Railway Contributions to the Canadian Economy | Free Essay Example

Railway Contributions to the Canadian Economy

Words: 3322
Topic: Business & Economics
Updated:

Introduction

Boasting a Gross Domestic Product (GDP) of more than $1.7 trillion, Canada’s economy is ranked among the ten largest economies of the world (Toly & Segbers, 2016). A combination of different forms of transport is largely responsible for this performance. The health of the Canadian economy is linked to the presence of an efficient and functional transport sector (The Canadian Association of Railway Suppliers, 2017). The sector is responsible for facilitating the mobility of people and goods within the economy and even outside of it. Directly, it plays a vital role in supporting the economy by providing employment opportunities to Canadian residents, and through direct expenditures that complement other parts of the Canadian economy, such as the manufacturing and mining sectors (Railway Association of Canada, 2016). Indirectly, the transport sector supports the economy through derived demand for products or services, or through the demand for warehousing facilities.

The transport sector, being an important part of the Canadian economy, is instrumental to the economic prosperity of the nation. In fact, Canadians’ views about the railway sector mirror this fact because more than 93% of them say that the freight and passenger service sectors in the railway industry are important to the economic growth of the country (Dupuis, 2015). Based on this fact, it is pertinent to understand the effects of different facets of the transport industry on the country’s general performance. Although the transport industry is characterized by the operations of different companies, spanning across different subsectors, including air transport, marine transport, road transport, and rail transport, this paper will only describe the contribution of the railway sector to the country’s economy. Key facets of this study will show the contribution of the railway sector to Canada’s GDP, employment sector, tax collection numbers, cost of doing business, green economy, and the balance of trade. Lastly, this paper will end with a conclusion summarizing the main points of the analysis.

Supports Hundreds of Thousands of Jobs

The Canadian railway sector contributes immensely to the economic growth and stability of the country through the hundreds of thousands of jobs it offers to Canadian citizens. According to Transport Canada (2012), more than 93,000 people work in the railway sector. Direct employment is 33,000 people, while people who are indirectly employed are 60,000 (Transport Canada, 2012). Collectively, the railway sector pays more than $9 billion in private-sector wages to this group of employees (Railway Association of Canada, 2016). Employees earn $3 billion of this amount each year, while suppliers get $6 billion of the same amount, annually (The Canadian Association of Railway Suppliers, 2017). Statistics from 2015 alone show that the railway sector employed 32,958 people (Railway Association of Canada, 2016). During the same year, the industry provided an annual wage per employee of $96,445 (Railway Association of Canada, 2016). Nonetheless, the Canadian railway sector continues to support thousands of jobs in the economy. Although there have been fluctuations in the numbers, the sector has been steadfast in being a significant job creator in the transport industry. The table below shows railway employment levels from 2001 to 2010.

Table 1: Employment Levels in the Canadian Railway Sector. (Source: Developed by Author).

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Class I 34,016 32,005 31,595 30,966 31,526 30,770 31,055 31,347 28,919 29,193
Regional 3,427 3,258 2,773 2,550 1,295 1,360 1,328 1,318 1,306 1,320
Short Line 2,087 2,015 2,029 2,066 2,154 1,936 1,906 1,727 1,466 1,493
Total 39,530 37,279 36,397 35,582 34,975 34,066 34,289 34,392 31,691 32,006

Based on the above table, we find that the railway sector has not had much growth in the creation of new jobs. An analysis of class 1, regional, and short-line divisions of the industry reveals that between 2001 and 2010, the sector has shed off some jobs (from 39,530 to 32,006) (Transport Canada, 2012). This decline is largely attributed to tough economic times and increased competition from other forms of transport. However, the sector still accounts for a significant proportion of employment opportunities in the transport sector. By extension, this fact means that the railway industry supports a significant number of jobs in the country’s economy.

