1. 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

2. 2 OUTLINE 1.Who We Are 2.Railways’ Role in Canada 3.The Challenge 4.Meeting the Challenge 5.Conclusion

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

4. 4 Canadian railways are continental, with global reach

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

6. 6 Vital to Economy & Global CompetitivenessVital 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 baseExtension of Canada’s industry and resource base Efficient trans-border NAFTA movements; by-pass jamsEfficient trans-border NAFTA movements; by-pass jams Rail facing competition:Rail facing competition: –US ports & railways: US Govt. support: e.g. SAFETEA & Tax –China: threatening to replace Canada as principal US supplier RAILWAYS’ ROLE IN CANADA The Economic Engine

7. 7 RAILWAYS’ ROLE IN CANADA Passenger Rail 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 million since 1997 GO demand = 78,000 rush hour passengers by 2011 –the equivalent of 58 lanes of highway traffic every day Source: RAC, Railway Trends 2004 Rail commuters (000) 0 10,000 20,000 30,000 40,000 50,000 60,000 19971998199920002001200220032004 Number of passengers (000) 3,600 3,700 3,800 3,900 4,000 4,100 4,200 4,300 1995199619971998199920002001200220032004

8. 8 3. THE CHALLENGE Global Trade NAFTA trade dominates, but soaring Asian expansionNAFTA 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 efficientInternational trade is seeking the most efficient & cost effective routings & cost effective routings Vancouver & Montreal – sustained growthVancouver & Montreal – sustained growth Prince Rupert seeking trans-Pacific container trafficPrince Rupert seeking trans-Pacific container traffic Halifax – seeking to grow Asian tradeHalifax – seeking to grow Asian trade

9. 9 THE CHALLENGE Status Quo Not An option Demand Surpassing Road Capacity Surface transportation trends point to unsustainable futureSurface 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)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 billionNational funding gap for transportation: between $50 and $100 billion Government transportation policies have yet to fully recognize the railways’ roleGovernment transportation policies have yet to fully recognize the railways’ role

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

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

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

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

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

15. 15 MEETING THE CHALLENGE Fiscal Issues Railways paid $698 million in taxes in 2004, up 49% since 1995Railways 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 pay a much higher percentage of revenue as tax vs U.S. –Canadian Railways = 9.13% –U.S. Railways = 5.41% Key Issues:Key Issues: –Federal fuel excise tax –CCA rates for rail rolling stock and track –Future intermodal & freight rail development Capital tax & customs duties 4% $25 mil Payroll taxes 21% $150 mil Income tax 17% $118 mil Other sales tax 13% $90 mil Property tax 20% 141 mil Locomotive fuel & excise tax 25% $174 mil

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

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

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

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

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

21. 21 MEETING THE CHALLENGE Environment Transportation accounts for ¼ of Canada’s Greenhouse Gas (GHG) emissionsTransportation accounts for ¼ of Canada’s Greenhouse Gas (GHG) emissions 1990-2003: 51% of transportation growth came from heavy duty diesel trucks1990-2003: 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 thirdRail GHG emissions are held down, despite an increase in rail traffic of more than a third Rail contributing to Canada’s GHG goalsRail contributing to Canada’s GHG goals –Emissions (MOU) TOTAL FINAL ENERGY CONSUMPTION BY THE TRANSPORT SECTOR, 2001 Inland Navigation 3% Pipeline 9% Air 9% Rail 4% Road 75% Source: OECD Environmental Performance Reviews: Canada, 2004

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

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25. 25 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