsidies downOperating subsidies down

• Existing highway and infrastructure policies Existing highway and infrastructure policies = gridlock, pollution = gridlock, pollution

Commuter RailCommuter Rail

In Ontario, BC & Quebec: In Ontario, BC & Quebec: • commuters up by 34% to almost 55 millioncommuters up by 34% to almost 55 million

since 1997 since 1997

• GO demand = 78,000 rush hour passengers GO demand = 78,000 rush hour passengers

by 2011by 2011 – the equivalent of 58 lanes of highway the equivalent of 58 lanes of highway

traffic every daytraffic every day

Source: RAC, Railway Trends 2004

Rail commuters(000)

0

10,000

20,000

30,000

40,000

50,000

60,000

1997 1998 1999 2000 2001 2002 2003 2004

Number of passengers (000)

3,600

3,700

3,800

3,900

4,000

4,100

4,200

4,300

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

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3. THE CHALLENGE3. THE CHALLENGEGlobal TradeGlobal Trade

• NAFTA trade dominates, but soaring Asian expansionNAFTA trade dominates, but soaring Asian expansion– In 2005 record movement of TEUs through Port of VancouverIn 2005 record movement of TEUs through Port of Vancouver– 6% increase over 2004; 15 year growth trend6% increase over 2004; 15 year growth trend

• International trade is seeking the most efficientInternational trade is seeking the most efficient & cost effective routings& cost effective routings

• Vancouver & Montreal – sustained growthVancouver & Montreal – sustained growth

• Prince Rupert seeking trans-Pacific container Prince Rupert seeking trans-Pacific container traffic traffic

• Halifax – seeking to grow Asian tradeHalifax – seeking to grow Asian trade

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THE CHALLENGETHE CHALLENGE Status Quo Not An optionStatus Quo Not An option

Demand Surpassing Road CapacityDemand Surpassing Road Capacity

• Surface transportation trends point to unsustainable future Surface transportation trends point to unsustainable future - Highway congestion; delivery delaysHighway congestion; delivery delays- Pollution; accidents; border tie-ups and port backlogsPollution; accidents; border tie-ups and port backlogs- One 138,000 lb truck = pavement impact of 20,000 carsOne 138,000 lb truck = pavement impact of 20,000 cars

• Highway pricing distorts the freight market, yet a demand has emerged Highway pricing distorts the freight market, yet a demand has emerged that cannot be met by road construction alone (AASHTO)that cannot be met by road construction alone (AASHTO)

• National funding gap for transportation: between $50 and $100 billion National funding gap for transportation: between $50 and $100 billion

• Government transportation policies have yet to fully recognize the Government transportation policies have yet to fully recognize the railways’ rolerailways’ role

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THE CHALLENGETHE CHALLENGE Current Outlook: Global ContextCurrent Outlook: Global Context

Meeting Demand – A Global IssueMeeting Demand – A Global Issue• Pressure of population growth on citiesPressure of population growth on cities• Costs of building & operating infrastructureCosts of building & operating infrastructure• EU tradition: support rail/transit/intermodal transportationEU tradition: support rail/transit/intermodal transportation

– Diverse initiatives to shape and control demandDiverse initiatives to shape and control demand– Renewed EU emphasis on rail freight (vs. road congestion)Renewed EU emphasis on rail freight (vs. road congestion)

• China’s massive investments: $12 billion to rail China’s massive investments: $12 billion to rail infrastructure in 2005infrastructure in 2005

• New imperatives: e.g. security issues, fuel costs, New imperatives: e.g. security issues, fuel costs, pandemic fearspandemic fears

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THE CHALLENGETHE CHALLENGE Outlook: GTA, Central Ontario Outlook: GTA, Central Ontario

• Rapid growth:Rapid growth: The GTA has approved development of 128,000 acres The GTA has approved development of 128,000 acres since 1998, a rate of 9,100 acres per yearsince 1998, a rate of 9,100 acres per year

• Kilometres driven estimated to grow by about 60% over 20 yearsKilometres driven estimated to grow by about 60% over 20 years

• Central Ontario: Freight movements to increase by 80% in next 20 yearsCentral Ontario: Freight movements to increase by 80% in next 20 years• BAU implies massive truck growth on roadsBAU implies massive truck growth on roads

• Next 30 years, Golden Horseshoe population to grow by four millionNext 30 years, Golden Horseshoe population to grow by four million

• The Toronto Board of Trade estimates:The Toronto Board of Trade estimates:– gridlock costs the GTA $2 billion a year in truck and delivery vehicle delays gridlock costs the GTA $2 billion a year in truck and delivery vehicle delays – this could reach $3 billion, or 1.3% of the regional GDP by 2021this could reach $3 billion, or 1.3% of the regional GDP by 2021

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THE CHALLENGE THE CHALLENGE Outlook: GTA, Central OntarioOutlook: GTA, Central Ontario

