McGILL LAW JOURNAL
[Vol. 17
Freight Rate Regulation in Canada
M. A. Prabhu *
I.
INTRODUCTION: NEED FOR REGULATION
The transport industry is a principal catalyst of trade and in-
dustrial development. By moving goods from points of production
to points of consumption, it plays a vital role in the economy of
a country and of nations of the world. An efficient and adequate
network of transport facilities enables territorial specialization of
communities having basic resources of raw materials, fuel and
labor, and having cost advantages over other regions. With this
development, and the consequent urbanization brought about by
industrial concentration, shippers and communities come to depend
for their very survival on the assured flow of materials, so that
unlike most other industries, transportation partakes of the dedi-
cated nature of public utilities.1
Ownership of the transport industry in private enterprise if
confined to a few firms, confers a tremendous power over the fate
of individuals, shippers, industries and even communities, who
depend for their very existence on the smooth functioning of this
industry. By controlling the freight rates and business decisions,
these firms can alter the location of industries, maintain industries
in unfavourable locations and prevent their establishment at more
favoured places, thus reducing their dependants to mere pawns in a
monopoly game, each pitted against the other, to a point where
the carriers’ total net profits would be the largest.
The strategic place thus occupied by the transport industry in
the economy provides the essential justification to a nation to
regulate the three main facets of that industry, namely, pricing
of services, entry and adequacy of operations. While in the past,
the primary task of regulation was based on the need to curb
monopoly power and improve the performance of carriers in terms
of equity between shippers and communities, it has come to be
realized that this aim is really a part of the larger objective of
providing the nation with an economic, efficient and adequate
*Assistant Professor, Faculty of Law, University of Saskatchewan.
1 On the significance of transportation, see generally Locklin, Economics of
Transportation (6th ed. 1966), 1-16 (hereinafter cited as Locklin).
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FREIGHT RATE REGULATION IN CANADA
system that will promote its “economic well-being and growth” 2
by an optimum allocation of resources. For this reason, even a
perfectly competitive market situation will not assure the nation
of economy and efficiency in transportation, and market forces
can probably never be relied upon to regulate the industry, although
the users of the service may appear to get the benefit of lowest
rates for their movements.3 However, every regulatory scheme must
be justified by the economic results of the policy adopted, and the
“case for continuing it or any particular regulatory policy must
be that transport service is more adequate and efficient under that
control or policy than without it or under a different regulatory
policy.” 4
While the railroads had the virtual monopoly of inland transport
supply in this country, as in others, the task of the regulatory
authority was simple enough, to ensure that they played their part
equitably, and a system of controls that assured reasonable rates
and prevented unjust discrimination was all that was needed. This
task was particularly easy because of the relatively few firms
that were able to provide railroad services and a restriction of
their operations would adequately serve the needs and interests of
the shippers.
Due to the superiority of railways over all existing media of
transport, little or no complaint was raised in the first quarter
century of their operation, but with the emergence of competing
media, especially the motor vehicle, as a significant force, the
nature of regulation was transformed from one primarily concerning
the public” from possible monopolistic
itself with “protecting
exploitation, to a concern with protecting one mode from the
competitive agressiveness of the competing mode; and in the second
half of this century, with the almost universally pervasive intermodal
competition in key areas and commodities, was conceived the need
to co-ordinate and harmonize the operations of all carriers engaged
in transport so that the scarce economic resources may be optimally
allocated for the greatest advantage of the country. This new
2 See the statement of objectives in the National Transportation Act, Stat.
Can. 1966-67 c. 69, s. 1.
3 1n the long run, rates set by perfect competition, which approximate cost
levels, will not facilitate innovations and new investments when more attrac-
tive opportunities exist in other sectors, so that industry costs are likely to
be higher than under imperfect competition.
4 Nelson, Railroad Transportation and Public Policy (1959), 112 (hereinafter
cited as Nelson).
Nelson, supra n. 4, at 112.
The pattern was similar in the United States, Canada and Great Britain:
McGILL LAW JOURNAL
[Vol. 17
outlook does not, however, dispense with the need for rate control;
on the contrary, it accentuates it and while minimum rate control
was unnecessary in the era of virtual monopoly, a setting of floor
rates on a scale consistent with the inherent advantages of each
mode of transport becomes vitally important to ensure that resources
are optimally utilized. Furthermore, the type of competition which
develops among transportation agencies, especially between different
modes, is imperfect, and irregular or uneven in geographical inci-
dence so that the intensification of such competition cannot be
relied upon to eliminate tendencies for discrimination in rate
making. There is thus “no valid justification for relaxation of
regulatory policy to permit greater discrimination in rate making”,6
although the MacPherson Royal Commission looked forward to
the day “when because of effective competition throughout the
nation, maximum rate regulatory machinery may be scrapped com-
pletely.” 7
A. Regulated Versus Unregulated Sectors
The new policy of co-ordination and harmonization, to achieve
the desired transportation goals has to come to grips with the
irritating problem presented by those inter- or intra-modal sectors of
the industry which, due to administrative necessity or for other
reasons, escape the control of regulation or are exempted therefrom.
While inability to enforce regulations, as distinct from official
failure to do so, is an immanent problem, exemptions, granted for
reasons such as that the carriers concerned are not engaged in
common transport, but under contract with particular shippers or
that they haul their own merchandise for consumption or sale,
strain the effectiveness of regulation when those sectors compete
significantly with the common, regulated carriage. These unregulated
carriers finding it easy to enter the industry and withdraw from it
when conditions suit them, and charge rates well below those
necessitated by the “public utility” character of common carriers,8
G Report of the Special Study Group on Transportation, U.S. Senate Com-
mittee on Commerce, No. 445, 87th Congress, 1st Session, 422 (hereinafter cited
as Doyle Report).
7 Royal Commission on Transportation (Can. 1961), (Vol. 2), 48 (hereinafter
cited as MacPherson Report).
S Being public utilities, common carriers must serve potential as well as
actual demand at any time with little, if any, prior notice; because of this
and the fact that transportation like human labour cannot be stock-piled in
slack periods to meet peak demands, common carriers must alvays have
reserve capacity, which increases their operating cost.
No. 2″]
FREIGHT RATE REGULATION IN CANADA
take the cream of business from the latter. These gaps in regulation
call for an enlightened system of control that would enable the
regulated modes and sectors to compete on a fair basis with their
unregulated counterparts.
In this article the writer will discuss one of the main aspects
of regulation, namely control of rates, with intermodal comparison,
in light of the fundamental changes introduced by the National
Transportation Act.9
B. History of Rate Regulation in Canada
When railways were first projected in Canada there were no
general statutes under which they could operate and they had to
ask Parliament to enact special statutes to confer powers necessary
for their organization, operation and maintenance. The early special
Statutes of Upper Canada were consolidated into the Railway
Act of Ontario 10 which was modelled on the corresponding English
Act of 1845. Upon Confederation it became necessary to enact a
new statute which would be applicable to all railways within the
jurisdiction of the Parliament of Canada under Section 92(10) of
the British North America Act, 1867 11 and accordingly the first
Federal Act was passed on May 22, 1868.12
It was however not until the Railway Act of 1888 13 that the
federal Parliament asserted control of the regulation of rates. This
Act was passed upon the recommendations of the first Royal
Commission of 1886 which was appointed to inquire into the entire
matter of rate regulation and to consider whether a body similar
9 Stat. Can. 1966-67, c. 69.
10 See R.S.O. 1877, c. 165. s. 23(10) of this Act required tolls prescribed by
the railways to be approved by the Lt. Governor-in-Council, and provided
for two Ontario Gazette publications before becoming legal.
1130-31 Vict., c. 3.
12 An Act Respecting the Northern Railway of Canada, 31 Vict., c. 86. For
early special statutes incorporating railways, see MacMurchy & Denison, Cana-
dian Railway Act (1903) Annotated (1905) 1. The earliest of these were the
Act Incorporating the Champlain and St. Lawrence Railroad, 1832, 2 Will. 2,
c. 58 (Lower Canada) the Cobourg Railroad Co., 4 Will. 4, c. 25, and London
& Gore Rly. Co., 4 Will. 4, c. 29, both of Upper Canada.
1351 Vict., c. 29. However, the Consolidated Railway Act of 1879 provided
that the Canadian Parliament might reduce the tolls charged by a railway
company if that company’s earnings exceeded fifteen percent calculated upon
the capital expended in construction. For the Canadian Pacific Railway Corn.
pany this figure was set at ten percent by section 10 of the Articles of Incor-
poration of that Railway (C.P.R. Act, 1881).
McGILL LAW JOURNAL
[Vol. 17
to the Interstate Commerce Commission 14 proposed for the United
States might serve the needs of the Canadian railways. By this
Act, the Cabinet established a sub-committee of itself, the Railway
Committee of the Privy Council, and gave it somewhat restricted
powers of rate regulation.”, The Railway Committee was however
not given jurisdiction over government railways nor over the
Canadian Pacific Railways incorporated by a special Act in 1881.10
For various reasons, including its political character and lack
of technical training, the Railway Committee did not function satis-
factorily and on the recommendation of a one-member Royal Com-
mission (Dr. McLean) the Railway Act was amended in 1903 17
and an independent three-member Board of Railway Commissioners
was created and charged with the duty of regulating rates, fares,
demurrage, and other charges made by railway companies. The
Board was given jurisdiction by the Transport Act of 1938 18 over
air 19 and water transport and over agreed charges; and because of
its enlarged duties its name was changed to the Board of Transport
Commissioners for Canada that year. In 1949 the Board was charged
with the responsibility of regulating interprovincial and inter-
national pipelines. 2
Motor carriage on highways since the ‘twenties’ has been regu-
lated by provincial authorities and so long as it remained largely
“short-haul” the federal government showed little or no interest.
However the 1954 Privy Council decision in Attorney-General for
Ontario v. Winner,0 a that provinces had no legislative authority
to regulate extra-provincial operation, precipitated federal legis-
lation and Parliament in that year enacted the Motor Vehicles
14Established in 1887 by the U.S. Interstate Commerce Act.
15Under s. II(k) and 12 of the Act, the Railway Committee was empowered
to “inquire into, hear and determine any application, complaint or dispute
respecting tolls and rates for the transportation of passengers and freight.”
Other sections, e.g. 232 and 233, prohibited discrimination in rates.
1GSee Wright, “An Examination of the Role of the Board of Transport
Commissioners for Canada as a Regulatory Tribunal”, 6 Canadian Public
Administration (1963) 349 at 350; and Currie, Canadian Transportation Econo-
mics (1967) c. 16 at 384 ff. (hereinafter referred as Currie).
173 Edw. VII, c. 58.
18 1 Edw. VIII, c. 23, now R.S.C. 1952, c. 271.
19 This jurisdiction was transferred in 1944 to the Air Transport Board by
20 The Pipelines Act, 13 Geo. 6, c. 20, R.S.C. 1952, c. 211. This jurisdiction was
transferred in 1959 to the National Energy Board by the Act of 7-8 Eliz. II,
c. 46.
the Aeronautics Act, now R.S.C. 1952, c. 2.
20a [1954] A.C. 541.
No. 2]
FREIGHT RATE REGULATION IN CANADA
Transport Act 21 but delegated power to provincial licensing boards
hitherto regulating extra-provincial carriage.
Since 1949 interprovincial and international pipelines have been
regulated by the federal government, 22 but rates for transmission
of commodities have been regulated only since 1959 when juris-
diction was transferred to the National Energy Board which was
created on the recommendation of the Borden Commission set up
in the previous year. 23
Although commercial transportation over inland waters antedates
the railways by a couple of hundred years, the government did not
until recently find it necessary to introduce any sort of rate regu-
lation. This was because of the public ownership of waterways which
enables competition to assert itself, in the absence of legal barriers
to entry, at any time to wean away excess profit in the trade.
In 1923 legislation was introduced to control rates on grain, but
the Board of Grain Commissioners in whom the power was vested,
has seldom found it necessary to prescribe maximum tolls. 24 How-
ever, rates on package freight on the Great Lakes and on both
package freight and bulk goods on the Mackenzie River have
been regulated by the Board of Transport Commissioners since
1938.25
In the field of civil aviation, other than international car-
riage, the Air Transport Board was given power to regulate traffic,
tolls and tariff by the Aeronautics Act in 1944,26 but Air Canada,
the principal carrier, was excluded from its jurisdiction. Air Canada
operates as a subsidiary of Canadian National Railways, a govern-
ment undertaking, and by the Trans-Canada contract with the
Crown is required to maintain a tariff of charges competitive with
other similar transportation services in North America 27
Freight rates on international carriage, air and water, are out-
side the pale of national laws in view of the interests of several
nations involved. Although attempts have been made from time to
time by governments to impose their jurisdiction, these have largely
212-3 Eliz. II, c. 59.
22 Supra, n. 20.
23 Rate regulation was confined to gases and liquids as these were the only
products transmitted by pipeline.
24 13-14 Geo. V, c. 49, now R.S.C. 1952, c. 153.
25 Supra, n.18.
26 Now R.S.C. 1952, c. 2.
27 Trans-Canada Air Lines Act, R.S.C. 1952, c. 268, s. 15(2) (d); name changed
to Air Canada by 13 Eliz. II, c. 2, in 1964.
McGILL LAW JOURNAL
[Vol. 17
been unsuccessful, and have provoked retaliatory measures by
affected governments. 28
The pressures exerted by technological developments and the
changed conditions of transportation have challenged the entire
gamut of regulation based on monopolistic theories, and in formu-
lating the national transportation policy the federal government
has attempted to introduce sweeping changes in the rate structure,
primarily of the railways, in an effort to ensure a viable, competitive
transportation system. It is the writer’s endeavour to reconcile
the objectives of national policy 29 in the area of the new rate
structure introduced by the National Transportation Act8 10 in the
diverse modes of carriage.
II. THE REGULATION OF RAILWAY RATES IN PERSPECTIVE
Before discussing the significant changes introduced by the
National Transportation Act, it is necessary to analyse in depth
the anatomy of rate structure and control that stood up to the rigors
of competition injected into the system during this century, and
more intensively since the second half. An elaborate structure has
emerged since the railways first commenced operations and over
the years it has had considerable impact on rate making by other
modes of transport that challenged their superiority and steadily
eroded their stronghold by means of techniques perfected by the
railways themselves.
In the earliest days of the railways, freight rates were not
based on any well-defined principles. Individual rates were some-
times put into effect on an experimental basis, and at times by
special agreements with shippers, and so long as they maintained
their superiority over existing media of transport there was little
reason to provide a theoretical basis for the system.31 Shippers and
communities vied with each other and their competitors and relied
on the railways to hold the scales evenly at all times. They thought
that the rates were based on some mysterious principles of equity
and that they acquired a vested interest in them. As a matter of
28 See Shipping Contracts and Commercial Documents Act, 1964, c. 87 (U.K.).
29 These objectives stem from the MacPherson Report (Supra, footnote 7)
and hence the discussion will closely follow their observations and recom-
mendations.
30 Stat. Can. 1966-67, c. 69.
31 MacPherson Report, (vol. 2), supra n. 7, at p. 23.
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FREIGHT RATE REGULATION IN CANADA
fact, the underlying power to determine rates was slowly revealing
itself and as every monopolist knows today, the railways found
that there was a “floor” below which it would not, even in the
short run, pay them to move the traffic, and a “ceiling” which
cannot be penetrated without significant loss of the traffic. Within
this range, whose width varied with the consumers’ economic utility
of the goods concerned, there was room for considerable manipu-
lation, and once this scale of consumer preferences was known,
each commodity could be charged to the limit set by the marginal
unit.32 This is really the basis of discriminatory or differential pricing
and is the foundation of classification.
The first classification of commodities was published by the
Grand Trunk Railway in 1874. In this first classification commodities
were grouped in four classes, with the fourth class serving as a
basis for determining rates for other classes. Agricultural com-
modities and lumber were granted special ratings. Articles of the
same kind having similar characteristics were grouped together
in the same class as far as possible, but as these articles were
very numerous 3 and the classes few,34 many diversities had to be
ignored in order that classification be of practical utility; and
inequalities between commodities were unavoidable.
All articles embraced in a class are usually charged the rate
of that class, whatever it may be. The railways make use of a
mileage scale which is graduated according to distance.3 5 Most goods
are allocated to sub-classes within each class, one referring to
32 This principle is variously described as “charging what the traffic will
bear” or, put negatively, “not charging what the traffic will not bear”, or as
the MacPherson Commission prefers to call as the “movement value” of the
commodity (MacPherson Report, (vol. 2), at p. 24).
33 Over 27,000 in Canadian Classification No. 22 issued Nov. 15, 1966.
34 From four classes the classification grew to ten – Classes 1 to 10; Class
1 being the highest (except for multiples of the first class for articles of
extraordinary value) and Class 10 being the lowest. A new classification was
recommended by the Turgeon Royal Commission in 1951 (hereinafter cited
as Turgeon Report) at 121 (and introduced by 1955) since the old system
did not provide for flexibility for including new classes necessitated by growing
commerce. In this new classification Class 100 is substituted for Class 1 so
that lower classes are made up as a percentage of Class 100. A separate classi-
fication is used by Express Companies and approved by the Board of Trans-
port Commissioners under ss. 366 and 367 of the Railway Act, R.S.C. 1952,
c. 234.
35 Generally tapered, i.e. the scale does not increase in proportion to the
distance, and in long hauls often places are grouped together ignoring vast
distances.
McGILL LAW JOURNAL
[Vol. 17
“carload” lots of specified weight, the other to “less than carload”
lots which has usually a higher rating than carloads .3
In grouping articles together in a class for the purpose of fixing
rates, several factors are usually deemed to have a controlling effect.
Among these may be mentioned the competitive element, or rates
made necessary by competition, the bulk and weight, value, haz-
ardous and extra-hazardous freight, liability to waste or injury in
transit, the facilities required for particular or special shipments
(e.g. chilling, refrigeration, ventilating, and heating), the volume of
business, i.e. the tonnage movement, and the direction in which the
freight moves. Freight occupying a great deal of space must to
some extent be charged for that space; or if it be freight of very
great value, a higher rate may be charged than if it be of very little
value, on account of the responsibility connected with the service,
and the corresponding benefit to the owner.37
Some commodities which move in bulk have special tariffs of
their own, in which case they supersede the class rate for them
if there is one. They are generally established after negotiations
with shippers and are in terms of a discount on the correspond-
ing class rate, the discount varying from product to product and
from one area of the country to another depending on traffic con-
ditions peculiar to the movement concerned. Many important com-
modities such as grain, livestock, coal, ore, sand, gravel and stone,
lumber and pulpwood, gasoline, cement, and fertilizers, practically
always move on commodity rates.
