Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, July 4, 1993 TAG: 9306300009
SECTION: BUSINESS PAGE: B1 EDITION: METRO
SOURCE: Don Phillips THE WASHINGTON POST
DATELINE: MONTREAL LENGTH: Long
The two Canadian transcontinental railroads - Canadian National and Canadian Pacific - are aggressively moving into the United States by purchasing U.S. rail lines and forming partnerships with U.S. railroads and major truck lines such as J.B. Hunt Transport Services.
Every day, red Canadian diesel locomotives haul trains into such traditional U.S. railroad towns as Scranton, Pa.; Philadelphia; Chicago; and Kansas City, Mo., reaching as far south as Washington, D.C.
They also have reached agreements with the Mexican state railway and U.S. railways and barge lines to haul freight between Canada and Mexico, anticipating major increases in traffic if the North American Free Trade Agreement is implemented.
Beset by losses, high taxes and less regulatory freedom than their U.S. counterparts - plus a stagnant Canadian economy east of Winnipeg - the Canadian railroads have decided that their salvation lies in the U.S. economy. And in the hope the trade agreement will open a market "from the Yukon to the Yucatan," as Canadian National puts it.
Even the symbolism has changed. Canadian National has now become "CN North America," with a logo prominently featuring a map of North America, and Canadian Pacific has become "CP Rail" with a logo that features half a maple leaf and half a U.S. flag.
CP President Robert J. Ritchie said it is only logical to look south. He said Canada accounts for 9 percent of total North American economic output, and Mexico 4 percent, leaving an 87 percent U.S. share. And 70 percent of North America's population is in the United States.
"Today, we are working very hard to be a truly continental carrier, a railway headquartered in Canada but operating in North America," Ritchie told a transportation symposium in Cancun, Mexico, in March.
The United States and Canada already were each other's largest trading partners, and that is expected to continue. But both Canadian railroads seem to be looking farther south for a potentially huge business increase under the trade agreement. Just $500 million in goods moved south from Canada to Mexico in 1991. That increased to $770 million in 1992, still a trickle of what is possible.
CN has said it expects an 80 percent increase in Canada-Mexico loads by 1995. Under one agreement involving the Mexican railways and Southern Pacific, CN is hauling Chevrolet Cavaliers and Pontiac Sunbirds from Ramos, Mexico, to Ontario and Quebec.
CN President Paul Tellier said he would not rule out the possibility of purchasing a rail line into Mexico, "but generally I'm thinking first and foremost about partnerships."
Ritchie raised the possibility that Canadian railroads will open their own terminals in Mexico and form alliances with other railroads to operate unit trains of Canadian freight to Mexico with Canadian locomotives.
Chicago is viewed as key by both railroads. From there, connections can be made to every major railroad in the United States, including those that go south into Mexico.
CP already owned the Soo Line, with 5,000 miles of line between Chicago and the Canadian border. CN owned Grand Trunk Western, with lines from the Michigan-Ontario border to Chicago. Now, both companies have negotiated agreements with other U.S. railroads that give them access to Chicago from east and west.
The Canadian invasion has been accompanied by battles over access to U.S. ports and facilities. Most revolve around the movement of containers stacked two-deep on long trains. The containers easily can be transferred to ships or trucks.
Canadians were late coming to this low-cost, rapidly growing method of moving freight. But now, CN has enlarged 22 tunnels in the Rocky Mountains to allow the double-stack trains to run freely between Vancouver, British Columbia, and Halifax, Nova Scotia.
Further, CN has formed a partnership with trucker J.B. Hunt to move containers from Montreal and Toronto to Chicago. To make room for double-stack trains on this route, CN plans one of the largest railway tunnel projects in years - $200 million (Canadian) for a new, higher tunnel under the St. Clair River between Sarnia, Ontario, and Port Huron, Mich., to replace one built in 1890.
CP could not economically replace or rebuild its cross-border tunnel at Detroit, so Ritchie said CP will use efficient, single-level container trains now being developed.
\ In the East, the battle is different. CP chose to compete directly with eastern giant Consolidated Rail Corp. (Conrail), while CN has formed a partnership with Conrail to compete with CP to eastern U.S. cities.
In 1990, CP bought the Delaware & Hudson Railroad, which gave it a line from Montreal into the heart of Conrail country: New Jersey; Buffalo, N.Y.; Philadelphia; and the District of Columbia. CP also is negotiating with Guilford Transportation Industries Inc. to run its trains into Boston.
Conrail struck back in several areas, including an attempt to deny CP access to the Tioga marine terminal at the Port of Philadelphia, although the Interstate Commerce Commission overturned that decision.
Charles N. Marshall, Conrail's senior vice president for development, said Conrail, although successful, is not yet earning enough to cover its long-term capital needs and does not want to allow another railroad to use Conrail facilities to siphon away Conrail freight.
"I don't think CP is a threat to Conrail in a sense of survival," Marshall said. "[But] we don't want to subsidize them." Replied Ritchie, "That area can support two railway systems."
While expanding in the United States, both railroads are undergoing a social, economic and political upheaval inside Canada. Thousands of miles of track are to be abandoned in eastern Canada, and employment is being cut. This means the two lines are effectively moving south. Already, for example, one-third of CP Rail's track - and one-third of its revenue - is in the United States. It is a wrenching experience for a country where railroads are a symbol of nationhood.
Canadian railroads were built against great odds across more than 3,000 miles of granite, swamps, prairie, mountains and rivers for one purpose: to hold the country together at a time when it appeared the United States might absorb its western two-thirds. "Canadians have very few bonds that keep us together," Tellier said. "To use a cliche, that ribbon of steel is perceived as tying us together."
But it is Tellier's purpose to unravel some of that ribbon, and he is doing it with a sense of urgency that has stunned the plodding railroad community. Almost immediately, he fired five top vice presidents and has announced a plan to cut about 11,000 of the remaining 32,000 employees.
"Business as usual is not an option for CN," Tellier said in an interview. "This place is going to change."
by CNB