TORONTO IS EXPECTED TO LEAD THE COUNTRY IN ECONOMIC GROWTH FROM 2007 TO 2010

4.2

3.63.4 3.3 3.3 3.2

3.0 3.0 2.92.8

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Toronto Calgary Vancouver Ottawa–Gatineau

Abbotsford Hamilton London Edmonton Montréal Sherbrooke

Real GDP (%) 2007-2010

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• Rail = corridors and capacity for the futureRail = corridors and capacity for the future

• Rail can alleviate pressure, facilitate community & economic growth:Rail can alleviate pressure, facilitate community & economic growth:– 100-car freight train = 280 trucks100-car freight train = 280 trucks– 1 commuter train = up to 1000 cars1 commuter train = up to 1000 cars– Rail = 1/3 land use of highwaysRail = 1/3 land use of highways

• Rail can divert traffic away from urban roadsRail can divert traffic away from urban roads– Reduce accidents, pollution, policing/emergency services, road Reduce accidents, pollution, policing/emergency services, road

infrastructure, cost to communitiesinfrastructure, cost to communities– Increase community well-being, economic sustainabilityIncrease community well-being, economic sustainability

• Intermodal freightIntermodal freight: optimizes efficiencies of rail & truck for shippers: optimizes efficiencies of rail & truck for shippers• Commuter rail:Commuter rail: increasing role in mobility increasing role in mobility• Inter-city rail:Inter-city rail: efficient alternative in congested population corridors efficient alternative in congested population corridors• Tourism rail:Tourism rail: magnet for growing tourist travel magnet for growing tourist travel

4. MEETING THE CHALLENGE4. MEETING THE CHALLENGE What Rail Can DoWhat Rail Can Do

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MEETING THE CHALLENGEMEETING THE CHALLENGECapacity, Efficiency, ModernizationCapacity, Efficiency, Modernization

• Gains in efficiency & capacity derived Gains in efficiency & capacity derived from improved technologies, asset from improved technologies, asset utilization & operating practicesutilization & operating practices

• CN, CPR agreements to CN, CPR agreements to increase joint capacity increase joint capacity

• CN & BNSF streamline CN & BNSF streamline traffic through Vancouver, Chicago, traffic through Vancouver, Chicago, Memphis & southern IllinoisMemphis & southern Illinois

• Short lines & the Class 1s working togetherShort lines & the Class 1s working together

• GO Transit & VIA Rail: joint fares, through tickets GO Transit & VIA Rail: joint fares, through tickets

• VIA partners with national & international tour operatorsVIA partners with national & international tour operators

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MEETING THE CHALLENGEMEETING THE CHALLENGE Fiscal IssuesFiscal Issues

• Railways paid $698 million in taxes in 2004, Railways paid $698 million in taxes in 2004, up 49% since 1995up 49% since 1995

• Canadian railways pay a much higher Canadian railways pay a much higher percentage of revenue as tax vs U.S.percentage of revenue as tax vs U.S.– Canadian Railways = 9.13% Canadian Railways = 9.13% – U.S. Railways = 5.41%U.S. Railways = 5.41%

• Key Issues:Key Issues:– Federal fuel excise taxFederal fuel excise tax– CCA rates for rail rolling stock and trackCCA rates for rail rolling stock and track– Future intermodal & freight rail Future intermodal & freight rail

development development

Capital tax & customs duties

4%$25 mil

Payroll taxes21%

$150 mil

Income tax17%

$118 mil

Other sales taxOther sales tax13%13%

$90 mil$90 mil

Property taxProperty tax20%20%

141 mil 141 mil

Locomotive fuel & Locomotive fuel & excise tax excise tax

25% 25%$174 mil$174 mil

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MEETING THE CHALLENGEMEETING THE CHALLENGE Fiscal & SL Investment IssuesFiscal & SL Investment Issues

Ontario Tax & Short Lines InitiativesOntario Tax & Short Lines Initiatives

• Seeking low density property tax credit with provinceSeeking low density property tax credit with province

• SLs initiative – re: Fed-Prov-SL shared funding potential SLs initiative – re: Fed-Prov-SL shared funding potential for infrastructure improvementfor infrastructure improvement

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MEETING THE CHALLENGE MEETING THE CHALLENGE Safety – A Fundamental ObjectiveSafety – A Fundamental Objective

• Proactive maintenance: monitoring rails operations, equipment & track Proactive maintenance: monitoring rails operations, equipment & track (under SMS)(under SMS)

• Safety standards, procedures, enforcement (e.g. Dangerous Goods, Safety standards, procedures, enforcement (e.g. Dangerous Goods, car loading)car loading)

• Emergency response protocols in placeEmergency response protocols in place

• Accidents – thorough reviews (TSB)Accidents – thorough reviews (TSB)

• Training regimes, IRT programs at colleges, CHTR facilityTraining regimes, IRT programs at colleges, CHTR facility

Railways operate under strict regulations & Railways operate under strict regulations & practicespractices