While the railways had monopoly of surface transportation,
class and commodity rates were the two most important tariffs
used by them.38 Although cost factors were considered, in deter-
mining the tariffs, the “value of service” principle predominated,
so that high value commodities bore a greater share of the rate
burden than low value commodities, the class system operating
as the “great leveller”. Tapering the rates with distances resulted
36 For an excellent discussion on Classification, see Currie, supra, n. 16, c. 7
and Locklin, supra, n. 1, c. 9.
37 Freight rates influence in turn the location of industries, of market centres
and areas covered by each market; see Locklin, supra, n. 1, at 54-55. Class
rates produce the highest relative profit and in the days of monopoly, the
railways derived a substantial proportion of their revenues from this rating.
The proportion now is not significant.
3 8 Railways often granted “promotional” or “developmental” rates. This
privilege was recognized by s. 349(1) of the Railway Act, R.S.C. 1952, c. 234,
but now denied by the 1966-67 revision.
No. 2]
FREIGHT RATE REGULATION IN CANADA
in some assistance to the long-haul movements. The railways often
took upon themselves the role of equalizer of competitive positions
of widely separated producers in the market place, without regard
to transportation costs involved, and often justified it on the basis
that the more distant producer would not move into the market
and thus the carrier would lose that volume.
The railways meted out distributive justice by ensuring that
commodities which competed in the same market bore the same
rate or the same differential, and shipper complaints often stemmed
from inequality, and even equality, in treatment on the criteria
established by the railways themselves. Occasionally, however, the
complaint of discrimination resulted from charging a much higher
or lower rate than ought to have been charged compared to the
charge levied against another in the same or some other class.
This system of tariffs, modified only by competition from other
railways, reached a stage of sophistication where everybody seemed
to be satisfied so long as the game was played according to rules,
and resulted in the highest possible revenue to the railways. The
task of regulatory authority was simply to protect this happy posi-
tion of the shipper when the railways tended to swing the balance
unfavourably provoking charges of unfairness, or undue discrimi-
nation, by the shippers. Thus the regulatory authority, the Board
of Railway Commissioners, played a second fiddle to the railway
who called the tune. 9.
Within this “ideal” system there were, of course, some distor-
tions, and as some of these are considered by the regions concerned
as symbolic of their rights, it is necessary to dwell upon them at
length. To the railways, however, they were not really distortions
but an exercise in shrewd enterpreunership, and in at least one
of them they have still everything to gain.
39 The Board no doubt had considerable power in disallowing or delaying
the rates proposed by the railways, and this often hampered their monopoly
designs, but under the system of control, if railways played their part skilfully
they had nothing to fear. For a further discussion of the regulatory control,
see infra, at p. 310 ff.
40 The Crow’s Nest Pass Act, Stat. Can. 1897, 60-61 Vict., c. 5, gave effect
to this Agreement.
McGILL LAW JOURNAL
[Vol. 17
A. Rates on grain: The Crow’s Nest Pass Agreement
The first distortion introduced into the traditional rate struc-
ture was the 1897 Crow’s Nest Pass Agreement 40 between the
Dominion Government and the Canadian Pacific Railway whereby
in consideration of a government subsidy of about $3.4 million 4
the C.P.R. undertook to construct a railway line from Lethbridge
through the Crow’s Nest Pass into the Kootenay area of British
Columbia where coal and other mineral discoveries had been made,
and to reduce freight rates on a) grain and flour,42 and b) a num-
ber of articles 43 important to settlers and farmers on their move-
ment from central Canada to the Prairies, in perpetuity,44 on all
points on the C.P.R. lines then in existence 45 in the West to Fort
William and Port Arthur and all points east, and on points in
existence in eastern Canada to the aforementioned points to the
West respectively.
The reductions on eastbound traffic (of grain and flour) were
designed to improve the competitive position of the cash staple
of the Prairie region and thus to encourage that type of economy
without which the regions could not be developed. The reductions
on westbound traffic were designed to encourage the settlement
of the West by eastern Canadian farmers. 4 The Crow’s Nest rate
reductions as a group, therefore, were clearly directed toward
the furtherance of economic development in the Prairie region and
toward the linking of that development with the eastern Canadian
economy.”7
Except for a short period between 1920 and 1922 the Crow’s
Nest Pass rates on grain and flour were never above the 1899 level
41 The subsidy was $11,000 per mile subject to a maximum of $3,600,000.
42 The reduction was up to 30 per 100 lbs. See also infra, footnotes 48 and 50.
43 The reduction varied from 10%
to 331/3%, commonly the former figure
(e.g. 10% on agricultural implements, wire, iron nails and spikes, binder twine,
roofing and building paper, window glass, paint and oils and furniture; 20%
on coal and oil; 331/3% on green and fresh fruits).
44 S. 1(d) and (e) of the Crow’s Nest Pass Act: “no higher rates than such
reduced rates or tolls shall be hereafter charged by the company between the
points aforesaid” –
a provision quite logically interpreted by the West as
an undertaking in perpetuity.
45 There were only 3,000 miles of C.P. Rly. trackage then in existence.
46 See the Submission of the Province of Saskatchewan to the MacPherson
Royal Commission on Transportation, (vol. 2), 1960, entitled “An Historical
Analysis of the Crow’s Nest Pass Agreement and Grain Rates: A Study in
National Transportation Policy”.
47 Ibid., at p. 10.
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FREIGHT RATE REGULATION IN CANADA
but since 1922 have been maintained at that level.48 The temporary
increases in that short period were authorized by Parliament under
the War Measures Act 49 to meet an emergency condition.
In 1925 Parliament amended S. 325 of the Railway Act8 0 sus-
pending the Crow’s Nest Pass Agreement indefinitely and cancelling
Crow’s Nest Pass rates on all commodities other than grain and
flour and making these rates applicable to all grain and flour
48 The following table from the Submission, supra, n. 46 at p. 39 gives
an idea of the grain rates:
RATES ON GRAIN TO FORT WILLIAM-PORT ARTHUR
FROM SELECTED POINTS
(In cents per 100 pounds: Crow’s Nest Pass Rates = 100 in Index)
Before August 1898 ……….
August 1, 1898 –
August 31, 1899
September 1, 1899 –
……….
October 6, 1903 ……….
October 7, 1903 –
May 31, 1918 …………
10
June 1, 1918 –
August 11, 1918 …….
August 12, 1918 –
September 12, 1920 ….
September 13, 1920 –
December 31, 1921 ….
January 1, 1921 –
November 30, 1921 ….
December 1, 1921 –
July 5, 1922
…………….
July 6, 1922 to date ……….
From Winnipeg
420 miles
Cents
Index
121A
From Regina
776 miles
Cents
23
Index
115.0
From Calgary
1242 miles
Cents
29
Index
111.5
15 /
14
12
14
19
18
110.7
100.0
71.4
85.7
100.0
135.7
128.6
121.4
100.0
21/
20
18
20
24
32 /
31
29
20
107.5
100.0
90.0
100.0
120.0
162.5
155.0
145.0
100.0
271/z
26
24
26
30
105.8
100.0
92.3
100.0
115A
40 /
155.8
39
36
26
150.0
138.5
100.0
49 R.S.C. 1927, c. 206.
50 Stat. Can. 1925, c. 52, Sections 2 and 3: section 325(5) and (6)
is now
section 328(6) and (7), R.S.C. 1952, c. 234. The Act was amended as a result
of the Supreme Court of Canada decision in Re Crow’s Nest Pass Rates [1925]
S.C.R. 155 that the Agreement covered only points on the C.P.R. lines as they
existed on the date of the Agreement, viz. 1897. The Act was further amended
to include Rapeseed in the term “grain” as a result of another decision of
the Supreme Court of Canada in Bogoch Seed Co. v. C.P.R. & C.N.R. [1963]
S.C.R. 247, holding “rapeseed” was not “grain” within the meaning of section
328 (Stat. Can. 1960-61, c. 54, s. 2). The rates however applied to certain by-
products of the milling, distilling and brewing industries and also to certain
feed products not included in the strict interpretation of the terms “grain”
and “flour”.
McGILL LAW JOURNAL
[Vol. 17
moving eastward on lines from any railway point to Fort William
and Port Arthur. 1
The grain rates were, by decisions of the Board of Railway
Commissioners, applied on a uniform mileage basis to all lines in
the grain area, including:
a) Westfort and Armstrong,
b) Churchill (on lines over the Hudson Bay Railway) for export,
and
c) Pacific coast terminals (Vancouver, New Westminster, Vic-
toria and Prince Rupert) for export.
The statutory grain rates have thus been regarded by the West
as a “charter of Prairie agriculture” and have always been and
remain matters of public policy. 2 It was apparent after World War
II that due to inflation these rates would not even cover out-of-
pocket expenses. Besides, competition from other modes of trans-
portation, notably highway, had cut down both the volume of
other kinds of freight and the ability to charge rates for hauling
it. While the railways still had monopoly over inland transporta-
tion, it was easy for them to burden shippers of other commodities
both within the Western region and outside of it with any short-
fall in anticipated earnings from grain movement, but this was no
longer possible and the railways claimed before the Turgeon Com-
mission (1951) and the MacPherson Commission (1960) that they
were losing substantially and that in any case Parliament had
abrogated the Agreement in 1925. While dismissing the argument
that the low statutory grain rates cast an unfair burden on shippers
of other commodities, as unproven, the Turgeon Commission re-
commended that Parliament should make whatever changes in
these rates upward or downward it may appear just and reason-
able to make as time goes on, 3 but no action was taken. Although
the then Prime Minister (The Rt. Hon. John G. Diefenbaker) an-
nounced that the MacPherson Commission’s terms of reference did
not cover the Crow’s Nest Rates, the Commission in considering
the overall rate structure had to deal with these rates and recom-
mended that “upon submission and approval of reports of the
variable cost of moving grain and of revenue therefrom in the
51 In 1925 there were 17,000 miles of railway lines and three railways (C.P.R.,
C.N.R. and Northern Alberta Rly.) operating in that region.
52 MacPherson Report, (vol. 3), supra, n. 7, at p. 403. Currie, supra, n. 16,
at 101 remarks that “probably in no part of the world are rates held down
by statue to the levels prevailing in the 19th century”.
53 Turgeon Commission Report (1951) at 252.
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FREIGHT RATE REGULATION IN CANADA
previous year, the railways be granted annually a sum of money
equal to the shortfall of revenues on variable expenses plus $9
million for C.P.R. and $7.3 million for C.N.R. as contribution to
overheads. When the process of rationalizing plant by the elimi-
nation of unprofitable branch lines has substantially progressed,
or when it appears that there has been any substantial change in
the overhead costs of the railways, the constant costs of the rail-
ways should be re-evaluated”. 54
The MacPherson recommendation was not accepted by the
Government and by the time the National Transportation Act 5
was passed, many of their findings were out of date. When this
Act was in the Committee Stage, the then Transport Minister while
assuring that “Crow’s Nest Pass rates are frozen for all time to
come and cannot be reopened”, proposed that the new Commis-
sion (the Canadian Transport Commission) make a review of the
cost of carrying the grain without endangering the rates in any
way whatsoever, in order to verify the claim that the Crow’s Nest
Pass rates are not compensatory, so that the Treasusy, and not
other freight shippers in the rest of Canada, would pay. This plan
was defeated because the Members of Parliament for the Wegt
contested the idea that the railways were making losses and that.
if they were, this could be avoided by rationalizing, pooling and
better management.
The National Transportation Act made a small amendment to
the Railway Act,56 by putting on a statutory footing the westward
bound export grain rate which was included by the Board of Rail-
way Commissioners in 1925 within the Crow’s Nest Pass arrange-
ment. The discrepancy between domestic grain rates and export
grain rates were taken into account and by S. 471 of the Railway
Act (added by the National Transportation Act s. 74(2)), the new
Commission is required to undertake a study of the differences
between domestic and export rates and report to the Governor
in Council for appropriate action in the public interest.
B. “At and East” grain rates
“At and East” grain rates are not based on any statutory re-
quirement but are agreed to by the Railways in order to retain
export traffic for Canadian ports in the East which compete with
U.S. ports on the Atlantic coast. The rates apply to bulk export
54 MacPherson Report (vol. 1) 65-66.
55 Stat. Can. 1966-67, c. 69.
53 R S.C. 1952, c. 234, s. 328(2).
McGILL LAW JOURNAL
[Vol. 17
grain brought by ships from the Great Lakes, Georgian Bay and
St. Lawrence River Ports to railway points on the eastern lake
shore (Midland, Goderich, etc.) and thence moving by rail to Mon-
treal, Halifax and other eastern Canadian ports.
These rates in some instances were suspected of being as low
as ana even lower than statutory grain rates. The railways sought
to increase these rates effective January 1961 on the ground that
they were below the variable cost of carrying the traffic. The Board
after investigation issued Order 103860 on February 23, 1961 dis-
allowing the railway’s proposal but fixing a rate of 330 (wheat
basis) from the Georgian Bay and related ports to St. John, West
Saint John and Halifax, the rates on other grains from and to other
ports being linked to it. The Railways accordingly published the
level of rates found reasonable by this order, but before these
rates went into effect, the Cabinet suspended the Board’s findings.
This suspension continued from 1961 and the former lower rates
applied on this export grain traffic until 1966.
The National Transportation Act 5 7 amending s. 329 of the
Railway Act authorized the payment of a permanent subsidy for
the movement of this grain. The subsidy is based on the difference
between the freight rates that were in effect on November 30, 1960
and the compensatory rates approved by the Board. 8 This subsidy
is not a heavy drain 59 because the grain movements have seriously
declined since the St. Lawrence Seaway was deepened in 1959
permitting ocean going ships to call directly at Lakehead elevators
for receiving grain; and it is also in line with the overall govern-
ment policy for grain exported from the West, which has to make
long voyages to far away markets.
C. The Maritime Freight Rates Act
Like the Crow’s Nest Pass rates on grain, the Maritime Freight
Rates Act 60 is a prominent feature in the railway rate structure
and is the transportation Magna Carta of the East. The Act was
passed on the recommendations of the Duncan Commission ap-
57 Stat. Can. 1966-67, c. 69, s. 50.
58 The rates on export flour were pegged to the level prevailing on September
30, 1966, and a subsidy is payable if these rates are found non-compensatory
59 The subsidy paid to railways other than C.N.R. in 1966 amounted to
$2,176,200; 62nd Report of the Board of Transport Commissioners for Canada
(1966) at 11. The annual C.N.R. subsidy under this head averages $12 to $13
million.
60 R.S.C. 1952, c. 174.
No. 2]
FREIGHT RATE REGULATION IN CANADA
pointed in 1925 to deal with the complaint of the three Maritime
provinces that they got a raw deal under the Confederation. At
the time of the Confederation one of the big problems was the
economic disparity which existed owing to geography. New Bruns-
wick and Nova Scotia were two of the four partners in the Con-
federation and alleged that they entered into it mainly on the
strength of the transportation promises which were made to them.
Since 1912 the railway rates in the Maritimes had been ad-
vancing at a much higher pace than in the rest of Canada, and this
caused considerable restlessness in that region. Like the West, the
Maritimes are completely dependent on the railways, and the Dun-
can Commission recommended an immediate reversal of these
advances by reducing the 1927 level of freight rates by 20%, the
reduction to apply to all movements within the Maritimes and
to the Maritime portion of the through rate on all traffic origi-
nating within that region and destined for points outside of it.61
Accepting these recommendations, Parliament passed the Mari-
time Freight Rates Act in 1927 and agreed to reimburse the rail-
ways for the loss in revenue consequent upon the reduction. The
Act made it clear that the rates on the traffic movements from
the “select territory ‘ may be varied in the normal manner to
take account of the variations in railway operational costs, and
the reduction “shall be on the general rate level” 63 but that “any
variation in rates within the territory or outside of it shall not
destroy or prejudicially affect the statutory advantages conferred
by the Act in favor of persons and industries within that territory”.6 4
When the Act was passed the Railways had a virtual monopoly
over the transport market, but since 1927 the development of other
modes of transport, notably trucking, in central Canada, upset this
nice equilibrium envisaged for the Maritimes by the Act. The in-
tense competition from trucking forced the railways to struggle
for freight in Central Canada by offering competitive rates and
thus the statutory advantages of the Maritimes were effectively
diluted. Were the competition not to be met, the railways would
have been forced to withdraw significantly from those movements,
defines movements that are not preferred.
61 S. 4 of the Act defines “preferred movements” and s. 5 for greater certainty,
02 This is defined by the s. 7 of the Act to cover the four Atlantic Provinces
(New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland
the last added under Terms of Union in 1947) and that part of Quebec east
of Levis and Diamond Junction.
63 S. 3(2)(6) of the Act.
64S. 7.
McGILL LAW JOURNAL
[Vol. 17
to the detriment of shippers in non-competitive regions, including
the Maritimes, since the operational costs would have to be spread
over a contracting amount of freight. This disparity in rates forced
by competition obviously affected the Maritimes prejudicially and
thus against the express provisions of the Act, but the result of
withdrawing from those movements by not meeting truckers’ com-
petition would be even more detrimental to the Maritimes, since
rates would go up in that region, and it would not in any way
improve their competitive position as against the Central Cana-
dian manufacturers, producers and shippers who could easily de-
sert the railways and take their business to the truckers. This was
the rationale of the decision of the Supreme Court of Canada in
the Potato Freight Rate case 65 which nullified significantly the
statutory advantages enjoyed by the Maritimes. As a result, the
20% reduction was confined to class and non-competitive com-
modity movements which account for about half of the total freight
of the Maritimes.
The principal beneficiaries under the Act are thus the railways
to whom each year $10 to $15 million are farmed out as subsidy,
the C.N.R. receiving approximately 85% of it and the other rail-
ways, including C.P.R., sharing the remainder. This subsidy also
enables the railways to ward off competition from other modes
of transport who have to struggle against a heavily subsidized
rival and the MacPherson Royal Commission, whose recommen-
dations were reiterated by the Economic Intelligence Unit, recom-
mended,
(i) the abolition of the subsidy on movements wholly within the “select
area” (which amounted to 55% of the total subsidy or $7.5 million),
(ii) the extension of the subsidy on westbound movements to all types
of licensed public common carrier, and
(iii) the retention of the subsidy on movements within, to and from New-
foundland and the select area where there is as yet no really pervasive
competition.66
The MacPherson Commission’s recommendations were not ac-
cepted by the Government, but in 1968 the Government decided
to grant the truckers the same subsidy as granted to railways.(7
The latter suggested further that the Dominion Government extend
Board of Railway Commissioners (1936), 44 C.R.C. 289.
65 Nova Scotia v. C.N.R. [1937] S.C.R. 271 affirming the decision of the
66 MacPherson Report. Vol. 2 c. 8. XII Economic Intelligence Unit’s Report
on Atlantic Provinces Transportations Study (1967) Q.P. Ottawa, at 14 ff. 67.
