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PRESENTATION TO: THE GREATER TORONTO TRANSPORTATION CONFERENCE

PRESENTATION TO: THE GREATER TORONTO TRANSPORTATION CONFERENCE. State of the Rail Industry “Rolling Into the Future” Bruce R. Burrows, Acting President & CEO The Railway Association of Canada January 27, 2006 Toronto, Ontario. OUTLINE. Who We Are Railways’ Role in Canada The Challenge

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PRESENTATION TO: THE GREATER TORONTO TRANSPORTATION CONFERENCE

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  1. PRESENTATION TO: THE GREATER TORONTO TRANSPORTATION CONFERENCE State of the Rail Industry “Rolling Into the Future” Bruce R. Burrows, Acting President & CEOThe Railway Association of Canada January 27, 2006Toronto, Ontario

  2. OUTLINE • Who We Are • Railways’ Role in Canada • The Challenge • Meeting the Challenge • Conclusion

  3. 1. WHO WE ARE • We are the Canadian rail industry • Some 60 members: virtually all of the industry • Core representation from all sectors • Class 1s: CN and CPR • Short lines: Over 40 across Canada • Passenger • Commuter: GO, WCE, Capital Railway, AMT • Intercity: VIA Rail Canada • Tourist: 8 across Canada • RAC = One industry voice

  4. Canadian railways are continental, with global reach

  5. 2. RAILWAYS’ ROLE IN CANADAThe Economic Engine • Contribute $10 billion annually to the economy • Handle 65% of surface traffic; over 6 million carloads & containers annually; move 40% of GDP • Employ 36,000; Suppliers employ even more • Partner with key Canadian ports, core capacity • 39% of rail activity is import/export movements through ports • Enhance mobility: more than 59 million passengers annually

  6. RAILWAYS’ ROLE IN CANADAThe Economic Engine • Vital to Economy & Global Competitiveness • Basis for smart growth • Diverts traffic off roads; less pollution, congestion, accidents • Coast to coast national carriers: vital to Canada’s industries • Extension of Canada’s industry and resource base • Efficient trans-border NAFTA movements; by-pass jams • Rail facing competition: • US ports & railways: US Govt. support: e.g. SAFETEA & Tax • China: threatening to replace Canada as principal US supplier

  7. Intercity Rail Number of passengers up 10% since 1995 Operating subsidies down Existing highway and infrastructure policies = gridlock, pollution Commuter Rail In Ontario, BC & Quebec: commuters up by 34% to almost 55 millionsince 1997 GO demand = 78,000 rush hour passengers by 2011 the equivalent of 58 lanes of highway traffic every day Number of passengers (000) 4,300 4,200 4,100 4,000 3,900 3,800 3,700 3,600 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 RAILWAYS’ ROLE IN CANADAPassenger Rail Rail commuters (000) 60,000 50,000 40,000 30,000 20,000 10,000 0 1997 1998 1999 2000 2001 2002 2003 2004 Source: RAC, Railway Trends 2004

  8. 3. THE CHALLENGEGlobal Trade • NAFTA trade dominates, but soaring Asian expansion • In 2005 record movement of TEUs through Port of Vancouver • 6% increase over 2004; 15 year growth trend • International trade is seeking the most efficient & cost effective routings • Vancouver & Montreal – sustained growth • Prince Rupert seeking trans-Pacific container traffic • Halifax – seeking to grow Asian trade

  9. THE CHALLENGEStatus Quo Not An option Demand Surpassing Road Capacity • Surface transportation trends point to unsustainable future • Highway congestion; delivery delays • Pollution; accidents; border tie-ups and port backlogs • One 138,000 lb truck = pavement impact of 20,000 cars • Highway pricing distorts the freight market, yet a demand has emerged that cannot be met by road construction alone (AASHTO) • National funding gap for transportation: between $50 and $100 billion • Government transportation policies have yet to fully recognize the railways’ role

  10. THE CHALLENGECurrent Outlook: Global Context Meeting Demand – A Global Issue • Pressure of population growth on cities • Costs of building & operating infrastructure • EU tradition: support rail/transit/intermodal transportation • Diverse initiatives to shape and control demand • Renewed EU emphasis on rail freight (vs. road congestion) • China’s massive investments: $12 billion to rail infrastructure in 2005 • New imperatives: e.g. security issues, fuel costs, pandemic fears

  11. THE CHALLENGEOutlook: GTA, Central Ontario • Rapid growth: The GTA has approved development of 128,000 acres since 1998, a rate of 9,100 acres per year • Kilometres driven estimated to grow by about 60% over 20 years • Central Ontario: Freight movements to increase by 80% in next 20 years • BAU implies massive truck growth on roads • Next 30 years, Golden Horseshoe population to grow by four million • The Toronto Board of Trade estimates: • gridlock costs the GTA $2 billion a year in truck and delivery vehicle delays • this could reach $3 billion, or 1.3% of the regional GDP by 2021