Tax Contribution

Albeit being among the most heavily taxed transport sectors in Canada, the railway industry pays more than $1.4 billion in taxes to the Canadian government, annually (Railway Association of Canada, 2016). Similarly, the industry pumps in more than $2 billion in new capital expenditures to the same economy annually. Statistics from the Railway Association of Canada (2016) reveal that the tax paid by the railway industry is often in terms of fuel, property, and sales taxes.

GDP Contribution

The economic impact of the Canadian railway sector on the country’s economy is perhaps best understood by examining the impact of the sector on the country’s GDP. GDP is the total value of goods and services in the economy (The Canadian Association of Railway Suppliers, 2017). Canada’s railway transport system is a significant investment vehicle for thousands of Canadians because reports show that tens of thousands of investors own private railway companies (Railway Association of Canada, 2016). Directly, railway workers own some of the companies’ shares, but, indirectly, ordinary Canadians stake a claim to the country’s transport sector, mostly through investment and pension plans. According to Transport Canada (2012), the aggregate GDP contribution of the railway sector to the Canadian economy amounts to $12 billion. This figure combines the total tax contribution made by the sector to the government, as well as the number of money companies, pay in labor compensation claims.

Compared to other bulk shipping industries, we find that the railway sector contributes a significant proportion of money to the country’s economy. For example, we find that four key bulk shipping industries, including the mining sector, woods manufacturing sector, oilseed and grain sector, and the paper products manufacturing sector, contribute close to eight times what the railway sector contributes to the Canadian economy (Dungan & Murphy, 2012). The pie chart below depicts this comparison by showing that, bulk shippers add 87% of the transport sector’s contribution to the country’s GDP, while the railway sector adds 13% of the transport sector’s GDP contribution.

Contribution of the railway sector to Canada’s GDP.
Figure 1: Contribution of the railway sector to Canada’s GDP. (Source: Developed by Author).

Enables Domestic and International Trade

Despite the economic uncertainty in the world, the export-oriented nature of the Canadian economy has helped it to stay afloat and maintain a robust economic performance. The railway sector has been at the center of this performance because most of Canada’s exports are transported via rail. According to Transport Canada (2012), the Canadian railway sector has helped the government leverage trade agreements with other countries, thereby maintaining a high level of functionality in the economy. To support this fact, Dungan and Murphy (2012) say, “We have effectively and efficiently worked with our partners – ports, terminals, shipping companies, and the trucking industry – to get products to external markets” (p. 3).

The railway industry is at the forefront of boosting Canada’s domestic and international trade through the movement of people and goods domestically and regionally. Annually, the railway sector moves more than 75 million people across vast transit points scattered along with the country’s rail networks (The Canadian Association of Railway Suppliers, 2017). Similarly, the sector moves more than $282 billion worth of goods across the same network (The Canadian Association of Railway Suppliers, 2017). According to the PPSC Task Force (2014) on Canadian transportation and economy, 70% of surface goods in Canada are transported by rail. The transportation of goods across Canada’s railway lines has helped to reduce congestion on the roads and helped reduce the volume of pollutants and emissions produced by the road transport network. Albeit millions of people use rail transport to travel across Canada, a historic comparison of passenger numbers, throughout the years, shows that the railway sector has struggled to maintain a steady flow of passenger traffic throughout the years.

According to Dupuis (2015), passenger traffic in the railway sector has declined by more than 70%. This is largely because of the increased popularity of other forms of transport. Mainly, road transport has taken most of the share of passenger traffic in Canada because Canadians are driving more today than they did 70 years back (Dupuis, 2015). A comparison of passenger traffic during the late 1940s and early 1950s reveals that the railway sector carried about 55.4 million people annually (Dupuis, 2015). This passenger traffic accounted for about 20% of the revenues in the railway sector. In 1955, researchers pointed out that passenger traffic had declined to 27.2 million people annually. This figure accounted for a 50% revenue decline in the passenger revenue traffic alone (The Canadian Association of Railway Suppliers, 2017). The table below provides a summary of passenger numbers across the three major forms of transportation in Canada – Rail, Road, and Air.