67The Atlantic Region Freight Assistance Act, Stat. Can. 1968-69, c. 52.
No. 2]
FREIGHT RATE REGULATION IN CANADA
its assistance for the construction of additional roads and harbours
in the Maritimes.
The National Transportation Act froze all the prevailing rates
in the select territory for a period of two years and made special
provision for carload rates on lumber, coal and coke between two
points in Canada one or both being in select territory, pending
evaluation of the E.I.U. report.
In view of the whittling down of the effectiveness of the Act
the Maritimes appear not
by the 1937 Supreme Court decision,”
to be anxious to retain the benefits under the Act if more eco-
nomic aid could be obtained to improve the overall condition to
make it a vibrant, efficient region.
D. The Freight Rates Reduction Act, 1959
The Federal Government which had become increasingly con-
cerned at the effect of higher freight rates on the transport costs
of outlying areas, decided in 1959 9 (the precipitating event being
the December 1958 rate increase of 17% authorized by the Board
of Transport Commissioners) to ameliorate the effects of horizon-
tal rate increases and in return for a $20 million amount subsidy
directed the railways to roll back the authorized 17% to 10% and
later to 8%. Shortly after this grant, the Railways agreed to a new
labour contract with their employees and in order that the reve-
nues to pay the substantial increases under this contract may not
be obtained by requests for further increases in rates, the govern-
ment granted an additional subsidy of $50 million for 1961 and
subsequent years.
During the seven years from August 1959 to December 1966, the
Board of Transport Commissioners disbursed $136.1 million under
the $20 million “roll back” subsidy and $360.7 million under the
$50 million and other special subsides.70
Under the National Transportation Act, the Freight Rates Reduc-
tion subsidy has been replaced by a general subsidy of $110 million 71
which would be phased out over a period of eight years. The only
future subsidies that the railways will get from Parliament will be
68Supra, n. 65.
69Freight Rates Reduction Act, Stat. Can. 1959, c. 27.
70 62nd Report of the Board of Transport Commissioners for Canada, (1966)
at 13. More than ninety-six percent of these subsidies went to C.N.R. and
C.P.R. and the balance to twelve other small railways.
71 S. 469 Railway Act, R.S.C. 1952, c. 234 as amended by Stat. Can. 1966-67,
c. 69, s. 74(2).
McGILL LAW JOURNAL
[Vol. 17
for compensating them for providing certain uneconomic services
and facilities deemed as being in the public interest,72 and they
have no relation to the “roll back” subsidy. The railways will there-
fore have to compensate themselves by increases in rates wherever
they may find it easy to impose, that is primarily on class and com-
modity (non-competitive) rated traffic.
E. Operation of regulatory control under the old regime
Before discussing the impact of competition on the traditional
rate structure, it is as well at this stage to advert to the system of
control that was instituted for the regulation of market behavior
of the railways. Briefly this control comprised:
(1) Prohibition of unjust discrimination,7 3
(2) Disallowance and substitution of tariffs if found unjust or
unreasonable, 74
(3) Filing and Publication of freight tariffs, 7
6
and
(4) Postponement of the effective date of tariff and fixing
rates .76
(1) Prohibition of Unjust Discrimination
The earliest forms of regulation were designed to curb excesses
of monopoly power of the railways. While the principle of differ-
ential pricing was accepted as economically sound, the curbs
included,
(a) Prohibition of personal discrimination –
the worst form
of discrimination whereby certain shippers would be favoured as
against others and corruption would become rampant; 77
(b) Prohibition of commodity discrimination – whereby the
differentiation in rates was not justified by accepted principles of
rate making. Discrimination becomes undue or unjust only when
different rates are charged on two commodities having the same
transportation characteristics such as value, bulk, susceptibility to
72National Transportation Act, Stat. Can. 1966-67, c. 69, s. 42 (Abandonment
and Rationalization of Lines or Operation).
73 Railway Act, R.S.C. 1952, c. 234, ss. 317(2), 336 and 337.
74 Ibid., s. 328.
75 Ibid., ss. 333 and 334.
70 Ibid., s. 328.
77 The Board of Railway Commissioners had effectively controlled the
granting of free passes, rebates, conniving at false billing, etc., and hence
personal discrimination is now past history.
No. 2]
FREIGHT RATE REGULATION IN CANADA
loss and damage, regularity of movement, etc.; it also becomes
unreasonable when the rates differ for two shipments of the same
article of the same weight and moving in the same direction over
the same distance; 78
(c) Prohibition of place discrimination – whereby different
localities were unjustly discriminated against in respect of tolls. 9
Charges of unjust discrimination frequently came before the Board
as complaints of localities; cities, boards of trade, manufacturers’
associations, and chambers of commerce, were the complaining
parties although in reality the charges related to persons and com-
modities.
(d) Prohibition of “long-and-short-haul” discrimination –
a
particular form of place discrimination, which consisted in charging
a larger aggregate amount for the carriage of persons or property
for a shorter than a longer distance, when both hauls were over
the same line and in the same direction, and the shorter was included
in the longer distance.80 It was only in exceptional situations where
the Board was satisfied that competition from other carriers or
modes of transport dictated such discrimination, that it would allow
such discriminating toll.
(2) Disallowance and Substitution of Tariffs
The most important power which the Board possessed was under
Section 328 to disallow any tariff or any portion thereof that it
78 The Board of Railway Commissioners, in Calgary Livestock Exchange v.
C.N.R. & C.P.R. (1923), 29 C.R.C. 207, held that a complaint of unjust
discrimination is not sustained merely by quoting difference in rates: the
shipper must prove that his business has actually been injured by the rate
disparity. Proof that the products are competitive and sold in the same
market is acceptable. Carload and less-than-carload quantities can be charged
at proportionally less rates and so also differences may be based on distances
under s. 317(3).
79 S. 317(4). Permissible discriminations are (a) those based on differences
in operating conditions, such as heavy grades and sharp curves, existence
of numerous bridges, climatic differences, or, in brief, unusual conditions …
those based
making for higher operating expenses on certain lines;
on group or blanket rates which result in equality of charges for distances
varying by hundreds of miles (permitted under s. 317(3)); (c) rates in the
opposite direction, if, due to empty car movements or “up grade” movements,
the direct costs are higher or lower (this occurs especially where commodity
rates are charged in one direction and class rates in the other); (d) sometimes
competition depresses rates in one direction and not in the other. For a
detailed discussion, see Locklin, supra, n. 1 c. 23.
(b)
so See infra, p. 313.
McGILL LAW JOURNAL
[Vol. 17
considered unjust or unreasonable or contrary to any of the pro-
visions of the Railway Act.81 It was this power that was frequently
invoked in many of the rate cases. The rates would be challenged
by shippers as unjust or unreasonable if they were discriminatory
(i.e. comparatively unreasonable) or so high as to put those depen-
dent on the railways to an unreasonable burden (i.e. unreasonable
per se); in other words, the general provisions governing “equality
of tolls in respect of similar traffic” laid down by Section 317 were
the basis of action by shippers, or by the Board when it acted of its
own motion.
In determining the validity of shipper complaints, the Board
considered various factors, no one factor being accorded full weight.82
One rule was the rate per-ton-per-mile which had the simplicity of
bringing the rates down to the narrowest point of scrutiny; but as
this rule excluded consideration of many circumstances and con-
ditions which enter the making of rates, it was rejected as an infal-
lible measure of the reasonableness or otherwise of the rate or
the toll.’ 3 Similarly the Board held that average revenue per ton-mile
of all freight movements would not justify a reduction of toll.84
Furthermore, the Board held that the reasonableness or unreason-
ableness of freight rates could not be gauged solely by the ability
or inability of shippers under depressed market conditions to market
their products with profit under existing rates.8
It would appear that the Board controlled only the gross forms
of monopoly power under Section 328 and in such rare cases it
would order the Railways to substitute a satisfactory rate or, in
default, the Board would prescribe such tariff that it considered
reasonable. Rate controversies thus almost invariably related to rate
relationships under place discrimination 8 6 and not to the reason-
ableness of the rates per se. Rates might be held to be unduly
preferential or prejudicial under Section 317(4) although not un-
reasonable under Section 328.
81 This included the statutory grain rates, Maritime rates, etc. See supra,
pp. 302-309.
82 Some of the factors considered by the Interstate Commerce Commission
of the U.S. (and accepted by the Canadian counterpart) are mentioned by
MacMurchy & Denison in Railway Law of Canada (1922)
(3rd Ed.) at 592-596.
83 Dawson Board of Trade v. White Pass and Yukon Ry. Co. 11 C.R.C. 402.
84 Western Ontario Municipalities v. G.T.R. 18 C.R.C. 329.
8 Perrior v. Express Traffic Assn. (1923) C.R.C. 156; The Twenty-One Percent
Case decided by the Board of Transport Commissioners for Canada on March
30, 1948, 62 C.R.T.C. 1 (1948).
No. 2]
FREIGHT RATE REGULATION IN CANADA
When the power of disallowance was invoked by the Board,
considerable delays occurred in the disposition of the case. However,
as opposed to the “general rate revenue cases” where railways were
unable to earn substantial portions of revenue for a considerable
time, especially in the post-war inflation period, the disputes of rates
on particular commodities at the instance of any shipper or class of
shippers did not so threaten their financial position. 7
(3) Filing and Publication of Tariffs
Under the old system of regulation one of the important safe-
guards available to the shippers was the requirement that every
toll, in order to be lawful, be filed with the Board and published
in accordance with its directions. A toll advancing tariff could be
effective only 30 days after filing, and a toll reducing tariff 3 days
after filing. This requirement was intended to give some sort of
stability to the rates, and covered only non-competitive class and
commodity tariffs. In the case of competitive tariffs, the railways
had to file them with the Board and specify their effective dates.
In each case, the Board had the power to disallow, suspend or post-
pone the tariffs under the overriding jurisdiction conferred by
section 328.88
The requirement of filing and approval before effectiveness of
the tariff placed the railways in an unfortunate position when facing
competition from other modes not subject to similar restrictions; 89
and on the recommendations of the Turgeon Commission, the
railways were permitted to put into effect a competitive rate im-
mediately upon issue and before filing; but they were still required
to justify the rate at the time of or shortly after filing.91
The 1967 revision made important changes in the matter of filing
and approval. No change was made with respect to advancement
of tariffs but the procedure for tariff reduction, since normally it
80 i.e. under s. 317(4) of the Railway Act.
8 ‘This phenomenon has been ably discussed by the Turgeon Commission
(1951)
in their Report, c. II. See also Currie, supra, n. 16 at 73 ff.
8 8Railway Act, R.S.C. 1952, c. 234, s. 328.
89The Board however did its best to assist the railways by approving of
rates at very short notice, even as short as one day’s notice. See Currie,
supra, n. 16 at 21.
9o Turgeon Report, supra, n. 34 at p. 86.
9’By s. 334 the railways were required to prove that (a) competition
existed, (b) the rate was compensatory and (c) not lower than necessary
to meet competition. They were required further to furnish relative information
regarding competition that they were facing.
McGILL LAW JOURNAL
[Vol. 17
was put through to meet competition, was equated with competitive
tariffs, so that a reduction would be effective immediately upon
issue and before filing with the Commission. The Commission how-
ever is given power to disallow any rate, competitive or non-
competitive, under an entirely new framework:
the competitive
rate may be disallowed after filing if it is proved, on investigation,
that it is not compensatory; a non-competitive rate may likewise
be disallowed if it takes advantage of the carrier’s monopoly power.2
(4) Postponement or Suspension of the Effective Date of Tariff
Under the old section 328, the Board had also the power to
postpone or suspend the effective date of the tariff and thus modify
the provisions of Section 333. This power would normally be exer-
cised on complaints from the shippers and communities affected
(naturally where the rates were advanced) but the Board could
of its own motion investigate into the reasonableness of the new
or modified tariff. This power could be invoked even after the tariff
had become effective. The Commission under the 1967 Act does not
have such power since under the new framework it is unnecessary.
From the above it is apparent that while the railways had a
monopoly of surface transportation the regulatory control in normal
times was not restrictive of their legitimate rate decisions and was
dictated only by the need to protect shippers and communities tied
to the railways. Such a regime was highly satisfactory to all the
interests involved, though it did not yield the largest economic gain
to the nation, nor did it make for efficiency. But in times of rapidly
rising costs the railways were unable to earn substantial revenues
due to delays resulting from challenges to their proposals to increase
rates, and this was one of the greatest difficulties experienced by
them. However, the restraint on rates in the wake of keen com-
petition fostered by other modes forced the railways to concentrate
on efficiency and economy, and hastened such innovations as
dieselization, centralized traffic control, electronic car tracing and
other automation devices, piggyback method and container services.
92 The overriding power of the Board under the old s. 328 has been abrogated
and the authority (now the Canadian Transport Commission) could only
disallow rates under the new ss. 334 and 336 (the minimum and maximum
rate control provisions). The Commission however may have the same power
of disallowance under s. 16 of the National Transportation Act, Stat. Can.
1966-67, c. 69. (See infra, p. 332).
No. 2]
FREIGHT RATE REGULATION IN CANADA
F. The Long- and Short-Haul Discrimination
The railway industry operates on what economists term the law
of increasing returns or diminishing costs. Since a large proportion
of a railroad’s expenses are fixed or constant, and does not vary
with the volume of traffic, it would pay the railroad to continue to
carry traffic at a rate that would at least cover the “movement
expenses” or variable costs, and contribute something to constant
expenses.9 3 If under pressure of competition a railroad is forced to
carry at this low rate, naturally its anticipated level of earnings will
fall and it will have to cover these from other, non-competitive
traffic whose rates will correspondingly rise. 4 If it does not meet
the competition, it will lose that volume of traffic and the rates
generally for the remaining traffic may have to be raised.
If a railway faces competition on its through traffic because
another railway or agency has a more direct route to that point, 5
or because another mode of transport 96 can economically carry that
traffic at a low rate, the first railway will be compelled to lower
the through rate in a bid to retain business. The rate to intermediate
points under these circumstances need not change unless the volume
of through traffic is of such magnitude that the revenues thus lost
have to be covered by non-competitive traffic, in which event the
intermediate point rates may be higher than the through rate. The
maintenance of the intermediate rate at its old level, or even an
93 Long- and short-haul discrimination has largely been a railway phe-
nomenon, although water carriers, pipelines and air carriers are also subject
to large fixed overheads as railways. Motor carriers however are not so
subject. See Locklin, supra n. 1 at 488, 489.
94This assumes that the railway would otherwise lose its regular business.
If the low rate is necessary to attract new business, the rates on non-
competitive traffic do not have to be increased.
05 For example, rates to Vancouver from Calgary are the same as from
Edmonton. In other words, the C.N.R. charges no more on the haul of 944
miles over its lines from Calgary through Edmonton to Vancouver than the
C.P.R. charges on its direct route, 642 miles from Calgary to Vancouver.
Similarly, the C.P.R. rate from Edmonton through Calgary to Vancouver
(836 miles)
is the same as the C.N.R. rate from Edmonton directly to
Vancouver. This practice was justified by the Board of Railway Commissioners
in a number of cases: e.g. Bonners’ Ferry Lumber Co. v. Great Northern
Rail way (1909), 9 C.R.C. 504; Canadian Shippers’ Traffic Bureau v. C.N.R.
(1928), 35 C.R.C. 168; Brock (Western) Ltd. v. Canadian Freight Association,
(1931), 38 C.R.C. 326. The ground on which this was justified is that such
an equality of rates ignoring vast distances does not affect the localities
concerned, since the direct route or through rate shippers would in any
case bring their traffic through the other carrier.
McGILL LAW JOURNAL
[Vol. 17
increase, does not of itself make it unjustifiable under other pro-
visions of the Railway Act.97
In the absence of competition above referred to, it is illegal for
the railways to charge in the aggregate a higher rate for a shorter
than a longer distance and this prohibition has been enshrined since
the earliest days of rate regulation in the statute.
It has been suggested that there is never any justification for
charging more in the aggregate for a shorter than a longer haul,
and that the railways should be prohibited from infringing this
principle even in the guise of meeting competition.98 If the regulation
is so designed that the railroads are prohibited from carrying traffic
at rates lower than the long run variable costs for the movement
concerned, such costs defraying all appropriate fixed and indirect
costs attributable to it, it will ensure that the most economical mode
inherently and the most efficient carrier within that mode 09 will
gain the traffic being competed for, and at the same time there will
be no undue burden on non-competitive intermediate points and
commodities. There will doubtless be a bigger differential between
the rates and it may even be that the intermediate rate would be
higher than the through rate, but that is unavoidable and perhaps
above reproach so long as the rate previously charged was not
unreasonable. The only palliative to the intermediate point shipper
in these circumstances is the injection of more competition from
other modes but that is not the fundtion of the regulatory authority
00 The “one-and-one-third rule” introduced in 1951 101
or legislation.
on the recommendation of the Turgeon Commission was from this
point of view somewhat short sighted and in any case it was effec-
tively avoided by the railways either by refusing to meet competition
on the transcontinental traffic and thus losing it to the water car-
riers, or by the method of agreed charges, described below, which
was declared by Mr. Turgeon not to have been contemplated when
he recommended the rule in 1951.102
96E.g. Water carrier in intercoastal transport: see infra, p. 348 ff.
7 E.g. under s. 328 Railway Act, supra n. 88.
98 See Locklin, supra n. 1 at 487-88; Doyle Report, supra n. 6 at 146-148.
99 After bearing the full real cost of resources, facilities and services provided
at public expense, and after being subject as far as possible to controls
similar to other carriers and modes in competition.
100 The Special Study Group of the U.S. Senate Committee on Commerce
recommended that the long- and short-haul provision should not be extended
to permit “meeting the competition” unless justified by cost considerations:
see Doyle Report, supra, n. 6 at 444.
101 See below, p. 319.
102 Royal Commission on Agreed Charges, Report (1955) at 9.
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FREIGHT RATE REGULATION IN CANADA
In its review of the market structure in the transportation indus-
try, the MacPherson Commission found that overall competition
was so widespread that barring a few cases of captive areas and
traffic, the long- and short-haul provision was unnecessary, and in
the 1966-67 revision of the Railway Act, it was wiped out although
by Section 16 of the National Transportation Act the Canadian
Transport Commission is directed in considering complaints of
prejudicial rates, to investigate whether the rates created any unfair
disadvantage beyond that inherent in the location or volume of the
traffic, etc. It is unlikely that Parliament intended to keep alive the
prohibition against long and short-haul discrimination
in this
indirect manner and it will be interesting to see what interpretation
the Commission will place on S. 16 as a whole.
III. Regulation and Competition
Existence of monopoly profits in an industry attracts com-
petition in the long run in the absence of legal or economic barriers;
in fact, the potential threat of competition is sufficient to restrain
a monopolist from making full use of his economic power over the
market. The capital intensive nature of the railroad industry where
a high proportion of assets are permanently and irrevocably sunk,
is an effective barrier, and once rail facilities are in optimum supply,
new lines become uneconomic for the entire industry.