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0

200

400

600

800

1,000

1,200

1,400

1,600

88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04

Fre

igh

t a

nd

Pa

ss

en

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r T

rain

Ac

cid

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ts

0

5

10

15

20

25

Ac

cid

en

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ate

pe

r m

illio

n T

rain

Mile

s

Accidents Accident Rate Linear Trend Line

Railway Accidents & Accident RateRailway Accidents & Accident Rate(per million Train Miles)(per million Train Miles)

MEETING THE CHALLENGEMEETING THE CHALLENGE SafetySafety

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MEETING THE CHALLENGEMEETING THE CHALLENGE Security – A Key Industry FocusSecurity – A Key Industry Focus

• Rail is a secure mode operating in dedicated corridorsRail is a secure mode operating in dedicated corridors

• Class 1’s have own security forcesClass 1’s have own security forces

• Stable work force; also screened & well trainedStable work force; also screened & well trained

• Emphasis on coordination, monitoring, enforcementEmphasis on coordination, monitoring, enforcement– MOU w/ Transport CanadaMOU w/ Transport Canada– Emergency plans, exercisesEmergency plans, exercises– Canada-US agencies, ports, borders Canada-US agencies, ports, borders – Police & first responders; AARPolice & first responders; AAR

• RAC Security Working Group in placeRAC Security Working Group in place

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2003 MOU – RAC/FCM Cooperation2003 MOU – RAC/FCM Cooperation

• Seeking common approaches to proximity issues:Seeking common approaches to proximity issues:– Noise, crossings, safety, land useNoise, crossings, safety, land use– Research, e.g. testing wayside horns, etc.Research, e.g. testing wayside horns, etc.

• Proximity Issues website Proximity Issues website www.proximityissues.cawww.proximityissues.ca: : – Legislation, “Frequently Asked Questions”, Municipal & Legislation, “Frequently Asked Questions”, Municipal &

Railway Contacts, etc.Railway Contacts, etc.– Land use planning; dispute resolution committee; Land use planning; dispute resolution committee;

coordinated communications & raising awarenesscoordinated communications & raising awareness

MEETING THE CHALLENGEMEETING THE CHALLENGE Railways and CommunitiesRailways and Communities

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MEETING THE CHALLENGEMEETING THE CHALLENGEEnvironmentEnvironment

• Transportation accounts for ¼ of Transportation accounts for ¼ of Canada’s Greenhouse Gas Canada’s Greenhouse Gas (GHG) emissions(GHG) emissions

• 1990-2003: 51% of 1990-2003: 51% of transportation growth came from transportation growth came from heavy duty diesel trucksheavy duty diesel trucks

• Rail GHG emissions are held Rail GHG emissions are held down, despite an increase in rail down, despite an increase in rail traffic of more than a thirdtraffic of more than a third

• Rail contributing to Canada’s Rail contributing to Canada’s GHG goalsGHG goals– Emissions (MOU)Emissions (MOU)

TOTAL FINAL ENERGY CONSUMPTION BY THE TRANSPORT SECTOR, 2001

Inland Navigation3%

Pipeline9%

Air9%

Rail4%

Road75%

Source: OECD Environmental Performance Reviews: Canada, 2004

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Survey Results: Positive public image of railSurvey Results: Positive public image of rail

• Public recognizes fundamental benefit of rail to:Public recognizes fundamental benefit of rail to:– Economy Economy – Community life Community life – EnvironmentEnvironment– SafetySafety

MEETING THE CHALLENGEMEETING THE CHALLENGEPublic PerceptionsPublic Perceptions

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Redfern Research

The Future of Rail

Sample = 1,500 adult Canadians

94%

92%

72%

6%

26%

6%Increasing the use of trains to move freight would

significantly reduce road congestion and accidents.

With growing congestion in Canada’s major urbancentres, there should be greater use of the rail

network by passengers to commute to and fromwork.

Rail transportation should be the highesttransportation priority in Canada.

Total Agree Total Disagree Don't know

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Redfern Research

Perceived Strengths of Travel Options- For Inter-City Passenger Transportation -

69%

55%

49%

41%

29%

26%

11%

12%

11%

17%

13%

6%

41%

10%

4%

6%

14%

29%

44%

26%

64%

12%

26%

16%

14%

20%

4%

14%

Most environmentally friendly

Safest

Best for society overall

Most reliable

Most comfortable

Most affordable

Most convenient

Rail Bus Car Air Don't Know

Sample = 1,500 adult Canadians

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5. CONCLUSION5. CONCLUSION

Rail is a Partner to:Rail is a Partner to:– Grow the economy, trade, employment Grow the economy, trade, employment – Provide fluid capacity to meet future demand Provide fluid capacity to meet future demand – Break gridlock; encourage good urban growth Break gridlock; encourage good urban growth

– Support economic, social, community goalsSupport economic, social, community goals

Government can increase these benefits throughGovernment can increase these benefits through::– A stable rail regulatory environmentA stable rail regulatory environment– Equitable taxes; level US-Canada playing fieldEquitable taxes; level US-Canada playing field– Support for passenger rail & short linesSupport for passenger rail & short lines