Ottawa is tabling new freight service regulations to address complaints of poor service by the country's largest railways.
Amendments to the Canada Transportation Act were announced Tuesday in Winnipeg by Transport Minister Denis Lebel and Agriculture Minister Gerry Ritz.
The changes follow a five-year review of service provided to shippers such as grain handlers, miners and manufacturers by federally regulated railways such as Canadian National Railway (TSX:CNR) and Canadian Pacific Railway (TSX:CP).
Lebel says legislation will give shippers the right to an arbitrated service agreement if negotiations with the railway fail.
"The Harper government is taking action in the interest of all Canadians to enhance the effectiveness, efficiency and reliability of the entire rail freight supply," the minister said in a news release.
"This bill will help shippers maintain and grow their businesses while ensuring that railways can manage an efficient shipping network for everyone."
The Fair Rail Freight Service Act bill comes after shippers and the railways spent four months unsuccessfully trying to hammer out an agreement.
Shippers wanted the railways to pay penalties for poor service, while the railways have decried the idea of legislated rules as a costly outcome that would undermine their efficiency.
The amendments require railways to provide service contracts within 30 days of a shipper's request. If terms can't be reached through negotiations, the shipper can seek arbitration from the Canadian Transportation Agency.
The interest-based arbitration process will have a 45-day timeline but can be extended for up to 20 days.
The arbitrator's decision would be binding and not subject to appeal. The imposed contract would be akin to a confidential contract and have a one-year term, or longer, if both parties agree.
Railways face administrative penalties of up to $100,000 for each violation of an arbitrated service level agreement. This is in addition to other existing remedies in the act.
The legislation requires approval by the House of Commons and Senate and it is not clear when the law might receive royal assent.
The government launched a review in 2008 to address issues by shippers with Canada's rail freight service. A preliminary report found overall rail freight service was inadequate, in part because of a market power imbalance between the country's two large railways and hundreds of shippers.
CN chief executive Claude Mongeau has denounced legislative changes, arguing that a market-driven environment remains vital to increased supply chain efficiency and innovation.
He called shippers' demands for greater government intervention in rail service misguided. Mongeau has also said it sends mixed signals to customers and suppliers around the world about the government's approach to commercial markets for rail transportation in Canada.
However, the head of Canada's largest railway has conceded that the launch of the service review "was a large factor in CN stepping up its game'' to improve customer service in the past three years.
Shippers acknowledge that service by CN and CP has improved but they fear such changes will dissipate without legislative teeth to force continued positive action.