The first major dose of competition came from within the indus-
try itself and in the struggle that ensued in the early phases of its
history, many railways went bankrupt and were taken over by the
government which set up the Canadian National System in 1923.
A. Competitive Tariffs
To meet competition from within, and also from the water
carriers operating on the St. Lawrence River and Great Lakes, and
along the coasts of the Maritime Provinces and British Columbia,
the railways were at an early period authorized to issue competitive
rate tariffs 103 which were necessarily below the normal “class” and
“commodity” rates. The rates were required to be filed with the
Board of Railway Commissioners and to state the intended effective
date. The Railways were entitled to meet competition, if they wished,
from whichever quarter it appeared and the Board in numerous
decisions upheld this privilege, subject only to the prohibitions in
103 By s. 259, Railway Act, Stat. Can. 1903, c. 58.
McGILL LAW JOURNAL
[Vol. 17
the Railway Act with respect to unjust discrimination; 10- and they
were also entitled to revert to the former rates when competition
ceased.10 5 Since it was within discretion of the railways whether or
not to meet competition, shippers could not compel them to reduce
rates.106
This free hand in instituting competitive rates widened and even
aggravated disparity in rates in outlying regions where there was
no effective competition from other transportation agencies; and
until the advent of motor truck competition these areas were in the
great land mass west of the Great Lakes and to a significant extent
in the Maritimes on that volume of traffic moving out of that
region to the West. The railways justified this practice by arguing
that if they were not to meet competition the traffic would be lost
and their cost of operation, especially overheads, would have to be
borne by a shrinking volume of traffic.
The opening of the Panama Canal in 1914 posed a serious threat
to the transcontinental traffic of the railways. This traffic consisted
not only of indigenous trade 107 but also of direct imports from
foreign countries such as United Kingdom, Europe, the United States
and the Orient, 08 and in order to keep its share of the traffic the
railways were compelled to publish low transcontinental rates. This
resulted in anomalies which in some instances were so extreme that
provinces in the intermediate territory –
again the West – were
gravely affected. 1 9 So long as the intermediate rates were just and
104 See, e.g. B.C. Sugar Refining Co. v. C.P.R. (1910), 10 C.R.C. 169.
105 Regina Board of Trade v. C.P.R. (1917), 22 C.R.C. 315. In Salada Tea Co.
v. C.F.A. (1924), 30 C.R.C. 153, the Board held that if two stations adjacent
to each other on the same line or route are subject to the same competition,
the railways may not give a reduced rate to the shipper at one station
without giving it also to the shipper at the other station in the same common
district.
106 Regina Board of Trade v. C.P.R. (1917), 22 C.R.C. 315.
107 Traffic of goods of Canadian origin, e.g. Canadian canned fruits and
vegetables, which were normally carried from one point in Canada (the
east) to another (the west) by rail, and which because of low rates quoted
by steamships could go to the latter.
108 Here the loss of traffic affected not only the railways but also the
indigenous industry which had to compete with foreign products, such as
steel and cast iron pipes carried at very low rates by foreign ships.
109For many years these extreme anomalies had been a sore point in
the Province of Alberta, particularly in Calgary and Edmonton, which paid
the highest intermediate rate of any distributing point short of Vancouver.
E.g. the rate on canned vegetables from Toronto to Calgary was $2.65 per
100 lbs. when the rate on the same article to Vancouver was $1.40 per
100 lbs. See Turgeon, Report, supra n. 34 at 98-99.
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FREIGHT RATE REGULATION IN CANADA
reasonable under Section 328 of the Railway Act in the absence of
competition, and there was no undue discrimination, the railways
were well within their rights to lower rates on transcontinental
traffic and not reducing the intermediate rates. The Turgeon Com-
mission in order to pacify the province of Alberta, recommended
the magic “one-and-one-third” formula which ensured that whenever
competitive transcontinental tariffs were published by the railways,
the intermediate territory rates for the same commodities on the
same line do not exceed the transcontinental rates by more than
one-third. 110 This recommendation was accepted and incorporated
in Section 337 of the Railway Act.
Section 337 worked as a restraint on the power of railways in
lowering the transcontinental rate, but since the volume of traffic
not affected by water competition was more lucrative in the absence
of the limitation, the railways in many instances either decided not
to meet the water competition or to revoke their reduction, rather
than accept the enforced reduction for the shorter haul. This situa-
tion however did not last long since the railways discovered that
the one-and-one-third rule may not be attracted if they resorted to
the system of agreed charges that the Transport Act had authorized
them in 1938. This position was upheld by the Board of Transport
Commissioners in 1953 much to the dismay of the Province of
Alberta, and Mr. Turgeon, whose Royal Commission had recom-
mended the rule in 1951, was called upon to explain this development
in 1955.
With the growth of highway transport in the 1920’s and the
feverish road building programmes of provincial governments,
trucking got a tremendous boost and became the principal com-
petitor of the railways wherever the highways existed, and highways
came to be constructed in areas hitherto linked primarily by rail-
ways. Competition was most intensive in the densely populated
regions of central Canada which were already well served by water
carriers, but to a small extent in the West. In these regions, especially
in Ontario, trucking had almost a free hand to compete, and was
not saddled with any such restrictions as the railways were subject
to under federal legislation. Hence the trucks concentrated their
attention on the high revenue yielding traffic but they were content
to leave the chaff to the railways who, by law, were required to take
all traffic that was offered to them, meal and malt. Thus they almost
drove away the railways from the most profitable short hauls in
which they had distinct cost advantages. This development had
110 Ibid., at p. 101.
McGILL LAW JOURNAL
[Vol. 17
serious repercussions on the railway revenues and threw the whole
rate structure into chaos. In order to retain and recapture traffic
the railways were compelled to lower rates wherever necessary and
possible and to make up their revenues they had to pass the brunt
to the low rated traffic which the trucks would not touch. The
effect of this narrowing of the gap in rates between the high value
and low value commodities was two-fold. It brought rates more in
line with costs of operation of the agencies of transport and it also
upset the nice balance hitherto maintained by the railways in their
rate structure which plucked the geese without their cackling. The
effect of meeting competition in areas of high traffic density meant
further aggravation of regional disparities in which the West suffered
most although it cannot be determined with precision what the
impact was on the location of new industries or expansion of those
already existing.
The Turgeon Royal Commission 111 recommended the inclusion
of a new provision in the Railway Act to ensure that competition
actually existed, that in their struggle to retain or recover traffic
the railways did not lower their rates below the compensatory level
and that the rates were not lower than necessary to meet the com-
petition. This recommendation was accepted by the Government
and the present section 334 was added to the Railway Act.” 2 At the
same time, to prevent competitors from forestalling changes in
rates, the law with respect to filing and publication was amended
so that the railways could act upon a competitive rate and put into
operation immediately upon issue and before filing. The Turgeon
Commission further recommended that the railways should not be
denied the right not to apply these same tolls to other regions where
intermodal competition was non-existent. This seems to accept the
theory that the proximate cause of regional disparities was not the
railway rate practice but the weakness of competition from other
modes. The western provinces, therefore, in order to obtain the
advantages enjoyed by shippers in the east would under this policy
be required to induce competition by pumping more funds into
road building programmes and pipeline construction and promote
those media. This no doubt is not the solution because any such
programme has to be economically justifiable and that is possible
only if the general industrial development of the regions warrants
M Turgeon Report, supra n. 34 at p. 36.
112Stat. Can. 1951 (2nd Session), c. 22, s. 7. The section required the
Railways to supply pertinent information justifying the competitive rate,
as recommended by the Turgeon Commission.
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FREIGHT RATE REGULATION IN CANADA
it. Until this is brought about, the real answer lies in the direction
of subsidies to the shippers put in disadvantageous position by the
rate disparities.
B. Agreed Charges
The practice of agreed charges was imported in 1938 into railway
rate making in Canada from the United Kingdom which made history
by its introduction in the Road & Rail Traffic Act of 1933.113 Up to
that time all tariffs of tolls were published by the railways in such
a way that shippers were free to take them up or to use them merely
as a lever in bargaining rates with competing intermodal carriers.
Even the lowest competitive rate did not assure the railways any
fixed proportion of the traffic for which they bid.
The agreed charge procedure was a major breakthrough for the
railways and enabled them to negotiate with individual shippers and
make contracts for the carriage of a guaranteed volume of freight
over a period at rates mutually agreed upon. It thus provided the
railways with a potent instrument to compete effectively with other
carriers, especially trucks which were making serious inroads upon
their business by methods which the railways themselves were
legally prevented from following. 14
In 1938 the Canadian Parliament passed the Transport Act 115
and in Part IV sections 32 and 33 conferred upon the railways this
new, well-tested power 116 to make contracts with shippers, with the
object of enabling them to meet competition from trucks. 117 When
first enacted, the Board of Transport Commissioners was required
to approve of every agreed charge before it became effective. Objec-
tions were often raised by persons who were not parties to the
agreed charge which led to hearings and final disposition of com-
Transport Act, (1953), 1-2 Elizabeth II c. 13, s. 20.
113 (1923-33), 23-24 Geo. V s. 37, now incorporated by reference in the (British)
114 See Turgeon Commission Report on Agreed Charges (1955) 12, 13.
115 Now R.S.C. 1952, c. 271. The authority for making Agreed Charges is to
be found in s. 32 of this Act and not in the Railway Act. The Interstate
Commerce Commission in 1961 declared this practice unlawful in the U.S.
and the U.S. Supreme Court upheld the decision. See 194 F. supp. 947 (1961);
affirmed 368 U.S. 349 (1962).
11Gin ocean shipping, conference lines have used this power of making
exclusive contracts with shippers with great success. The practice was legalized
in the U.S. in respect of ocean shipping by an Act of Congress.
117As was to be expected, both the Canadian Trucking Association and the
Canada Steamship Lines protested to the Turgeon Commission, 1951, that
the use of the agreed charge by railways would “force these carriers to the
wall”.
McGILL LAW JOURNAL
[Vol. 17
plaints, and resulted in considerable delay in its implementation.
The railways complained bitterly against this shackling procedure
but the matter was brought to a head by the Province of Alberta
when its complaint that the railways were violating the “one-and-
one-third rule” laid down in S. 337(2) of the Railway Act by means
of agreed charges on transcontinental traffic was dismissed by the
Board of Transport Commissioners as not applying to agreed
charges. 118 On the representation made by Alberta to the Federal
Government, the matter was referred to a Royal Commission in
1955 headed by W. A. Turgeon whose Commission in 1951 had recom-
mended the introduction of the “one-and-one-third rule” to prevent
undue discrimination against “intermediate” territory shippers. 11
This Commission then recommended that an agreed charge should
become effective twenty days after it was filed with the Board, and
the Act was amended accordingly. 120
Under the system, a contract is negotiated between the railways
and shippers and a charge for carrying goods for a minimum period
of one year is agreed upon. 12 1 During negotiations the railways and
shippers consider mainly the cost of transport by alternative modes
of transport and the long-run variable cost of handling the goods
by rail. When an agreement is concluded, any other shipper may
with the consent of the carrier become a party to it by filing a notice
of intent with the Board (now the Commission) and the agreed
charge takes effect in relation to that shipper as from a date to be
agreed upon by the parties. 122 Similarly, water carriers 123 who have
“‘sIn the Agreed Charge on Transcontinental Movements of Cast Iron
Pipe (1954), 71 C.R.T.C. 28, the Board of Transport Commissioners approved
an application of the Canadian Freight Association fixing a charge on cast
iron pipes from Toronto, Ont. and Trois Rivi~res, Que., to points in British
Columbia.
119 See supra p. 319.
120 S. 32(7) Transport Act, supra n. 115. The agreement must be filed within
seven days.
121 S. 32(11) Transport Act. Ninety days written notice of withdrawal after
one year is sufficient, notwithstanding any agreement to the contrary. This
does not tie the shipper for more than a year to the railways in the absence
of deferred rebates, which privilege
is common with ocean conference
carriers but which is prohibited to the railways.
122 S. 32(9). In view of the right granted by s. 32(10) to shippers of identical
or similar goods who can persuade the Commission that their business is
or will be unjustly discriminated against by an agreed charge, the Railways
cannot unjustifiably refuse to include them as parties under ss. (9).
123 Those regulated under the Transport Act, see infra at 348 ff. Regulated
inland water carriers may make independent agreed charges under s. 35 of
this Act. There is nothing in any statute to prevent trucking from making
similar arrangements with shippers.
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FREIGHT RATE REGULATION IN CANADA
established through routes and interchange arrangements with rail-
ways are entitled to become a party to the agreement made by the
railways with shippers and to participate in such agreed charge on
a basis of differentials to be agreed upon. In view of the policy of
co-ordination and harmonization of services envisaged by the
National Transportation Act,1 24 the Railways should be required to
make through route arrangements and joint charges with all other
modes of transport and legislation should also extend to those modes
the privilege of becoming party to an agreed charge.
The practice of agreed charges has greatly assisted the railways
in obtaining for themselves an assured share of the freight market
and thus effectively counteract the tactics of truckers who used the
railway rates as a barometer to set their rates and take away the
railway’s business.’25 Naturally the truckers took every opportunity
to attack this practice as being conducive to creating a monopoly
by the railways by binding shippers to them. Some shippers in the
same industry opposed them because the practice would discriminate
against those who are unable to take advantage of agreed charge
arrangements since their operations and goods may not easily fit
into the system. Increased use of agreed charges if close to cost level
would very probably increase the burden of rail rates on the remain-
ing shippers who are compelled to use rail services. 26 While the
shippers may use the provisions of Section 32(9) in attacking an
agreed charge, the other interests involved may attack them only
under section 33 after it has operated for at least three months.
Under this latter section, competing rail, water or truck carriers
(the last only through their national or provincial association) or
the boards of trade or other body or association representing the
shippers of any locality, may attack an agreed charge on the ground
that it unjustly disciminates against them or places their business
at an unfair disadvantage, by complaining to the Minister of Trans-
port who may, if satisfied that public interest requires the matter to
124 Stat. Can. 1966-67 c. 69. Under ss. 1 and 14 of this Act and under s. 3
of the Transport Act, the Commission is directed to co-ordinate and harmonize
the operations of all types of carriers and to give the regulating enactments
such fair interpretation as will best attain that objective.
125 From a one percent sample of Waybills the Board of Transport Com-
missioners in their 62nd Annual Report for 1966 report that the freight carried
under Agreed Charges accounted for approximately 25.3% of total railway
revenue. Approximately 200,000 Waybills are reviewed annually. There were
in effect, at the end of 1966, 1504 separate agreed charge arrangements involving
some 2457 different shippers. See their Report at 32-33.
126 See the submissions to the Turgeon Commission on Agreed Charges
(1955) at 27-30.
McGILL LAW JOURNAL
[Vol. 17
be investigated, then refer the complaint to the Commission for
investigation which must then consider the various criteria laid
down in subsection 3 and make the proper order. 2 7 In view of the
policy of fostering intermodal competition laid down by the National
Transportation Act ’28 and the minimum rate provisions of section
334 of the Railway Act, 29 an agreed charge that is found to be com-
pensatory may only be struck down on the ground that it unjustly
discriminates against shippers of identical or similar goods which
are offered for carriage under substantially similar circumstances
and conditions as the goods to which the agreed charge relates, i.e.
under S. 32(10); in other words, since an agreed charge arrangement
is normally made to meet competition from other modes of trans-
port, these latter can have no grounds of complaint unless the agreed
charge is non-compensatory; thus the complaint provisions of S. 33
appear to have no efficacy. This conclusion is fortified by the de-
cision reached by the Supreme Court of Canada on the prejudicial
effect of a competitive rate on the statutory advantages conferred
on Maritime shippers and industries under the Maritime Freight
Rates Act,’80 which decision rendered the protection given by Section
7 of that Act illusory.
C. Section 334: Minimum Rates must be Compensatory
Changes in transportation conditions since the beginning of this
century, and more profoundly in the last forty years, have provided
shippers with numerous alternatives, and it is now possible to ship
freight not only by rail but also by motor vehicle, water, air and
pipeline, including various combinations of these. Moreover, the
shipper is able to utilize common carriage, contract carriage, or his
own privately operated transport facilities, alone or in such com-
bination as he chooses to suit his convenience.
This growth of alternatives for shippers has resulted in a marked
reduction in the relative importance of the railways, and that in
turn has posed the fundamental question whether the traditional
control of rate making serves any useful purpose at the present
127The Minister of Transport under s. 33(1) may on his own motion refer
the matter to the Commission without any formal complaint by the various
interests referred to.
128 Stat. Can. 1966-67, c. 69, ss. 1 & 14.
29 R.S.C. 1952, c. 234.
130 Potato Freight Rate Case, see supra at footnote 65; S. 34 of the Transport
Act preserves the rights conferred under the Maritime Freight Rates Act
and obligations imposed under ss. 319(9), 328 and 329 of the Raihvay Act.
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FREIGHT RATE REGULATION IN CANADA
time except on the basis of equality of treatment of all modes of
transport. The traditional measures to protect shippers against
“discrimination” and to ensure that railways establish “just and
reasonable” rates, which were sound in principle in the by-gone days
of monopoly are meaningless in an era of effective competition. “To
persist in a policy which enforces standards of behaviour on one
mode but not on its competitor is to assume an Olympian position,
with powers to determine the economic fate of industries and
regions.” 131
The basic position adopted by the MacPherson Commission in
light of these changed developments, therefore, was that government
should regulate all industries alike and that none should be singled
out for special treatment. Under free competition, only the lower
limit need be set to ensure that no firm or mode of transport would
indulge in cut-throat competition and wage rate wars in order to
drive the rivals out of business and thus dominate the market; in
strict theory even this control is unnecessary because under perfect
competition rates will tend to attain an equilibrium approximating
cost-levels and economically inefficient units will make way for
efficient, viable ones. However, since conditions of perfect com-
petition do not obtain in practice, the MacPherson Commission
recognized the need for a floor which ideally should apply to all
modes but which, because of “administrative difficulties as well
as economic reality make it less essential for the trucking industry so
long as freedom of entry of new firms is permitted”. 1 32 In order to
combat non-compensatory rate competition from trucking, however,
the minimum permissive rate set for the railways should not be the
long-run margin cost, but at the level of out-of-pocket costs for the
particular movement facing such competition.
This is flying in the face of reality. The railways enjoying long-run
marginal cost of 70 to 75 per cent, and even lower short-run costs,
would be able by this permissive policy to trample upon the trucking
industry experiencing very little leeway between direct and fixed
costs, and rates in practice fluctuating narrowly within that range.