Table 2: Canadian passenger transport via railway, road, and air (1986-2008). (Source: Developed by Author).

Year Road Transport % Air transport % Railway Transport % Total
1986 295.9 85.2 49.1 14.1 2.4 0.7 347.4
1988 322.8 85.1 54.3 14.3 2.4 0.6 379.5
1990 334.4 86.7 50.1 13.0 1.3 0.3 385.8
1992 348.8 88.2 45.4 11.5 1.3 0.3 395.5
1994 379.5 89.1 45.3 10.6 1.4 0.3 426.1
1996 57.0 1.5
1998 64.4 1.4
2000 475.1 87.1 68.5 12.6 1.5 0.3 545.1
2002 470.6 86.9 69.3 12.8 1.6 0.3 541.4
2004 469.5 85.8 76.1 13.9 1.4 0.3 547.0
2006 488.4 84.5 88.3 15.3 1.5 0.3 578.2
2008 476.8 82.9 96.7 16.8 1.6 0.3 575.0

NB:

  1. Figures are in billions of passenger kilometers
  2. 1996 and 1998 figures for motor vehicle travel are unavailable

The table above shows a breakdown in the market share of the passenger travel business across the three major forms of transport in Canada. It also shows that the rail transport network has the least market share. Although there were efforts by the Canadian government to prevent a complete collapse of passenger business in the railway sector, few railway companies managed to stay afloat without government subsidies (Dupuis, 2015). Nonetheless, recent reports show that the rail service network is making a comeback in the passenger transport business because there are up to 75 million people in Canada using the railway system for travel today. However, this market is not expected to grow much because of the dominance of road transport. Nonetheless, 75 million people who still use the railway system is a significant share of the passenger travel business in Canada.

Unlike passenger transport, the Canadian railway sector has a significantly bigger impact on the cargo transport business in Canada because estimates by the Railway Association of Canada (2016) show that the Canadian railway system is the fourth largest transporter of goods in the world. In fact, reports show that 50% of Canada’s exports are transported by rail (Transport Canada, 2012).

According to the Railway Association of Canada (2016), the value of goods transported via rail to other countries (international trade) in 2015 amounted to $127.4 billion. From this number, $83.6 billion of the cargo transported were exported, while $43.8 billion were imported (Railway Association of Canada, 2016). The main exports transported out of Canada were automotive parts, machinery, metals, and wood products (Bloskie, Clarke, & Gellatly, 2015). Comparatively, the main imports transported via rail were chemical products and automotive parts (Bloskie et al., 2015). The table below provides a summary of the exports transported via the railway system from 2002 to 2011 (all values are in thousands of tonnes).

Table 3: Exports transported via the Canadian railway system. (Source: Developed by Author).

Exports 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Agriculture and food 1,736.8 2,224.3 2,867.0 3,000.3 3,402.5 3,591.7 3,986.5 3,433.7 3,719.9 5,095.7
Automotive 3,202.3 3,334.7 3,399.7 3,162.0 3,042.4 2,880.9 2,055.9 1,374.4 2,021.8 2,154.6
Chemicals 10,431.0 9,933.1 10,970.0 10,853.7 11,521.2 11,216.0 10,317.3 8,641.8 10,002.5 10,386.4
Coal 1,235.1 1,221.7 1,488.7 1,188.7 1,157.9 955.0 1,028.2 626.5 888.1 987.1
Fertilizer materials 9,315.3 10,155.6 10,239.5 10,256.6 9,442.0 11,501.4 10,868.7 5,377.2 10,815.6 11,164.3
Forest 23,010.5 23,263.1 26,456.7 26,625.1 27,365.7 23,397.9 18,267.6 12,972.3 13,508.2 12,650.3
Grains 2,814.9 2,230.2 3,482.4 2,702.2 3,956.4 4,569.1 5,164.8 3,518.2 3,315.3 2,996.3
Iron ore 2.0 1.9 29.2 45.3 13.9 4.8 0.1 0.0 0.0 0.0
Metals 3,053.1 3,205.5 3,339.0 3,973.8 4,606.0 4,796.6 4,880.9 3,476.4 4,334.7 3,730.2
Miscellaneous 4,094.3 4,631.8 4,965.1 4,715.9 4,963.7 4,581.8 4,809.2 3,703.8 4,913.5 5,388.1
Other mine products 2,523.7 2,472.6 2,680.4 2,710.9 2,848.0 2,508.8 2,409.5 1,723.6 1,679.6 1,816.8
Petroleum 4,311.1 4,564.1 5,225.0 4,980.4 4,991.7 4,965.4 4,768.7 4,482.4 4,887.2 4,962.1
Total 65,730.1 67,238.5 75,142.8 74,214.7 77,311.7 74,969.5 68,557.3 49,330.5 60,086.3 61,331.8