  12. THE CHALLENGE Outlook: GTA, Central Ontario TORONTO IS EXPECTED TO LEAD THE COUNTRY IN ECONOMIC GROWTH FROM 2007 TO 2010 Real GDP (%) 2007-2010 4.5 4.2 4 3.5 3.6 3.4 3.3 3.3 3.2 3 3.0 3.0 2.9 2.8 2.5 2 1.5 1 0.5 0 Toronto Calgary Vancouver Ottawa–Gatineau Abbotsford Hamilton London Edmonton Montréal Sherbrooke

  13. 4. MEETING THE CHALLENGEWhat Rail Can Do • Rail = corridors and capacity for the future • Rail can alleviate pressure, facilitate community & economic growth: • 100-car freight train = 280 trucks • 1 commuter train = up to 1000 cars • Rail = 1/3 land use of highways • Rail can divert traffic away from urban roads • Reduce accidents, pollution, policing/emergency services, road infrastructure, cost to communities • Increase community well-being, economic sustainability • Intermodal freight: optimizes efficiencies of rail & truck for shippers • Commuter rail: increasing role in mobility • Inter-city rail: efficient alternative in congested population corridors • Tourism rail: magnet for growing tourist travel

  14. MEETING THE CHALLENGECapacity, Efficiency, Modernization • Gains in efficiency & capacity derived from improved technologies, asset utilization & operating practices • CN, CPR agreements to increase joint capacity • CN & BNSF streamline traffic through Vancouver, Chicago, Memphis & southern Illinois • Short lines & the Class 1s working together • GO Transit & VIA Rail: joint fares, through tickets • VIA partners with national & international tour operators

  15. MEETING THE CHALLENGEFiscal Issues • Railways paid $698 million in taxes in 2004, up 49% since 1995 • Canadian railways pay a much higher percentage of revenue as tax vs U.S. • Canadian Railways = 9.13% • U.S. Railways = 5.41% • Key Issues: • Federal fuel excise tax • CCA rates for rail rolling stock and track • Future intermodal & freight rail development Payroll taxes21%$150 mil Locomotive fuel & excise tax 25%$174 mil Income tax17%$118 mil Property tax20%141 mil Other sales tax13%$90 mil Capital tax & customs duties 4%$25 mil

  16. MEETING THE CHALLENGEFiscal & SL Investment Issues Ontario Tax & Short Lines Initiatives • Seeking low density property tax credit with province • SLs initiative – re: Fed-Prov-SL shared funding potential for infrastructure improvement

  17. MEETING THE CHALLENGE Safety – A Fundamental Objective • Proactive maintenance: monitoring rails operations, equipment & track (under SMS) • Safety standards, procedures, enforcement (e.g. Dangerous Goods, car loading) • Emergency response protocols in place • Accidents – thorough reviews (TSB) • Training regimes, IRT programs at colleges, CHTR facility Railways operate under strict regulations & practices

  18. MEETING THE CHALLENGESafety Railway Accidents & Accident Rate(per million Train Miles)

  19. MEETING THE CHALLENGESecurity – A Key Industry Focus • Rail is a secure mode operating in dedicated corridors • Class 1’s have own security forces • Stable work force; also screened & well trained • Emphasis on coordination, monitoring, enforcement • MOU w/ Transport Canada • Emergency plans, exercises • Canada-US agencies, ports, borders • Police & first responders; AAR • RAC Security Working Group in place

  20. MEETING THE CHALLENGERailways and Communities 2003 MOU – RAC/FCM Cooperation • Seeking common approaches to proximity issues: • Noise, crossings, safety, land use • Research, e.g. testing wayside horns, etc. • Proximity Issues website www.proximityissues.ca: • Legislation, “Frequently Asked Questions”, Municipal & Railway Contacts, etc. • Land use planning; dispute resolution committee; coordinated communications & raising awareness

  21. MEETING THE CHALLENGE Environment • Transportation accounts for ¼ of Canada’s Greenhouse Gas (GHG) emissions • 1990-2003: 51% of transportation growth came from heavy duty diesel trucks • Rail GHG emissions are held down, despite an increase in rail traffic of more than a third • Rail contributing to Canada’s GHG goals • Emissions (MOU) TOTAL FINAL ENERGY CONSUMPTION BY THE TRANSPORT SECTOR, 2001 Inland Navigation 3% Road 75% Pipeline 9% Air 9% Rail 4% Source: OECD Environmental Performance Reviews: Canada, 2004

  22. MEETING THE CHALLENGEPublic Perceptions Survey Results: Positive public image of rail • Public recognizes fundamental benefit of rail to: • Economy • Community life • Environment • Safety

  23. Perceived Strengths of Travel Options - For Inter - City Passenger Transportation - Rail Bus Car Air Don't Know 69% 12% Most environmentally friendly 12% 4% 55% 26% Safest 11% 6% 49% 16% Best for society overall 17% 14% 41% 14% 13% 29% Most reliable 29% 20% Most comfortable 6% 44% 26% 4% Most affordable 41% 26% 11% 14% Most convenient 10% 64% Redfern Research Sample = 1,500 adult Canadians

  24. 5. CONCLUSION Rail is a Partner to: • Grow the economy, trade, employment • Provide fluid capacity to meet future demand • Break gridlock; encourage good urban growth • Support economic, social, community goals Government can increase these benefits through: • A stable rail regulatory environment • Equitable taxes; level US-Canada playing field • Support for passenger rail & short lines

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