Although one might expect that a few trucking firms would indulge
in below out-of-pocket competition, such a situation cannot be
general in a competitive region, since otherwise it would force groups
of firms into bankruptcy, and the Commission’s hope that “penalties
of over-indulgence in the practice for short-run advantages must
131 MacPherson Report, (Vol. 2) supra n. 6 at 32-33.
132 Ibid., at 34.
McGILL LAW JOURNAL
[Vol. 17
remain the responsibility of management in view of the tendency
to dominate”, 133 is not justified.
It would appear from the approach adopted by the MacPherson
Commission that they were unduly paternalistic in recommending
a floor rate and the shipper interests have not been given proper
weight. Although the Commission does not advert specifically to the
interests of the users of service, “the main justification for reg-
ulating minimum rates is not the protection of producer interests,
but rather the maintenance of a sound, diversified transportation
system for the benefit of all users. Minimum rate regulation influ-
ences the structure of the transportation industry and the nature
of intermodal competition. It is this function of minimum rate
controls that provides the main justification for such policy in the
public interest”. 34 Furthermore, “minimum rate policy can perform
a vital function in helping to ensure that relative advantages of
different modes are recognized and preserved by contributing to
the accomplishment of this result; minimum rate policy, properly
conceived and implemented, is consistent with the long-run interest
of users of transportation services.” 13′ This is recognized by the
National Transportation Policy in Section 1 of the Act. 3
A vital condition for a workable minimum rate is the availability
of suitable cost data; a minimum rate based upon inaccurate cost
information is no better than absence of any control whatsoever.
Minimum rates above actual costs represent floors which are too
high, encourage unregulated rivals (especially the private carriers)
and produce excess capacity in the regulated industry; this is detri-
mental to the long-run interests of both the producers and the users
of transport services. If rates are set below the actual costs, pro-
ducers are in effect given a licence to go bankrupt.137
Parliament did not find itself in accord with the recommendation
of the MacPherson Commission that the minimum rate should be
set at the level of out-of-pocket costs, rather than at long-run mar-
ginal costs, and in laying down one of the most important regulatory
principles in Section 334 of the Railway Act “” it seems to have set
the lon-run costs as the basis for determining the compensatoriness
of rates. Under this section, all freight rates other than those specif-
13 Ibid., at 35.
134 Doyle Report, supra n. 6, at 417.
135 Ibid., at 420.
130 National Transportation Act, Stat. Can. 1966-67, c. 69.
137 Doyle Report, supra n. 6 at 421.
138 R.S.C. 1952, c. 234 as amended by Stat. Can. 1966-67, c. 69.
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FREIGHT RATE REGULATION IN CANADA
ically provided for in the Act 139 must be compensatory. A freight
rate is deemed compensatory when it exceeds the variable cost of
the movement of the traffic concerned as determined by the Com-
mission,’140 the variable cost to include in its computation, the costs
of capital and depreciation, and the Commission to prescribe all
costs that are relevant for this purpose giving due regard to the
principles of costing adopted by the MacPherson’s Commission, to
future developments in railway costing methods and techniques,
and to current conditions of railway operations. The Commission
is empowered to disallow, i.e. to order cancellation after being in
force, any freight rate filed with it, which, after investigation either
on complaint or on its own motion, it finds non-compensatory. A
heavy onus is thus placed on the Commission to be abreast of the
latest techniques in costing methods on which depends the success
or failure of the new regulatory policy of the National Transportation
Act.’
4 1
The new policy on minimum rate levels is intended to promote
a strong and viable railway system and its natural corollary is
the freedom flowing from such a policy to abandon uneconomic
railway services. The policy concerning abandonment is laid down
in Sections 314A to 314H 142 and its discussion is not within the
scope of this paper.143
D. The Captive Shipper and Maximum Rate Control
With the recognition of competitive conditions in the transport
industry, a fundamental rethinking of the 19th century regulatory
regime was inevitable in order that the railroads may not be un-
duly shackled to the detriment of that sector and, as a result, of
the economy as a whole. Under the new policy therefore almost
all controls preventing competition were abandoned in an attempt
to give a “square deal” to the railways, and with this abandonment
were swept away the obligations of undue preference and equal-
ization of charges.
130 Crow’s Nest Pass Rates, Maritime Freight Rates and “At and East” Rates.
140 It would appear from this section, and ss. 387A and 387B of Stat. Can.
1966-67, c. 69, which should be read together, that the variable cost referred
to is the long-run out-of-pocket, or marginal cost, i.e. the cost incurred for
a particular movement over a long period, and not the short-run cost which
ignores cost of capital and depreciation.
141 Stat. Can. 1966-67, c. 69.
142 Railvay Act, R.S.C. 1952, c. 234, as amended by Stat. Can. 1966-67, c. 69.
143 This relates to abandonment of uneconomic branch lines; ss. 3141 and
3141 of the Railway Act as amended, provide for discontinuance of passenger
services.
McGILL LAW JOURNAL
[Vol. 17
The National Transportation Act 4 does however recognize
that imperfect competition that exists at present in the transpor-
tation industry is uneven in geographical incidence. The MacPher-
son Commission found some evidence that for some rail movements
the rates were many times higher than costs, indicating that a
significant degree of monopoly still existed in at least a few com-
modity areas. This is true especially of primary commodities such
as coal, potash and other minerals in areas not well served by
trucking or other transport as in land-locked Saskatchewan or the
Maritimes, either because of insufficient volume or unprofitability
for other modes or for other reasons. To prevent the railways from
abusing their newly found freedom and thus exploiting their mo-
nopoly power by charging the maximum those commodities are
capable of bearing short of withdrawing their traffic, the Mac-
Pherson Commission recommended that a maximum rate control
be built into the system of regulation in place of the crippling
obligations referred to above. Such a maximum rate would more
likely than not fall well below the limit set by economic conditions
of demand for the railway services beyond which, in any event,
the railway cannot go.
The MacPherson Commission’s recommendations were accepted
and embodied in the revised Section 336 of the Railway Act. Under
this section a very important protection is given to shippers who
find that they have no “alternative effective and competitive service
by a common carrier other than a rail carrier or carriers or a
combination of rail carriers”. These shippers are pretty well tied
to the railways and if they regularly move carload quantities they
may seek “captive” status under the section. The decision to seek
captive status rests with the shipper. His reason for initiating
Section 336 procedure will normally be dissatisfaction with the
rate he is forced to pay, probably dictated by the competitive
disadvantage he is placed in as compared with his rivals in his
business. His first step would be to attempt to effect adjustment
from the railway company concerned. If he fails to get satisfactory
settlement his next step would be to apply to the Canadian Trans-
port Commission for an examination of his rate by the criteria
established for maximum rate control. The application should set
out the rate paid, origin and destination of the movement, the
alternative shorter route if any, seasonality of the movement, ap-
proximate minimum tonnage at indicated intervals, and details of
the nature of the commodity shipments for assessment of load-
144 Stat. Can. 1966-67, c. 69.
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FREIGHT RATE REGULATION IN CANADA
ability, fragility, damage-ability, perishability, etc., and information
on the type of equipment required.145 On the basis of this informa-
tion the Commission will advise the shipper of the probable range
within which his maximum rate would lie. If the shipper feels it
is worth his while to ascertain specifically his maximum rate he
must make a second application and the Commission will then make
a special study of the cost of movement and set the maximum
rate at an amount equal to the long run variable cost 1 46 of moving
carloads of 30,000 lbs. 47 in standard railway equipment plus one
hundred fifty per cent of that cost which latter figure is, according
to the MacPherson Royal Commission, a reasonable share of the
burden of fixed costs to be borne by the captive shipper. 48
On receiving this information the shipper would have 30 days
to decide whether to declare himself ‘captive’. Unwillingness to
assert this status would mean that he has or hopes to have alter-
nate modes of transport available to him. If he decides to take
advantage of the maximum rate, he would be required to enter
into a written undertaking with the railway company concerned
to ship all his goods for a minimum period of one year on the
basis of the information given to the Commission in his applica-
tion to set the rate.
After the agreement has been in force for a year either party
may seek to end it, the shipper by serving a ten-day notice of his
intention, the railway company by proffering evidence to the Com-
mission showing that the shipper is no longer captive to them.
The Commission may at any time after the expiration of one year
vary the rate fixed under the section on being satisfied of a change
in the variable cost of the movement concerned, and if the shipper
does not accept this variation the agreement will terminate.
The agreement may be determined at any time if it is proved
that the shipper has defaulted on his undertaking (and for this
purpose the Commission has a right of access to the shipper’s
books, records and invoices) and the railway company is entitled
145 These details are given in MacPherson Report, (Vol. 2) supra n. 7.
at 53. The fees to be paid by the shipper are subject to a maximum of
twenty-five dollars under s. 336(9).
capital in computing the long-rn variable cost.
146 S. 336(3) as contained in Stat. Can. 1966-67, c. 69, includes costs of
147 Pro-rated figures for carloads of 50,000 lbs. or more are given in s.
336(5)(b)(ii) and (iii), Stat. Can. 1966-67, c. 69. If the goods could be moved
by alternative routes of two or more railways, the long-run variable cost is
to be based on the lowest cost rail route: s. 336(3)(d).
148 MacPherson Report, (Vol. 2) supra n. 7 at 52.
McGILL LAW JOURNAL
[Vol. 17
to recover the loss of profit suffered by it and, in addition, liqui-
dated damages at the rate of ten percent of the maximum rate
on all goods shipped in contravention of the agreement. 49
Section 336 has been criticised as not going far enough to
protect a captive shipper from exploitation and that even the
status of captivity is susceptible to very restrictive interpreta-
tion.2 0 The long run variable cost, admitted by the railways to
be as much as 70% of their total costs, includes such items as
capital cost (i.e. interest on investment) and depreciation on rolling
stock and facilities. Assuming the cost of moving a carload of
potash (for argument accepting the 30,000 lb. capacity)
is $100
from Saskatchewan to the Pacific coast, the railways would be
entitled to charge $250 per car which is 175% of total costs (ap-
proximately $143) and an excessive burden on the captive shipper
especially if, as often is the case, he is a primary producer. 151 In
other words, primary producers whose traffic is not very attractive
to trucking, the principal alternative mode of transport, would
hardly ever be able to resist a rate increase by the railways who
can set the rate at a level discouraging potential competition and
at the same time not high enough either to attract the application
of section 336 or to force shippers to withdraw traffic completely
by being uncompetitive in consumer markets. These primary pro-
ducers are the ones needing protection and not the high value
commodity shippers whose traffic is always attractive to com-
peting modes and who are most unlikely to declare themselves
”captive”.
Secondly, the pegging of variable cost to a carload capacity
of 30,000 lbs. was a convenient unit to compare a truckload with
a carload but is very unrealistic in view of far heavier loadings 152
on cars which raise the railway’s profit margin much higher than
175 %/
It is therefore questionable whether Sections 336 affords
any meaningful protection to the captive shipper. It was for this
reason that two leading transportation economists, Professors Wil-
.53
149The Commission may under s. 336(5)(a) authorize the shipper to use
another mode of transport for experimental purposes, presumably to assess
relative cost of transportation.
10 See E.I.U. Report, supra n. 66 at 116-122; Currie, supra n. 16 at 156.
151 The figure would be somewhat less after pro-rating under s. 336(5) (b) (ii)
152 Loadings of up to 170 tons per car. The smallest car is now about
and (iii). See supra, n. 147.
45,000 lbs. or 22.5 tons.
353 Even after passing on half the savings effected on the heavier loading
under s. 336(5)(b)(ii) and (iii).
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FREIGHT RATE REGULATION IN CANADA
liams and Borts challenged the basis of Section 336 before the
MacPherson Royal Commission and suggested that the section
should be thrown out.
The definition of “captive shipper” under the section is much
narrower than is desirable as the Commission may interpret it
very restrictively to denote a condition where the railways have
virtual monopoly of the movement. Many so-called captive shippers
may be unable to assert themselves captive because of the exist-
ence of some amount of competition, actual or potential, and thus
may be subject to monopolistic and discriminatory pricing. Such
semi-captive shippers should come within the protection of Section
336 if that section is to be effective.
The operation of Section 336 over the four year experimental
period provided for in the Act14 should provide the Commission
with some experience on the value of the protection afforded to
the shippers, and the Commission is required under subsection
16 to report on it to the government after holding public hearings.
At that stage it may be clear whether or not the railways have
been crossing the line of reasonableness in rate disparities and
what the effect has been on communities relying exclusively on
the railways for their sustenance.
E. Section 317 and the L.C.L. Captive Shipper
While Section 336 makes available the machinery of maximum
rate determination to a captive carload shipper who has a regular
offtake, there is no protection available to irregular shippers or
regular shippers in less-than-carloads except that provided by section
16 of the National Transportation Act and Section 317 of the Railway
Act.
Under Section 317 the Commission may investigate the tariff of
tolls charged by railways to shippers of commodities under 5,000
lbs. who are captive to them, and disallow such tariff or any portion
thereof if it is found that the railway company is taking undue
advantage of its monopoly position. The Commission may even
prescribe the maximum rates if the railway refuses to substitute
reasonable rates.
Since there are thousands of commodities on the railway classi-
fication, any meaningful exercise of the power conferred by this
section would involve a colossal amount of work and therefore
the Commission will have to rely primarily on stray complaints
154 R.S.C. 1952, c. 234, as amended by 1966-67, Stat. Can. c. 69.
McGILL LAW JOURNAL
[Vol. 17
from disgruntled shippers who can make out a prima facie case on
the unreasonableness of the rate charged to them. Otherwise the
Commission will find itself embroiled in a task which it is not
equipped to handle and which in reality was not envisaged as
its principal function.
F. Section 16 of the National Transportation Act –
Rate not in Public Interest
Although the MacPherson Commission recommended that maxi-
mum and minimum rate control should be the only regulation in
the rate structure and that all other forms of control should be
abandoned as being redundant,’ 55 Parliament while repealing the
pertinent provisions of the Railway Act touching upon these aspects
seems not only to have kept alive some of the salutory features
of the old regime 11 by providing in section 16 the National Transpor-
tation Act what in effect are the same basic protections to shippers,
though in simplified form, but has extended the principles to all
other modes of transport under its legislative jurisdiction.1 “7
Section 16 does not provide a system for the setting of rates,
but it does secure to anyone who feels that a rate which has been set
prejudicially affects the public interest, a right to appear before
the Commission and if he can make a case, get the rate changed.
The expression “public interest” includes the public interest as
described in section I setting out the national transportation policy,
viz. the establishment of an “economic, efficient and adequate
transportation system making the best use of all available modes
of transportation at the lowest total cost.” It is clear from section
16 that even where a particular mode has an obvious monopoly,
the limits of reasonableness are set by the minimum and maximum
levels discussed above. Under depressed economic conditions, par-
ticular producers may have a legitimate beef against the railway
rates and may be backed by strong political action at provincial
levels, but short of a compromise or showdown, it is unlikely that
the Commission would reverse a line of decisions handed down
by its predecessor that the test of reasonableness of rates should
not be gauged by such economic facts. It thus appears that only
under exceptional circumstances could these producers obtain any
155 Even these, when competition has become pervasive in all areas, will be
found unnecessary, according to the MacPherson Commission.
I6 E.g. Undue, unjust or unreasonable discrimination, discussed supra at
page 298 ff.
157 S. 16 includes highway, water, air and pipeline transport.
No. 2]
FREIGHT RATE REGULATION IN CANADA
relief in the national interest, a circumstance
inviting strong
resistance from different regions since the burden of carrying these
products at rates below compensatory levels has to be spread
over all regions, the carriers on whom the duty to carry is imposed
being required by national policy to be compensated in the form
of subsidies.
G. Other Measures Adopted by the Railways
to Meet or Beat Competition
Various devices have been adopted by the Railways in order to
meet competition either from within the industry or from without,
the principal intra-industry measures being expressly or tacitly
agreeing on rates, pooling traffic or revenue, and dividing territory
and, inter-industry, acquiring carriers especially those engaged in
highway and water transport.
The legal status of the intra-industry arrangements, which really
restrain trade and hence against public policy, was doubtful but in
any case they were prohibited at a very early stage by the Railway
Act of 1903.158 The Railway Act was however amended to permit
C.P. Act 119 en-
pooling on a limited scale, and in fact the C.N. –
couraged the two major railways to co-operate voluntarily in various
respects, including pooling and division of earnings. The revision
of 1966-67 has dropped the prohibition entirely and it would appear
that railways in future are entitled to co-operate in such agreements
as far as possible. 10
The intense competition from trucking industry stirred the rail-
ways into action, and in addition to dieselizing trains they introduced
containerization and trailer-on-flat-car service, commonly called
piggyback, whereby they would haul an entire truck trailer (without
18 Now R.S.C. 1952, c. 234, s. 318.
‘5 9 Now R.S.C. 1952, c. 39, Part II, s. 17(2)(b) etc. This Act has been repealed
by the National Transportation Act, Stat. Can. 1966-67, c. 69, s. 76. At the
same time, however, the prohibition against pooling contained in s. 318,
Railway Act, has been lifted by the National Transportation Act, s. 44. “To
what extent pooling prevailed in Canada it is difficult to ascertain, but
if it did exist it must have been upon a very limited scale.” Jackman, Economic
Principles of Transportation (1935) 334. In the United States, the Transport
Act of 1920 legalized pooling agreements when approved by the Interstate
Commerce Commission. The I.C.C. was given guide-lines in approving of
such agreements and was empowered to lay down terms and conditions.
160 Pooling is one of the principal methods of effecting economies and has
long been used with considerable advantage by shipping companies partici-
pating in the Conference System.
McGILL LAW JOURNAL
[Vol. 17
the power unit) at a very competitive charge. Piggyback service
was initially designed by railways to haul their own trailers, but
the Railway Act has now ensured that any firm requiring this
service should be offered the same facilty at comparable charges
and terms and conditions.’ 6′ By this process of rationalization,
innovation and improvement of technology the railways have been
able to stop or slow down the steady erosion of their business by
the trucks. They have also sharpened their costing tools and
concentrated on market research so that they could better gauge
and meet market demand.
A process that has been going on for some considerable time
has been the abandonment of uneconomic branch lines and this
has been put on a firmer footing by the formula enacted by the
National Transportation Act which added Sections 314A to 314H
to the Railway Act.6 2
Competition between railways and trucks not being on even
terms, the latter’s cost characteristic being entirely different, with
small investment, and no fixed plant comparable to the railroad
permanent way, and a small margin between variable and fixed
costs, all of which necessitating the handling of high priced goods,
the railways found themselves prisoners of their own system of
rate determination, and responded by taking over trucking firms,
thus competing with the truckers on the highway itself.10 Although
most provinces required certificates of public convenience and
necessity, the two principal railways entered the field before regu-
lations were enacted and thus secured what are called “grandfather”
rights to operate. Starting with Pick-up and Delivery Service they
now operate large fleets of trucks in areas where they had faced
intense competition, although they do not control any significant
proportion of such firms, and although in certain cases, notably
Alberta, provincial authorities have been hostile to the idea of
railways owning trucks. To the extent that provinces regulated
motor carriers it was an unintended benefit to the railways. There
is no doubt that the Federal Government could legally overreach
the provincial authorities in interprovincial licensing though intra-
provincial road carriage is outside its jurisdiction.