The table above shows that the railway sector has helped support Canadian exports by allowing companies to transport bulky goods outside the country. Most of these goods are transported to the US through an existing railway network that stretches to the center of America.

Reduces the Cost of Doing Business

The railway sector has endeavored to maintain a strong level of competitiveness for its customers. This competitiveness has been supported by the fact that customers have an option to ship large quantities of goods to their customers in a timely manner. They have done so by gaining access to specific markets. The railway sector has allowed them to add value and raise prices in a way that increases their personal wealth and, by extension, the overall wealth of the economy. Coming from this background of success, the Canadian Association of Railway Suppliers (2017) says that Canada is at a point in history where a new supply chain needs to be established to spur the next wave of success in Canada’s economy.

Compared to other forms of transportation, the Canadian railway sector is perhaps the most efficient and cost-effective mode of transport for moving bulky goods. In fact, the Canadian Association of Railway Suppliers (2017) says, “The rail transportation sector specializes in moving heavy, bulk commodities and containerized traffic over long distances” (p. 19). The efficiency of the railway transport sector and the strides made in making it faster and safer have helped users of railway transport to reduce the cost of doing business (a benefit which they have passed on to their customers, thereby reducing inflation and the cost of living) (Railway Association of Canada, 2016). Relative to this assertion, the PPSC Task Force (2014) on transport and economy in Canada says, “Increasing transport system efficiency provides productivity gains that filter through the economy in various ways. For example, reduced shipping costs may increase business profits, reduce retail prices, improve service quality, and allow tax increases, or a combination of these” (p. 7). In 2015, experts estimated that more than 300.5 million tonnes of cargo would be transported via the railway network (Railway Association of Canada, 2016). Most of this cargo was transported as bulk commodities, which is an efficient way of transporting them.

The sector’s contribution to the Canadian agricultural industry highlights the usefulness and contribution of the railway sector to the country’s economy because 573,000 carloads of grain were transported via the railway between 2014 and 2015 (Railway Association of Canada, 2016). This figure translates to a 2.3% rise in cargo volumes from the agricultural sector in the 2013/2014 financial year (The Canadian Association of Railway Suppliers, 2017). From 2015 to 2016, more than 600,000 carloads of cargo were transported via the same system (Railway Association of Canada, 2016). It was also used to transport 147,000 carloads of crude oil in 2015 (The Canadian Association of Railway Suppliers, 2017).

Spurring the Green Economy

Canada is among the world’s leading adopters and champions of a green economy. It assumes this position because of stringent regulations placed by the government to curb greenhouse gas emissions in different sectors of the economy (Transport Canada, 2012). As opposed to playing a defensive game where industries have to abide by existing regulations to minimize their greenhouse gases, the railway sector has adopted an offensive strategy where it deliberately supports a green economy by transporting bulky goods efficiently. It also adopts technologically advanced operations to reduce the reliance on fossil fuel by the transport industry (Railway Association of Canada, 2016). The latter has mainly been established through the manufacture and purchase of fuel-efficient wagons. Comparatively, the design of rail services, by virtue of its efficient nature of transporting many goods at once, is that of efficiency because the railway network can carry more goods than other forms of transport (notably air and road transport) could. As such, the railway sector is spurring the green economy in Canada. This fact is evidenced by the fact that the railway sector is among the least carbon-emitting transport sectors in the North American nation (Transport Canada, 2012). The pie chart below presents a holistic view of its rankings, compared with other sectors of transport.

