Competition Bureau statement regarding alleged anti-competitive conduct by Canadian National Railway Company

Position statement

On May 9, 2014, the Commissioner of Competition (Commissioner) announced that he has discontinued his inquiry into whether Canadian National Railway Company (CN) engaged in conduct contrary to the civil provisions of the Competition Act (Act) and whether this alleged conduct resulted in a substantial lessening or prevention of competition in certain markets related to the transportation of lumber.

The Competition Bureau (Bureau), as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace. The Bureau investigates anti‑competitive practices and promotes compliance with the laws under its jurisdiction, including the Act.

During its inquiry, the Bureau examined whether CN possesses market power in the transportation of lumber from certain lumber mills in Western Canada to Vancouver, and whether CN leveraged any such market position to gain market power in lumber transloading in Vancouver. Allegations were made that CN implemented a rail pricing strategy that would effectively price its transloading competitors out of the marketplace.

The Bureau discontinued its inquiry into CN’s conduct because the Bureau believes the inquiry did not disclose sufficient evidence to support a finding that CN’s conduct contravened the Act. CN’s conduct has not resulted, nor is likely to result, in a substantial lessening or prevention of competition in lumber transloading in Vancouver.Footnote 1

Industry context

Lumber is an important component of the Canadian economy and accounts for a significant share of Canada’s international exports. In 2013, Canadian lumber product exports to Asia were valued at $2.6 billion, 97% of which originated in Alberta and British Columbia (Western Canada).Footnote 2 Access to affordable and efficient lumber transportation and transloading services is integral to maintaining the competitiveness of Canada’s lumber exports in international markets.

Western Canadian lumber destined for overseas export through Greater Vancouver (Vancouver) is shipped by rail or truck to a transloading facility (transload) in Vancouver where it is “transloaded” into ocean shipping containers. The loaded container is taken to one of the four container terminals in Vancouver by truck, from where it is shipped overseas on a container ship. In addition to container loading, transloads may provide inventory management and lumber storage services. Transload facilities generally compete on price and service quality.

Competitive effects analysis

In certain circumstances, it may be profitable for a firm with market power in one market to leverage that power and exclude competitors in another market to obtain market power in that second market. During its inquiry, the Bureau considered allegations that CN had excluded transload competitors and obtained market power in transloading in Vancouver by leveraging its market position in the transportation of lumber from certain lumber mills in Western Canada to Vancouver.

Based on the evidence gathered, the Bureau believes that certain lumber mills in Western Canada rely heavily upon CN to transport lumber to destinations in Vancouver. The Bureau further believes that CN considered implementing a pricing strategy intended to exclude certain of its transloading competitors. The Bureau’s inquiry indicates that, after CN began transloading operations at its Thornton Rail Yard facility in Surrey (Thornton) in early 2012, it increased its rates to transport lumber by rail from certain lumber mills in Western Canada to certain competing transloads in Vancouver, to a greater extent than it increased its rates to Thornton.

After thoroughly examining all available information currently before it, the Bureau has concluded that CN’s conduct does not contravene the Act, because the conduct has not resulted in a substantial lessening or prevention of competition in lumber transloading in Vancouver. Specifically, the conduct has not resulted in a prolonged shift in lumber railcar traffic away from competing transloads to CN-owned transloads. CN’s conduct has not foreclosed competing transload facilities from accessing lumber shippers. In addition, the investigation did not identify price or non-price effects in lumber transloading in Vancouver. As such, the inquiry has been discontinued.

While the Canada Transportation Act (CTA) sets out a regulatory regime concerning the rates, tariffs and levels of service of federally regulated railways, it does not ordinarily regulate the prices charged by such railways, which were at issue in this inquiry. Accordingly, the Commissioner believes that his jurisdiction under the Act is not displaced by the CTA with respect to this inquiry.

To ensure compliance with the law, the Bureau will continue to monitor the market and will consider any additional information that may be brought to its attention. The Bureau will not hesitate to take action in the future should it become aware of conduct that lessens or prevents competition substantially in a market.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.

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