The Railways, again in highly competitive regions, acquired
inland water carriers, and thus were able to offer coordinated rail-
161 National Transportation Act, Stat. Can. 1966-67, c. 69, s. 45(3), adding
subsection 9 to s. 319 of the Railway Act, R.S.C. 1952, c. 234.
162 Discussion of this subject is not within the scope of this article.
163 This take-over bid was not confined to the railways. Water carriers,
especially Canada Steamship Lines, did the same.
No. 2]
FREIGHT RATE REGULATION IN CANADA
water-highway-rail services in any combination that was desired,
although it involved high handling and transhipping costs. From
a very early stage they have also engaged in ocean carriage and,
by a very clever arrangement, had for a long time retained export
and import package goods traffic from the interior to themselves,
whether the goods were sent by their own vessels or by competitors’
vessels.’6
For a number of decades, the two major railways have had
their own air service although this right in the case of the Canadian
Pacific was conceded after political wrangling.1 5 Recently, the
Canadian Pacific has also invested substantial capital in the rapidly
growing pipeline transportation for the movement of coal in the
form of slurry, from the Alberta border to the Pacific coast.
Competition has thus had a very healthy impact on the railways
but the real beneficiaries by and large have been shippers of high
value commodities whose rates now more closely approximate
cost of service. To the extent that trucking rates which the railways
tried to meet did not truly reflect the real cost of providing those
services it has been a misallocation of resources and hence a
national loss. At the same time, competition narrowed the gap
between class and commodity rates by the twin process of lowering
rates on high value goods and increasing rates wherever possible
on raw materials. Besides the readjustment in location of industries
and consumer values and preferences for products that will inevi-
tably take place in some directions in the long run, the displacement
of the rate structure will immediately affect those areas where
competion is not strong enough and those areas that specialize in
primary production. This is unavoidable if the railways are to survive
and the burden of this displacement should be the concern not of
private enterprise but of public policy. It may well be that this
policy may, inter alia, insist that trucks carry a proportion of the
low priced raw materials as a condition of their obtaining a licence
to operate, bear a fairer share of real resource costs, and require
104 This was on the c.i.f. trade whereby sellers could discount their bills
of lading with banks only if through arrangements were made, and through
bills of lading were not given to trucking firms for a long time until the
practice was effectively stopped by the Board of Transport Commissioners
in the case of Irish Shipping Ltd. v. Railway Association (1954), 72 C.R.T.C.
243. See the Report of the Restrictive Trade Practices Commission (1965)
at 32-34.
105The Aeronautics Act, R.S.C. 1952, c. 2 s. 15(2) prohibited ownership
of air services by other transportation media, but C.N.R. and C.P.R. were
exempted.
McGILL LAW JOURNAL
[Vol. 17
co-ordination of the two principal competing modes with a view
to achieving the most efficient carriage, thus equalizing as far as
possible their conditions of operation.166
If, after adopting all these measures of innovation, co-ordination
and equalization of operational conditions, the railways still cannot
economically survive the onslaught of the newer modes, it is an
indication that they are being rendered obsolete, and no tears need
be shed at such displacement just as none were shed when the
stage-coach was displaced by the railroads and by the automobile
in the past. Until this stage is reached, the task of regulation is to
remain neutral among types of carriers and agencies and not deal
a death blow sooner than is absolutely warranted by economic
reality.
III. REGULATION OF HIGHWAY TRANSPORT
The years since the end of the last war have witnessed highway
transport growing more rapidly than ever with the improvement
in motor vehicles and the extension of hard-surfaced roads, and
overshadowing water transport as the principal competitor to the
railways. Their competition has been keenest for short-haul less-
than-carload shipments which had been the mainstay of railways’
business and the foundation of their rate structure. Competition
has been more intensive in the thickly populated regions of the
country, such as central Canada, where they could snatch lucrative
business far more easily, and support a substantial proportion of
their number, than in the predominantly rural and agricultural
Prairies where shippers are left to the mercy of the railways.1′ 7
The emergence of motor vehicle competition has had profound
effects not only on the economy but also on the railways themselves.
It has led to many changes in methods of organization, marketing
and merchandising, in food processing, in manufacturing and in the
location of industries which were formerly dependent upon railways.
These firms are now in a position either to use trucking as a
“leverage” in bargaining for favorable rates with railways or to
acquire their own fleet of trucks, depending upon the economics
166The Lyman Duff Royal Commission’s proposals made in 1931 still have
some validity in this regard. See their Report (1932) 102-105, esp. at 105.
-167The dominance of Central Canadian trucking firms gives Prairie firms
very limited opportunities for long distance trucking (assuming it to be an
economical proposition otherwise) because the East or West bound hauls
are heavy and return loads light. Return load factor is an important consider-
ation in determining the profitability of any particular route.
No. 2]
FREIGHT RATE REGULATION IN CANADA
of the situation. The tremendous shifting of traffic that took place
and continues to occur””8 has rudely awakened the railways from
their doldrums; in fact, the history of railway innovation which
includes rationalization and rolling up branch rail-lines, improve-
ment in services, dieselization, “piggyback” carriage, containeriza-
tion, and even diversification of investment, has been the history
of competition from trucks, and the principal beneficiaries have
been the high rated less-than-carload shippers moving their goods
over short distances on whom the railways had placed the bulk
of their revenue demands in the past.
Confinement of their operations principally to short-haul, high
rated small shipments has been necessitated by the peculiar nature
of operating costs experienced by the trucking industry; these are
only marginally lower than total costs which include cost of the
vehicle, cost of licence, etc. Since the road beds are public property
and responsibility, the trucks are spared a very expensive item
of investment which the railways have to finance themselves.0 9
The small amount of investment required to operate a trucking
business has two very significant effects on the industry itself and
on its ability to compete with other modes not experiencing similar
cost characteristics. In the first place, unlike the railways, the
ratio of capital investment to gross revenue in trucking is small,
so that there is a very small margin between variable cost, i.e. those
costs directly attributable to the movement concerned, and fully
168
INTER-CITY TON-MILES PERFORMED IN CANADA BY TYPE OF CARRIER
Year
Total
Rail
Road Water
%
Air
%
Oil
Gas
Pipeline Pipeline
(billions)
53
77
105
145
152
201
1938
1946
1951
1956
1961
1965
51
72
61
54
43
42
3
5
8
7
11
9
46
24
30
27
26
27
*
*
*
*
1
11
14
14
**
**
6
8
Source: Dominion Bureau of Statistics.
* Less than one-tenth of one per cent.
“* Negligible or non-existent.
169The massive public expenditure on the highway network opens up
opportunities to trucking to intensify its competition with railways, and
thus tips the scale in its favour.
McGILL LAW JOURNAL
[Vol. 17
allocated costs, 170 with the result that freight classification has
really no place in the highway rate structure.’7′ In consequence
the prospect of achieving economies of scale are seldom possible.17 2
Secondly, almost anyone with a small amount of capital to buy
or hire-purchase or lease a truck, the transport unit, and with
physical ability to drive a heavy vehicle, can enter the industry
and make a living, unless restrained by regulatory controls, and
just as easily fold the business when times are bad and realize a
substantial part of the investment if any has been made. These
characteristics mark out trucking as a distinct industry epitomizing
the classical mode of “perfect competition”. Trucking has thus
remained, in the main, a small scale industry with a very large
number of extremely mobile,
independent organizations each
owning a few trucks, each with its own operating characteristics
and costs and its own specialized traffic and area of operation.
It also includes a larger and more diverse group of private carriers
which comprises everything from nationwide corporations down
to individuals owning a single vehicle.
The economic effects of this diversity of the industry are two
fold; firstly, the ease of entry results in a tendency for overcapacity
to develop and persist, leading to ruinous competition which in
turn leads to deterioration in stability of service and safety, evasion
of regulation, financial irresponsibility, and even bankruptcy. Second-
ly, the ability of such an industry to withstand competition from
other modes such as the railways and water carriers, is limited
in the short run, though in the long run 73 they may be the most
economical agency of transport; so that predatory pricing or selective
pricing backed by the financial “leverage” that the stronger modes
have, could easily drive the small truckers out of business.
1
70 Locklin, supra n. 1 at 647 says that “The Bureau of Transport Economics
and Statistics of the I.C.C., considers that not more than 10% of the motor
carrier operating costs can be considered as constant.”
1 Therefore, there is very little scope for personal and place discrimination
which is a distinctive feature of classification.
172The greatest field of usefulness of the truck is for the movement of
high class goods over short distances. Although a great volume of goods
and bulk shipments are handled by some large firms in long-haul traffic
even 1,500 miles in length, “the greatest concentration of inter-city motor
truck activity is on routes between 20 and 600 miles in length.” Currie,
supra n. 16 at 490.
173 The working life of the truck being short compared to the railways, the
long run for trucks is really a short span of about seven to eight years.
No. 2]
FREIGHT RATE REGULATION IN CANADA
A. Need for Regulation
The famous saying “The least regulation is the best regulation”
which is particularly applicable in a competitive situation, has not
commended itself to the legislative authorities so far as the trucking
industry is concerned, where the mushrooming of many small,
financially suspect firms, competing at uneconomical prices for
the available business and then going bankrupt, could easily
jeopardise the stability and growth of the entire industry. Although
perfect competition assumes this constant exit from and entry by
newcomers into it, it places the industry in a state of continuous
instability and depresses the rates to such an extent that in the
long run higher costs are likely to prevail.
The main justification for law regulating the industry however
is not really to protect producers’ interest, though ostensibly it is
so, but to protect the interests of the entire public. Continued
depressed conditions in an industry do not provide any stimulus to
substantial investments, technological advances or innovations, so
that rates are not necessarily the lowest possible under perfect
competition, and social cost of bankruptcies have to be borne
by the public. A soundly conceived policy of regulation is therefore
consistent with the long run interests of users and of the public
since it would ensure a viable, diversified, transportation system.
The users of the service benefit by a more stable system of rates
under regulation, reasonable rates and dependable service, and the
producers are better able to meet their financial responsibility
in respect of claims for damage or loss to goods carried by them.
Under a national system of regulation, public policy in relation
to highway transport has to be reconciled with the legitimate
interests of other modes, especially railways and water carriers,
with a view to attaining an economic, efficient and adequate trans-
portation system. National policy as laid down in the Act’ 74 calls
for equalization of operational conditions as far as possible, but
Part III of that Act recognizes the fact that there are significant
differences obtaining in these diverse modes and that the criteria
established for railways do not have much application to the
trucks.
B. Feasibility of Regulation
It is one thing to regulate a few large firms as in railway or
water carriage, but quite a different thing when a very large number
174 National Transportation Act, Stat. Can. 1966-67, c. 69.
McGILL LAW JOURNAL
[Vol. 17
thousands –
of carriers are engaged in one form of transport;
–
furthermore, the difficulties are accentuated by the existence of
different types of carriers with costs and other characteristics
peculiar to each though not varying substantially, and by the division
of legislative authority.
Almost every country recognizes the right of an individual to
carry his own goods and most also treat carriers engaged by a few
shippers on a contract basis on a different footing from those
carriers offering their services to the public, to whomever is prepared
to hire them at pre-established rates. It is this tri-level grouping
of carriers that is characteristic of regulation in Canada, in which
the most closely regulated are the public or common carriers. Regu-
lation in both spheres raises very significant economic arguments
which will be dealt with below.
In a federal system the jurisdiction over many fields of activity
are divided and in Canada the control over highway transport is
shared by both the provinces and the Dominion, the former regulating
purely intra-provincial carriage, and the latter the extra-provincial.
By far the largest part of truck traffic is intra-provincial and there-
fore the exclusive preserve of the provinces. The authority of
Parliament to regulate commercial vehicle
that
crosses provincial or national boundaries had never been doubted
but it was settled once and for all by the Privy Council as recently
as 1954 in the leading case of Attorney-General for Ontario v. Winner
et al.175 Furthermore, even though a trucking firm does almost all
its business within a province and its extra-provincial business
is only casual and unscheduled, its entire operations fall within the
jurisdiction of the Dominion if some part of the business is extra-
provincial 7 6
transportation
However, since a very small part of the traffic moves out of a
province, 177 the Federal Government did not choose to introduce
legislation of its own but instead allowed the provinces, subject to
certain exemptions, to regulate the interprovincial trade on the same
basis as the home trade. For this purpose, Parliament enacted the
Motor Vehicle Transport Act ‘ 7 8 conferring power on the transport
boards of those provinces which chose to adopt the legislation.
175 [1954] A.C. 541 (P.C.).
176Re Tank Truck Transport [1960] O.R. 497; 25 D.L.R. (2d) 161. Regina V.
Cooksville Magistrate’s Court, Exp. Liquid Cargo Lines Ltd. (1965), 46 D.L.R.
(2d) 700.
177 Only about 2,000 companies in Canada out of 12,000 do this work but
they are generally the larger carriers and, by and large, the ones that matter.
17S Stat. Can. 1954, c. 59.
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FREIGHT RATE REGULATION IN CANADA
This Act has created difficulties by the decisions of courts in two
provinces which have held that section 3(2) only confers authority
on provincial boards in respect of traffic operating “into” or
“through” the province, not over traffic operating “from” the
province,179 so that a home licence is not required for such oper-
ations, nor indeed for any part of the operations, intra-provincial or
extra-provincial, so long as the home carrier gets a licence from the
province or country( i.e. U.S.A.) into or through which it proposes
to operate. This is a very unsatisfactory position as it creates a
gap in legislation; and this gap apparently has not been clased by
Part III of the National Transportation Act.
With the development of a unified national transportation policy
emphasizing uniformity of regulation as far as possible to attain
an “economic, efficient and adequate transportation system”, Parlia-
ment decided to bring within its regulatory scheme those sections
of the extra-provincial motor vehicle transport industry as were
“exempted” by Section 5 of the Motor Vehicle Transport Act. Unless
the term “exempted” covers those sectors that are declared to be
outside the provisions of the Motor Vehicle Transport Act by the
court decisions referred to above,8 0 and it is very difficult to see
how one can strain the meaning to achieve that result, it is the
writer’s contention that the gap in legislation still remains.
C. Economic Control Devices Used
The principal controls imposed on the trucking industry are
those restricting entry and those regulating rates. Entry into common
carriage is restricted in all provinces by the requirement of a licence
to operate,ls a in most cases being granted only on proof of some
179 Kleysen’s Cartage Co. v. Manitoba Motor Carrier Board (1965), 51 W.W.R.
218 (Man. C.A.); R. v. Beamy (1967), 1 O.R. 620; 62 D.L.R. (2d) 20 (Magistrate’s
Court), Contra R. v. Constable Transport Ltd. (1967), 1 O.R. 357 a decision of
the County Court.
180 Supra n. 179. This does not mean that the decisions are sound; it may
well be that the higher courts of other provinces and the Supreme Court
of Canada will reject them.
180a R.S.A. 1955, c. 265, s. 3(l), Public Service Vehicles Act; R.S.N.S. 1967,
c. 190, s. 6(l), Motor Carrier Act; R.S.B.C. 1960, c. 252, s. 5, Motor Carrier Act;
R.S.S. 1965, c. 377, s. 28(1), Vehicles Act; R.S.M. 1970, c. H60, s. 258(1), Highway
Traffic Act; R.S.O. 1960, c. 319, s. 2(l), Public Commercial Vehicles Act;
1957 S.N.B., c. 12, s. 3, Motor Carrier Act; 1961 S.Nfdld., c. 54, s. 4, Motor
Carrier Act; R.S.Q. 1964, c. 228, s. 30, Transportation Board Act; 1958 S.P.E.I.,
c. 24, s. 2, Motor Carrier Act.
McGILL LAW JOURNAL
[Vol. 17
benefit to the public.”” In some cases in addition to proving that
service is required it must also be shown that service is not being
adequately provided by others.18 2 This restriction is designed to
prevent overcapacity and it protects established firms to some extent
from the evils of cut-throat competition which would otherwise
prevail. The question often arises, as to what extent the authorities
should consider the effects of entry on other competing modes; in
other words, should entry be allowed if it would adversely affect
other agencies of transport. Most provinces ignore this effect, and
particularly those tied to railways should consider letting in al-
ternative forms of transport, unhampered by such consideration,
in order to break away from the shackles imposed on them by
railways. However, such a question can only be resolved in a national
context, since trucks even if allowed to enter without restriction
,cannot as matters stand replace railways in moving low-rated bulk
goods over long distances, and the destruction of their traditional
markets of high-rated traffic could snowball into higher rates on
low-rated traffic to the detriment of “captive” provinces. So long
as the regulating authority periodically assesses the demand for
trucking service and is guided by economic principles and the
interests of the public in a viable transport system, the policy of
entry control would appear to be sound. There should, however, be
sufficient flexibility in such a policy so that new firms proposing
to enter, and existing ones wishing to expand, should if they
demonstrate the possibility of efficiency, be let in; furthermore,
there should be no rigid adherence to the amount of business avail-
able to trucks since there is always the opportunity for trucking
firms to progressively gain business from other competing media.
If control of entry into the industry is not sufficiently flexible,
competition is restricted and existing firms are in a position to
earn more than normal profits, which is detrimental to the interests
of the users and the public. The only restraint in such a situation
will come from shippers who could substitute their own transport.
Provincial regulations make exceptions to the requirement of
licensing based upon commodities and area of operation which
181 British Columbia: R.S.B.C. 1960, c. 252, s. 7(2)(b); Saskatchewan: R.S.S.
1965, c. 377, s. 30(2); Manitoba: R.S.M. 1970, c. H60, s. 263(2); Ontario: R.S.O.
a certificate will only be granted if there exists “public
1960, c. 319, s. 4(1) –
necessity and convenience”; Newfoundland: 1961, S.Nfdld., c. 54, s. 5(2)(b);
Quebec: R.S.Q. 1964, c. 228, s. 30.
‘ 82 E.g., 1958 S.P.E.I., c. 24, s. 3(4); 1961 S.Nfdld., c. 54, s. 5(2)(a); 1957
S.N.B., c. 12, s. 4(4); R.S.M. 1970, c. H60, s. 263(2); R.S.B.C. 1960, c. 252,
s. 7(2)(a).
No. 2]
FREIGHT RATE REGULATION IN CANADA
often strain the effectiveness of common carriage. Similarly, “for-
hire” carriers engaged by shippers under contracts are normally
not required to prove “public convenience and necessity” and
instead need only obtain “permits”, a far less stringent requirement.