Greenhouse gas emissions of the railway sector in Canada.
Figure 3: Greenhouse gas emissions of the railway sector in Canada. (Source: Developed by Author).

As highlighted above, “other” types of transport are the main contributors to emissions in the Canadian economy because they contribute 37% of the country’s emissions (“others” are denoted by transport types that use off-road diesel and gasoline sources to power engines). This type of transport is closely followed by heavy-duty road transport, which accounts for 22% of emissions in Canada. The heavy-duty transport types include engines powered by heavy-duty diesel and heavy-duty gasoline engines. Comparatively, light-duty road transport includes light-duty gasoline and diesel vehicles, which contribute to 17% of emissions in Canada. Marine and rail transport both contribute 9% of emissions in Canada, which makes them only second to air transport, which is the lowest contributor to emissions in Canada, accounting for only 6% of pollutants in the country. Based on these statistics, we find that the railway sector is among the leading drivers of the green economy in Canada because of its low contribution to the country’s emissions. Based on this fact, we find that the railway sector greatly contributes to the growth of a sustainable economy in Canada. This advantage exemplifies the important role it plays in the economic prosperity of the nation. The table below provides a summary of the economic contributions of the railway sector to the Canadian economy, as we have described in this report.

Table 4: Summary of the economic contributions of the railway industry to Canada. (Source: Developed by Author).

Rail Output/revenue $10,185
Direct Impacts
Employment 31,151
Total Labour compensation $2,734
Gross Domestic Product $5,584
Indirect Impacts
Employment 36,487
Total Labour compensation $1,831
Gross Domestic Product $3,263
Induced Impact
Employment 47,189
Total Labour compensation $1,917
Gross Domestic product $3,307
Total – Direct, Indirect and Induced Impacts
Employment 114,827
Total Labour compensation $6,482
Total Labour compensation $12,154
Federal Tax Revenues
Personal Income Tax $579
Corporate Income Tax $531
Employment Insurance Contributions $56
Indirect Tax $223
Total $1,389

Conclusion

This paper shows that railway transport is among the most significant and dominant forms of transportation in Canada. Based on the different types of economic contributions the sector makes to the Canadian economy, it is plausible to believe that the railway sector offers among the best returns on investment for decongesting Canadian roads and creating an environmentally friendly transport network in the country. Therefore, the understanding that Canada should continue to develop its economy as a railway-centered one reflects a common sense understanding of sustainable development in the North American nation. This approach is one that would benefit commuters, the environment and the economy. This fact largely explains why there is an almost unanimous support among Canadians that the government should make more investments in this transport sector. This view largely exemplifies the commitment of the railway sector to the country’s growth. It is indeed the true story of Canada, and it largely explains the country’s economic growth story as that of efficacy, safety, and sustainability, as opposed to that of rebellion. Therefore, the industry is placed to be one of the most iconic drivers of the country’s growth in the next decade.

References

Bloskie, C., Clarke, S., & Gellatly, G. (2015). Recent developments in the Canadian economy: Fall 2014. Web.

The Canadian Association of Railway Suppliers. (2017). Industry information. Web.

Dungan, P., & Murphy, S. (2012). A comparison of contributions to the Canadian economy of key bulk commodity shippers and rail freight Carriers. Web.

Dupuis, J. (2015). VIA Rail Canada Inc. and the future of passenger rail in Canada. Web.

PPSC Task Force. (2014). Transportation & the economy. Web.

Railway Association of Canada. (2016). Rail facts. Web.

Toly, N., & Segbers, K. (2016). Cities and global governance: New sites for international relations. London, UK: Routledge.

Transport Canada. (2012). Transportation in Canada 2011. Web.