Such carriers are not permitted to engage in common carriage. Every
province also recognizes the right of an individual or firm to haul
his own goods in his own equipment whether for own consumption
or for use in his business, free of any economic regulation. If the
private carrier finds it economical to use his own truck to haul
his goods, nothing should be done to prevent it, and in fact the
right to this alternative is a healthy check upon any probable
tendencies of regulated carriers to exploit the user; it would also
force regulated carriers to prune costs and achieve efficiency as
far as possible and thus make private carriage less attractive to
the shipper.
The MacPherson Commission as an alternative to restricting
entry, preferred “lively and sympathetic highway traffic boards
adequately supplied with the necessary data to examine and advise
prospective entrants to the commercial trucking industry if it
appears to the public authorities that there are too many trucking
companies and that this situation is chronic… Concentration upon
regulation of operations, with freedom of entry based upon
knowledge, will promote the type of atomistic competition which
brings adequate resources to bear in the provision of road transport
at prices for service related to costs and normal returns to enter-
to efficiency and the attendant returns are
prise. Incentives
encouraged without the regulatory boards being responsible for
any degree of monopoly profit.” 183 The Economic Intelligence
Unit 14 similarly recommended that the regulation should be more
concerned with financial responsibility of the applicant rather
than laying down restrictions with respect to routes served, products
carried and rates charged. On the other hand a Royal Commission
appointed by the Newfoundland Government to inquire into trucking
reached the opposite conclusion.’85 It is the writer’s submission
that under ordinary circumstances the interests of both the industry
and the public can be better served by a system of control of mini-
mum rates devised in such a manner, having regard to the latest
techniques in cost accounting, that they reflect the most efficient
units in the industry, with sufficient flexibility to enable common
18 MacPherson Report, (Vol. 2) supra n. 7 at 57 and 58.
184 V E.I.U. Report, supra n. 66 at 162.
18 5 Newfoundland Royal Commission on Truck Transportation (1962).
McGILL LAW JOURNAL
[Vol. 17
carriers to determine their rates in any manner they deem necessary
to meet competition not only from contract and private carriers
but also from other modes of transport. Where necessary, these
common carriers should be permitted to reduce their charges to
out-of-pocket expenses for any empty back hauls they would have
to make, thus making private carriage uneconomical. In addition
there should be sufficient flexibility in the route rights so that
through service can be economically undertaken by the truckers;
and an efficient enforcement of regulations so that the common
carriers themselves play their part honestly and the contract and
private carriers do not engage in free-wheeling operations. Abandon-
ment of all controls except the minimum safety and financial liability
requirements would produce the same depressed conditions of an
overcrowded industry that is a stark possibility in trucking. Such
a permissive policy will no doubt affect railways considerably
and perhaps an appreciation of its impact is necessary.
With control of entry can be combined a variety of devices
regulating rates, ranging from setting of actual rates, 18 ceiling or
floor on rates charged,88 ” down to mere filing of tariff.187 Of all
these, the most difficult to justify is the actual setting of rates by
a provincial board. The firms in the trucking industry even though
competitive, and theoretically subject to similar cost levels, in
practice widely diverge in cost and financial characteristics, and
a small differential may mean success or failure in obtaining the
particular business. As the rates are determined on the basis of
the “average” firm, whether that average be arithmetical or “modal”,
some firms will be more efficient than others and the less efficient
ones falling below the average are protected under this system. If
the cost levels are unrealistic, private carriage would become more
economical and the common carriers would lose some of their
business to it and this shrinking business in turn will increase
their costs. Under such a system, even the efficient firms will suffer
because it is illegal for them to undercharge, and those that do so
will evade the law by very subtle means. Much the same thing
can be said where the legislature lays down minimum rates, if
the yardstick firm does not represent the most efficient units in
the industry. If it is the most efficient, the other firms are not
precluded from charging normal rates and if they lose business
186As in Saskatchewan, R.S.S. 1965, c. 377, s. 10(1)(i); British Columbia,
R.S.B.C. 1960, c. 252, ss. 24, 27, 28.
iS6aAs in Manitoba R.S.M. 1970, c. H60, s. 255(1)(e).
187As in Ontario R.S.O. 1960, c. 319, s. 16(g).
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FREIGHT RATE REGULATION IN CANADA
to private firms it is because they are inefficient as compared to
them; but that would not penalize the efficient units who will expand
their operations and fill up the gap created by the bankruptcy of
the inefficient. Umbrella rate making practices which harbour the
inefficient high-cost firms are thus detrimental to the industry.
It is however essential under this system to develop better techniques
of cost finding than we presently have.
The device of maximum rate control is unimportant in highway
rate regulation because of the inherently competitive nature of
the industry and the checks afforded by private trucking. Maximum
rate control is only necessary where there is no real alternative to
for-hire trucking and this situation will only prevail if there is
collusion among firms and provincial authorities restrict entry.
The fourth device used in rate regulation is the requirement of
filing and strict adherence to the tariff thus filed for a period of
time. 8 It is often a halfway measure to full control and, apart
from the stability in rates that it ensures, is not essentially different
from absence of any regulation at all. 89
Opinions on the need for controlling rates differ and advocates
on both sides can be found. The MacPherson Commission felt that
it is better to scrap all rate regulations.
The Federal Motor Vehicle Transport Act 9o empowers provin-
cially constituted traffic boards to determine or regulate:
… the tariffs and tolls to be charged by a federal carrier for extra-
provincial transport in that province … in the like manner and subject
to the like terms and conditions as if the extra-provincial transport in
that province were local transport.
The Federal Government may exempt any carrier or any part of
its operation from provincial control.’ 91 Where they have been so
exempted, Part III of the National Transportation Act 192 may be
applied to them. The scheme of regulation is similar to that for
railways; the tariff of rates may be filed with the Canadian Trans-
port Commission directly or through Traffic Bureaus and the
1asAs in Ontario.
189 Newfoundland and Alberta do not regulate rates.
190 Stat. Can. 1953-1954, c. 59, s. 4. This provision makes the intention of
Parliament clear that the rates to be regulated are not only those for goods
transported through a province over which the province has no interest, but
for those transported “out of” or, quite conceivably, “into” a province.
191 Ibid., s. 5. The intention may be to prevent discrimination by provincial
boards, and/or to bring about uniformity in regulations.
192 Stat. Can. 1966-67, c. 69.
McGILL LAW JOURNAL
[Vol. 17
Commission may disallow rates if they are non-compensatory and
not justified by public interest or take advantage of a monopoly
situation. 9 3 The Commission, if an application is made thereto, may
conduct as Investigation to determine of whether any act or omission
of or rate established by a carrier is prejudicial to public interest.10 4
IV. REGULATION OF PIPELINE TRANSPORT
Pipelines constitute a specialized system of transportation which
is growing in importance and may in the foreseeable future over-
shadow highway truck transport as the principal competitor of
railways even as regards low-rated bulky goods. They are pre-
dominantly used for moving crude oil, gasoline and other liquid
petroleum products, 9 5 and natural gas, and on a limited scale for
moving coal, ores and other solids in suspension in water. Experi-
ments and feasibility studies have also been conducted for moving
sulphur, potash, gypsum and wood chips through the medium
of oil as the carrier, and pipelines have also been designed to
transport solids, especially flowing solids such as grain, in the oil
and gas pipelines.9 6
Pipelines enjoy a cost characteristic that enables them to reduce
costs more than proportionately with increases in size and not only
in capital outlay but also in operational costs, they earn economies
of scale to a far greater extent than other modes of transport,
including railways. The cheapness of transport has
influenced
location of refining, marketing and distribution centers, and when
movement of primary products, especially grain and minerals in
capsules, and of package freight, becomes economically feasible,
they may effectively replace the high cost agencies in the future. That
will no doubt have serious repercussions over the entire trans-
portation system and it was wise for Parliament to have laid down
193 Ibid., s. 33. For a discussion of these controls, see supra page 324 ff.
194 Ibid., s. 16.
195 Traditionally product pipelines carry refined products from oil refineries
to truck terminals in large consuming centers, although a new type of product
line carrying large volumes of natural gas products such as propane, butane
and pentane, has emerged.
196 The National Transportation Act, Stat. Can. 1966-67, c. 69, s. 3(b) defines
a commodity pipeline as a pipeline predominantly used for moving com-
modities other than oil and gas. If commodity pipelines are capable of
moving oil and gas, or either, they come under combined pipeline regu-
lation: s. 22(a). In ocean transportation, tanker vessels are sometimes used
to move grain but due to dangers of contamination and fouling, certain
large buyers, such as the United Kingdom, refuse grain in tankers.
No. 2]
FREIGHT RATE REGULATION IN CANADA
policy guidelines for regulation of this mode of transport in Part
II of the National Transportation Act. Herein lie new prospects for
investment by Prairie provinces which are now solely dependent
on the railways for transporting their primary products.
At the present time oil pipelines transport oil for a fixed charge
and are classified as common carriers but gas pipeline companies,
excepting a very few, own the gas they transport; the important
exception being the Alberta Gas Trunk Line Company which delivers
virtually all of the gas exported from Alberta (which has most
of the Canadian gas reserves) to the provincial boundaries where
main transmission companies accept delivery. Commodity and
combined pipelines will generally be used to carry products manu-
factured or extracted by other industries and will come under the
common carrier category.
Control over intra-provincial pipelines is exclusively within the
jurisdiction of each province under section 92(10) of the British
North America Act 117 but Parliament may declare them to be works
for the general advantage of Canada or of two or more provinces
by virtue of section 92(10) (c) of that Act, even though they are
not connected to any interprovincial system, and thus bring them
under federal control. Interprovincial and international pipelines
are within federal jurisdiction and are subject to regulation both
under Parts III, IV and V of the National Energy Board Act ’98 and
Part II of the National Transportation Act. 99 The National Energy
Board has exclusive responsibility for oil and gas pipelines 111a and
this includes determination of rates as an incident to such regu-
lation 199b and it shares with the Canadian Transport Commission
the responsibility for “combined pipelines”; 200 the Commission how-
ever has exclusive jurisdiction over rates charged by commodity
pipelines 09 a
The regulation of rates for commodity pipelines follows a
different pattern than combined pipelines and oil and gas pipelines
197 1867, 30 and 31 Vict., c. 3. Some of the Provinces have their own legis-
lation dealing with pipelines carrying commodities within their boundaries.
198 Stat. Can. 1959, c. 46.
199 Supra, n. 196.
199a National Energy Board Act, supra n. 198, s. 44.
199b Ibid., ss. 50, 51, 53, 54.
200 If the predominant use is for oil and gas transmission, the National
Energy Board way be given exclusive jurisdiction: National Transportation
Act, Stat. Can. 1966-67, c. 69, s. 27(2).
200a National Transportation Act, supra n. 196, s. 26(1).
McGILL LAW JOURNAL
[Vol. 17
which are governed by Part IV of the National Energy Board Act.20 1
The National Transportation Act requires the Canadian Transport
Commission to regulate rates in the same manner as railway and
extra-provincial trucking; section 26(1) requires them to be filed
with the Commission which may disallow any rates that are not
compensatory and not justified by the public interest or that
take advantage of a monopoly situation.o a
The exemptions in Section 28 of the National Transportation Act
are designed to cover private carriers who intend carrying their
own products and who do not engage themselves in carrying for
others.
The difference in treatment between commodity pipelines and
other pipelines is understandable because the former are far more
likely to be independent carriers engaged in the exclusive business
of transport, while the latter are normally owned by oil or gas
companies who will provide their services to other producers for
a charge, and there is a greater likelihood of sacrificing the interests
of rivals to promote their own.
V. REGULATION OF INLAND & COASTAL SHIPPING
The principal
inland waterways used in commercial
trans-
portation are the Great Lakes-St. Lawrence River system and
the Mackenzie-Yukon watershed, the two differing considerably
in importance and in regulation. The “Great Lakes” system is by
far the most important and the most heavily traveled waterway in
the world,20 2 draining the mid-continental basin and providing
continuous navigation through over 1,800 miles of lake and river
to the head of Lake Superior. Indeed the conditions of navigation
on these great bodies of fresh water resemble very closely the scale
and freedom of ocean transport, even though the direct over sea
component of the trade is very small and has not appreciably
2 0’Supra, n. 198. Sections 50-59 require the rates to be filed and approved
by the National Energy Board (and in respect of combined pipelines, also by
the Canadian Transport Commission: by Part II, s. 26(2) of the National
Transportation Act); the rates must be just and reasonable, and non-
discriminatory, and the Board has power to disallow or suspend any rates.
201a National Transportation Act, supra n. 196, s. 26(3).
202 The Seaway is only open to navigation for approximately eight months
of the year, from early or mid-April to early or mid-December, because of
ice formation on the narrow channels connecting the lakes.
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FREIGHT RATE REGULATION IN CANADA
increased even after the opening of the Seaway to ocean vessels in
1959.203
However, only a small proportion of this huge movement is
closely regulated with respect to rate tariffs, entry and service.
On the other hand, transportation on the Mackenzie River
system, the arterial line of the Canadian north, though very insig-
nificant in comparison with the Great Lakes, is comprehensively
regulated.L0
Although Canada has the second longest coastline in the world,
next only to that of the Soviet Union, the amount of coastal shipping
is not large. Unlike shipping on the Great Lakes which is open
to all nations of the world on equal terms,205 a part of the coasting
trade is reserved to ships of Canadian registry,20 6 the remainder
being open to Commonwealth ships on the same terms as Canadian
203 Because of the limitations of the channels, which now permit vessels
drawing up to twenty-seven feet of water, large ocean going vessels have
not used the Seaway to the extent hoped for. Even the most important
export cargo (grain) is carried largely by lake fleets to elevators along
the St. Lawrence River to await later shipments to receiving countries. Only
a small volume goes directly by ocean going vessels. During 1969, the
total tonnage in the Welland section exceeded 53 million tons (against 58
million tons in 1968). “These 53 million tons consisted of 47 million tons
of bulk and 6 million tons of general cargo, … Slightly more than 41 million
tons transited the Montreal-Lake Ontario section, against 48 million tons
in 1968. Of these 41 million tons, bulk cargo accounted for 34 million tons
and general cargo 7 million tons ….” Iron ore was the most important com-
modity followed by wheat and iron and steel products. (1969 Annual Report
of the St. Lawrence Seaway Authority at page 8).
204The four Mackenzie Waterway Companies [Northern Transportation
(government owned and operated), Kaps Transport, Cooper Barging and
Lindberg Transport] carried only 189,690 tons in 1965 but this consisted of
very important commodities not otherwise available to the sparsely populated
regions, such as foodstuffs, general merchandise, ore, petroleum and mining
supplies. A large amount of this cargo is carried by barges. The Mackenzie
river empties into the Arctic Ocean and provides navigation to outlying
communities to a distance of about 1,200 miles.
205In practice shipping on the Mackenzie river is confined to Canadian
ships and in the domestic trade on the Great Lakes, to Canadian and U.S.
ships.
200 The region from approximately Havre St. Pierre (west of the Island
of Orleans) on the St. Lawrence River to the Head of the Great Lakes
(Thunderbay) has been reserved since 1964 to ships of Canadian registry
by the Canada Shipping Act, Stat. Can. 1964-65, c. 39, s. 38, adding s. 671(2a)
to R.S.C. 1952, c. 29, when it was found that the pre-Seaway status quo
(when Commonwealth ships seldom took part in that trade) was being
disturbed.
McGILL LAW JOURNAL
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ships. 7 The volume of intercoastal shipping is negligible although
the railways recognize that it represents a real or potential com-
petition in the carriage of transcontinental freight traffic.20 8
A. Rate Regulation on the Great Lakes
The Transport Act of 1938 200 began the control of rates charged
by vessels of 500 gross tons and over for packaged freight,2 10 and
regulation was entrusted to the Board of Transport Commissioners.
The freight classification approved by the Board and in use is the
same as for the railways, 11 and the tolls are at a differential below
the corresponding all-rail tariffs. The system of control which is
identical to that which regulated railways before 1967 has not been
affected by the National Transportation Act; 212 water carriers of
package freight must file their tariffs 213 which should not discrimi-
nate against persons or places,214 and the Board is empowered to
disallow any tariff that it considers to be unjust or unreasonable
or against the public interest, and it may require the carriers to
substitute an acceptable tariff, or on their failure to do so, prescribe
207 Under the British Commonwealth Merchant Shipping Agreement, 1931,
Part IV, Articles 10-12, Canada as a member of the Commonwealth had agreed
to treat ocean going vessels of other members of the Commonwealth equally
with its own vessels, but under Part III, Article 9, each Dominion could
regulate the coasting trade, sea fisheries and the fishing industry. United
States vessels may carry goods from a Canadian to a U.S. port, and even
between two Canadian ports provided the vessels call en route at a U.S.
port. The U.S. has corresponding restrictions on Canadian vessels.
208 In the year ending June 30, 1966, of the 5.642 million long tons of cargo
leaving the West Coast of Canada and passing through the Panama Canal,
only six thousand tons were destine for Eastern Canadian ports. “Similarly,
of the 689,000 long tons leaving Eastern Canadian ports and passing through
the Panama Canal, 13,000 long tons were destined for Western Canadian ports.
The total tonnage passing through the Panama Canal and arriving in the
Canadian West Coast ports from any origin in, Canada or elsewhere, amounted
to 1,151,430 longs tons…” The movement in the other direction, arriving at
Eastern Canadian ports was 536,764 long tons. (Canada Year Book, 1968, p. 831).
209 R.S.C. 1952, c. 271.
210 The Act, as seen in s. 31, does not apply to “goods in bulk”, as defined
in s. 2(1)(d) except those transported on the Mackenzie River. Where a rail-
way company owns vessels and grants through carriage facilities, s. 363 of the
Raihvay Act, R.S.C. 1952, c. 234, provides for the application of regulations
under the latter Act.
211 E.g. standard, special (or commodity), and competitive tariffs. Transport
Act, supra, n. 209, s. 17.
212 Supra, n. 196.
213 Transport Act, supra, n. 209, s. 14.
214 Ibid., s. 21.
No. 2]
FREIGHT RATE REGULATION IN CANADA
tariffs on its own.2 “1 The Board could also suspend any tariffs for
a period of time.216 Water carriers are also permitted to introduce
competitive tariffs between points which the Board may declare
or be deemed to have declared to be competitive points.217 Like
railways, water carriers could also enter into agreements with
shippers whereby freight is carried at an agreed charge 18
The bulk commodity exemptions in the Transport Act, in which
ore, coal and wheat dominate, have been a sore point in the regula-
tion of intermodal transportation as the bulk carriers compete
with railways for freight which accounts for over 90% of the Great
Lakes movement. The Doyle Report has attacked these exemptions
as “destructive to our basic objective of a strong national transpor-
tation system built around a core of regulated common carriers
by all economic modes.219 The exemption was based in part on the
belief that such carriage was not competitive with the railways –
as a matter of fact it is –
and in part because of the freedom to
engage in water transportation enjoyed by carriers of all nations.
Competition, whether for bulk commodities or for package freight,
however is not on equal footing with railways as waterways are
public facilities and, except on the St. Lawrence Seaway, are toll-free,
the federal government assuming responsibility for and bearing the
cost of maintenance of navigation 2 Tolls are resisted not only
215 Ibid., s. 23.
216 Ibid., s. 16.
217 Ibid., s. 20.
218 Ibid., Part IV, ss. 32-35 as amended by Stat. Can. 1955, c. 59, s. 1.
219 Doyle Report, supra, n. 6, at 530. The Interstate Commerce Act, 49 U.S.CA.,
grants the same exemptions as Canada.
220 The tolls charged on the Seaway and lockage charges on the Welland
Canal, constitute the sole exception in a toll-free system that has prevailed
since the International Boundry Water Treaty Act, Stat. Can. 1911, c. 28. Article
1 of the Waterways Treaty embodied in the Act declared that, “… the naviga-
tion of all navigable boundry waters shall forever continue free and open for
the purposes of commerce to the inhabitants and to the ships, vessels and
boats of both countries equally, subject however to any laws and regulations
if either country, within its own territory, not inconsistent with such principles
if free navigation, and applying equally and without discrimination to the
inhabitants, ships, vessels and boats of both countries”. Tolls on the Seaway
were authorized by agreement with the United States in 1951 whereby the
cost of operation of the Seaway and amortization of the capital cost of $470
million (Canadian share being $330 million) are to be recovered over a fifty
year period. So far the tolls recovered have not even covered the interest on
the original investment. Though the Seaway has been a commercial success it
has been a financial failure. See St. Lawrence Seaway Authority Act, R.S.C.
1952, c. 242, especially ss. 15-17 regarding the charging of tolls.
McGILL LAW JOURNAL
[Vol. 17
by shippers dependent on waterways for cheap transportation
(especially the iron and steel mills complex in Hamilton which
obtains ores, forming a large proportion of the movement, from
mines in Quebec and Labrador) but also by the prairie farmers
whose wheat will be less competitive on world markets if tolls were
imposed. The fact, however, remains that if government is to bear
costs and not charge them according to use made of the facilities
the general taxpayer has in the end result to bear the burden and
that would not be making use of the national resources to the best
advantage of the country.22′
The only exception to bulk commodity exemption was introduced
by the Inland Water Freight Rates Act 222 in 1923 following a Royal
Commission investigation which found a combine in the grain
movement. By section 3 of the Act, every shipper after entering into
a contract for the carriage of grain from Fort William or Port Arthur
to any other port or place in Canada or the United States, and before
the grain has been laden in pursuance thereof, has to file a copy
of the contract with the Board of Grain Commissioners for Canada,
and by section 5 the Board is empowered to prescribe maximum
rates if it is of opinion that any rate is unreasonable, excessive or
unjustly discriminatory. The Board has seldom found it necessary
to exercise its powers since there is normally an abundance of
tonnage seeking grain cargo which is coveted not only by grain
carriers, but also by package freighters to whom it is a good bottom
cargo, and hence competition keeps rates in check.
B. Rate Regulation on the Mackenzie System
On the Mackenzie River system a comprehensive regulation is in
force: vessels over 10 gross tons are subject to the Transport Act “3
and rates on all kinds of cargo, bulk as well as general, are subject
to approval by the Board of Transport Commissioners.2 3 This
control was necessitated by the intense competition that prevailed
on this system, and it has been successful in protecting carriers
against their own ruinous actions, and guarded shippers against
exorbitant rates.
221 Imposition of tolls would not help and would probably hinder the rail-
ways. Both the C.P.R. and the C.N.R. either own or have arrangements
with lake carriers engaged in transporting passengers and package freight.
222 R.S.C. 1952, c. 153.
223Supra, n. 209, s. 2(1)(k).
223aIbid., Part III.
No. 2]
FREIGHT RATE REGULATION IN CANADA
C. Rates on Coasting Trade not Reserved to Canadian Ships
Rates charged by Canadian and Commonwealth vessels on the
coasting trade between two sea ports are not regulated, although
the Canadian Transport Commission through subsidy agreements
controls the fares, rates and services of all shipping companies in
receipt of federal subsidies. On the Atlantic coast, rates are partially
established by a conference known as the Associated Newfoundland
Lines, 24 and on the Pacific coast by the Coastwise Operators Asso-
ciation of British Columbia.
VI. REGULATION OF CIVIL AVIATION
The whole field of legislation in relation to aerial navigation
belongs to the Dominion. 225 Federal regulation of scheduled and
nonscheduled commercial air transportation is more comprehensive
than that of any other mode and is primarily laid down in the
Aeronautics Act 226 and Regulations 227 made by the Transport
Board,228 the authority acting thereunder.
Two major airlines, Air Canada (a government undertaking) 229
and Canadian Pacific Airlines,2 0 form the nucleus of Canada’s freight
224 This conference comprises shipping companies operating from Montreal
and Halifax to Newfoundland (See Turgeon Report, supra n. 34, at 264).
225 In re The Regulation and Control of Aeronautics in Canada [1932] A.C. 54,
the Judicial Committee of the Privy Council declared that the Parliament of
Canada had authority to enact s. 4 of the Aeronautics Act (R.S.C. 1927, c. 3)
and Air Regulations, respecting the licensing of pilots, navigation, etc., and
the regulation and licensing of all aircraft, aerodromes and air stations.
226 R.S.C. 1952, c. 2.
227 SOR/54-717, which can be found in 1955 Canada Gazette, Part 2, Vol. 89.
The Rules General Orders and Regulations issued by the Air Transport Board
from part of the System of Regulations.
228 Now the Air Transport Committee of the Canadian Transport Commission
(hereinafter referred to as the Commission). See the National Transportation
Act, Stat. Can. 1966-67, c. 69, s. 82.
229 Incorporated as a subsidiary of the Canadian National Railways, by the
Trans-Canada Air Lines Act, Stat. Can. 1937, c. 43. Name changed to Air Canada
by Stat. Can. 1964, c. 2, s. 1. Apart from this structural connection, Air Canada
is virtually independent of the parent.
230Wholly owned subsidiary of the C.P.R. Although s. 15(2) of the Aero-
nautics Act, R.S.C. 1952, c. 2, prohibits ownership of an airline by operators
of other modes of transport, the two major railways were exempted.
McGILL LAW JOURNAL
[Vol. 17
and passenger air service. Services provided by these two airlines 23 ‘
are supplemented by regional carriers operating regularly,232 or
irregularly 2 3 between specific points, or on charter,2 3 4 or under
contract; 23 and, in addition, there are a number of flying clubs 236
and specialty air carriers 237 catering to the special needs of the
country.
All these carriers, except Air Canada, are closely regulated by
the Commission in virtually all economic and safety aspects of
transport or service, although in respect of flying clubs and specialty
air services economic regulation is the least.
Air Canada operates under a contract with the federal govern-
ment pursuant to Sections 15 or 24 of the Trans-Canada Air Lines
Act 231 and although licences originate from the Commission, they
are pure formality; “0 Air Canada is responsible only to the Minister
of Transport and Parliament. It carries the major proportion of
passengers and freight and operates both passenger and all-cargo
planes on a regular schedule. The Trans-Canada Air Lines Act
requires Air Canada to maintain tariff charges “on a competitive
basis with other similar transportation services in North Amer-
ica.” 240
231 Air Canada and C.P. Air Lines are Class 1 carriers. Air Canada, under
government policy, provides more than seventy-five per cent of the total
transportation needs of the country; the balance is shared by C.P. Air Lines
(major portion) and the regional carriers. In 1967, government announced
that C.P. Air Lines could expand its services over the transcontinental route
provided that by 1970 it did not take more than twenty-five per cent of the
traffic.
232 The regular regional carriers (Class 2) offer public transportation on a
route pattern and with some degree of regularity between specific points.
There are five of them now operating: Quebecair, Eastern Provincial, Nordair,
Trans-Air and Pacific Western.
233 These are called irregular Specific Point carriers (Class 3).
234 Charter air services come under Class 4 regulations.
235 Class 5: they do not offer public transportation but operate under one
or more specific contracts which have to be approved by the Commission.
236 Class 6: operated for flying instruction, or recreational flying for the
benefit of club members.
237 Class 7: provide flying training, recreational flying, aerial photography,
survey, pest control, advertising, patrol and inspection, etc.
2 3 R.S.C. 1952, c. 268.
239By s. 15(7) of the Aeronautics Act, supra, n. 226, the Commission is
required to grant a licence to Air Canada under such terms and conditions as
will enable Air Canada to perform its agreement with the Minister of Trans-
port.
24O Supra, n. 238, s. 15(2)(d).
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FREIGHT RATE REGULATION IN CANADA
Government policy with respect to regional carriers was laid
down in October, 1966,241 whereby regional carriers are to be allowed
greater scope in the development of routes and services by means
of limited competition on mainline route segments of the two prin-
cipal airlines, if that would be consistent with their local route
requirement; and, in a few cases, by transfer to them of secondary
routes operated by the two airlines. Carriers providing services to
remote areas where surface transportation is inadequate and where
air services are essential to promote development, may also be
paid subsidies on the “use it or lose it” formula. Policy with respect
to other carriers has been amended from time to time by means of
circulars issued by the Board.2 42 Within the framework of this policy,
the Commission restricts entry into the industry on two levels; first,
a new firm requires a licence to operate an airline for commercial
services and, second, a firm already licenced cannot freely extend
its routes to points not authorized by licence, or in the case of
contract carriers to additional contracts not specified in the licence.
The requirement of a certificate of “public convenience and neces-
sity”, which lays down the routes and points serviced, fares and
rates charged, conditions in contract of carriage, and insurance
to be carried, gives the Commission complete economic control
over all carriers under its jurisdiction.243
All air cargo is carried at the same basic rates with a few excep-
tions. There is no classification as such but a rule is in force
whereby charges are based on the size (250 cubic inches = 1 lb.)
or weight of the consignment whichever is the greater. Higher rates
on light and bulky shipments are provided in this manner instead
of placing them in separate or higher-rated “classes” as is done by
the railways. In a few cases low commodity rates for specific articles,
such as drugs and cosmetics, electrical appliances, are published
to promote traffic in those items, and discounts for volume ship-
ments are also granted. Freight rates are generally based on distance,
tapering on a moderate scale. Air Express rates give the benefit of
door-to-door service and are somewhat higher than ordinary freight
rates where delivery to and collection from the carrier have to be
arranged by the shipper and the consignee respectively.
241See Air Transport Board Circular No. 62/66.
242See e.g., Air Transport Board’s Circular No. 51 and General Orders No.
36/63 and No. 37/63 (in respect of class 4, charter air carriers), and Circular
No. 8/51 and General Order No. 56/64 (in respect of Class 7 specialty air
carriers).
243Aeronautics Act, R.S.C. 1952, c. 2, s. 15(3). Air Canada is not under its
jurisdiction.
McGILL LAW JOURNAL
[Vol. 17
Although freight carried in the holds of passenger aircraft is
purely a by-product of the service, and the direct out-of-pocket costs
are nominal (handling and administrative costs being the only
items), rates are based on the cost of movement by an all-cargo
plane. These are relatively higher than all other modes of transport
and hence air transportation is only used in respect of articles of
high value or great perishability, or where speed is much more
important than cost of carriage. It is doubtful whether airlines will
be able to reduce their rates significantly in the foreseeable future,
even though some of the larger and faster passenger jet services
which will be rendered obsolete when the jumbo and supersonic
transport jets are introduced in the 1970’s may be released for
cargo service. Even then, if they compete seriously with the surface
modes, the regulatory authority would do well to consider the real
resource costs of providing the publicly available air terminals and
navigational facilities and then set down the minimum rates so
that the economic objectives set out in the National Transportation
Act 24 are realized.
The Commission is empowered to regulate the fares and rates
charged by air carriers. All carriers except those in Classes 5, 6, and
7 (which are only subject to the Commission’s tariff filing require-
ments) must publish and file with the Commission tariffs of fares,
rates, charges and rules applicable to the type of traffic they are
licenced to carry, and such tariffs must be available for public
inspection. The Commission has power to disallow any tariffs that
in its opinion are discriminatory, unjust or unreasonable or against
the public interest; and it may determine and prescribe the max-
imum, minimum or individual tolls. 245
Irregular specific point carriers (Class 3) are under no obligation
to cadry traffic if sufficient volume is not available to ensure a
minimum revenue, but they are required to indicate on the fares
and rates page of the tariff what they consider to be the minimum.
The Cormmission has made it clear however that (since carriage
of goods in passenger planes is only a by-product) “the minimum
charges must be related to handling and/or administrative costs
and should not be considered as possible revenues from the flight”.24
244 Stat. Can. 1966-67, c. 59, ss. 1 and 14.
245 SOR/54-717, supra, n. 227. Regulations 13 and 15. This regulation is similar
to, but more elaborate than, the pre-1967 railway regulation. The Board of
Transport Commissioners (or the Air Transport Board which succeeded it)
did not have power to fix rates.
246 Circular No. 20/52 of the Air Transport Board.
No. 2]
FREIGHT RATE REGULATION IN CANADA
Contract Carriers operating under one or more specific contracts
are required to file their contracts before operating under any of
them, and the Commission has the like power of disallowance, but
not the power to determine rates.
Class 6 and 7 air carriers are not required to file or publish
tariffs but they must establish and observe “just and reasonable
tolls, rules, regulations, terms and conditions of service,” etc.2 47 and
the Commission may require them to inform it of their charges, at
any time. It has the same power of disallowance and fixing of max-
imum or minimum tolls. 248
The Commission by means of its regulations, rules, orders, or
circulars, prescribes the form of accounts to be maintained by air
carriers and the annual returns to be submitted to it, and is thus
in a position to keep a close watch on their economic operations.2 49
The Commission is authorized to suspend, or cancel any licence
if the carrier has violated any of the conditions attached to its
licence 210 and a procedure for appeal to the Minister of Transport
against the order has been laid down by the Commission by Rule
32/67 dated 17th of May 1967. The same procedure applies for
refusal by the Commission to grant air operating licence in the
first instance.
Subsidies to civil aviation, indirect as above, or direct as in the
case of regional services, upset the equilibrium as between modes
of transport, but where there is no alternative to transportation
except by the particular mode under consideration which because
of small volume is uneconomical, public policy providing subsidies
is justified in the interest of the nation as a whole. The policy of
limited tied subsidies according to the promotion of service by the
carrier (the “use it or lose it” formula) announced in October, 1966
(See Circulars No. 61/66 and 62/66 of the Air Transport Board)
2 47 Air Transport Board, Rule No. 1/52, Part III and IV effective October 1,
1952.
248 SOR/54-717, supra, n. 227, Regulation 17.
249 See e.g., Circular No. 15/52, General Order No. 20/58 (Class 4 Group C
filing of returns
Charter Carriers), Rule N. 22/63 (accounts and statistics –
by all carriers), amend. Rule 24/64.
25OAeronautics Act, R.S.C. 1952, c. 2, s. 15(10). The Supreme Court in North
Coast Air Services Ltd., et al. v. C.T.C. [1968] S.C.R. 940 declared that these
orders and regulations were invalid as the Air Transport Board did not have
the power to issue them without approval of the Governor in Council, and
the Act was amended in 1968 by Stat. Can. 1968-69 c. 13 to give the C.T.C. this
power.
McGILL LAW JOURNAL
[Vol. 17
shows the concern of the federal government in maintaining services
to remote areas, and is in full conformity with the national policy.25′
CONCLUSION
The National Transportation Act 252 is a very important piece of
legislation that has attempted to solve the transport problem of
Canada by laying down objectives of national policy, but the em-
phasis on railway regulation has obscured national economic goals
especially in the relation of each mode of transport to others. While
minimum rate control is feasible for railways, where only two major
companies are involved, and where one railway, the Canadian Pacific,
is the yardstick for measuring costs,253 imposition of such a control
on the numerous firms involved in highway transportation having
diverse cost, financial and service characteristics, without any guide-
lines as to the “yardstick” firm, may accentuate the difficulties of
common carriers when faced with intense competition from the
unregulated sectors. Furthermore, the need for developing a costing
formula is most urgent for trucking firms 254 and should be based
on far more comprehensive information on costs than presently
available.255 This places a very heavy onus on the regulatory author-
ity. Again, in regulating one mode of carriage vis4-vis another mode,
with a view to optimum utilization of national resources, the author-
ity must take account of the real costs involved, and here the problem
of equitably apportioning user charges for publicly provided facil-
ities becomes important particularly in highway 25 I and inland water
251 Regional Air Carriers in 1968 carried 31.45 million pounds of freight or
5.36 million ton-miles express baggage and mail (Eastern Provincial and Pacific
Western accounting for 23.62 million lbs. of this total) as compared with C.P.
Air Lines’ volume of 31.07 million pounds and Air Canada’s 215.5 million
pounds. D.B.S. 51-201.
252 Stat. Can. 1966-67, c. 69.
253 Railway Act, R.S.C. 1952, c. 234, s. 334, confirms the practice adopted
by the Board of Transport Commissioners in treating the lower cost C.P.R.
as the yardstick railway.
2-4 Here the problem is more closely bound up with entry control than in
other modes. Furthermore, a realistic yardstick will have to be flexible enough
to allow lower cost efficient firms to function without restraint form an
arbitrarily imposed level of costs; otherwise it would create a rate “umbrella”
protecting competitors to the detriment of common carriers as a whole.
255 It must be pointed out here that the Commission has still not been able
256 The question here is should commercial trucking firms bear the appro-
priate share of highway costs. The highways are generally financed by all users,
commercial and non-commercial.
to devise an acceptable costing formula even as regards railways.
No. 2]
FREIGHT RATE REGULATION IN CANADA
transportation. 57 If this is not done, then modes providing their own
facilities will be at a considerable competitive disadvantage.
In emphasizing the economic goals, Parliament has not lost sight
of the overriding public interest that requires transportation to be
provided at low rates in areas which cannot bear the full burden
of costs involved, and except in the case of statutory rates on grain
(which question is by no means closed), this imposed public duty
will be compensated for out of public funds by way of subsidies
or grants.
Finally, in order to achieve a co-ordinated and harmonious oper-
ation of the system as a whole, it is necessary that the entire reg-
ulatory scheme should be critically examined in order to eliminate
inconsistencies in the law, so that every part thereof contributes to
the national objective.
257 Govt. policy hitherto has been to make facilities available free of tolls
(except on the St. Lawrence Seaway) even though expenditure is incurred
in maintaining and deepening the waterways.
