(The Vancouver Sun posted the following article by Scott Simpson on its website on July 14.)
VANCOUVER, B.C. — BC Rail is simply no longer economical to operate, according to international transportation consultant Michael Tretheway.
Medium or Class Two railways like BC Rail “are caught between a rock and a hard place” because they can’t manage their costs as well as larger — or smaller — rivals, he said.
The number of Class Two railways has shrunk from 40 to fewer than 10 in North America over the past 40 years, and Tretheway noted that even larger railways have been consolidating operations.
He said there are only six Class One railways in North America compared to 70 in the 1970s — thanks to a wave of bankruptcies that swept the industry — and proposed mergers may soon cut that to four.
“BC Rail is definitely an anomaly in the North American system, and it’s also an anomaly because it’s one of the few government-owned railroads in North America,” Tretheway said.
“I’ve done research on the rail industry throughout the world and I’ve found that governments cannot operate railroads without a huge burden on the taxpayer, whether that’s freight or passengers. It just cannot be done.
“In Europe you are seeing a lot of the rail systems being privatized, the same thing in Australia, New Zealand.”
He noted that restructuring across the North American industry has been a boon to shippers.
In real, inflation-adjusted terms, shipping rates are half of what they were in 1980, he said.
The challenge for Class Two railroads is that they’re in competition with Class Ones and short lines for business.
Bigger and smaller railways have cut costs to create lower rates.
Tretheway said Class Twos have to match those rates — but can’t achieve the same cost savings as larger rivals or match the nominal costs associated with short track lines.
That’s because their operational and labour costs are similar to those of bigger companies — without the size necessary to dilute them so that shipping costs stay low.
“What’s happened is that a number of the Class Two rail carriers are just not economic any more. “BC Rail is one of those.
“They must compete with low rates, but they haven’t been able to get their costs down to do it.
“Class Twos are either being absorbed by the Class Ones so their overhead is eliminated, or they get broken up and parcelled up into short line operations.
“Those are the fundamental economics.”
Tretheway expects the B.C. government will rank bidders on the basis of the shipping costs they can offer.
“If the bids don’t make sense for the B.C. shippers, my guess is that they probably would not continue with the privatization.
“But I fully expect this will be a successful process and the challenge for the government will be choosing among many flavours of delicious ice cream.”
NDP leader Joy MacPhail said the provincial government will reveal as early as today its shortlist of private sector candidates to take over BC Rail’s operations. Canadian National, Canadian Pacific and RailAmerica, and Burlington Northern Santa Fe and OmniTRAX jointly are expected to be on the list.
MacPhail was surprised by The Sun’s report that Burlington-OmniTRAX would keep more jobs in British Columbia than either CN or CP.
In each scenario set out by BC Rail, massive layoffs are estimated. CN would cut 1,232 union and non-union jobs, CP would cut 1,115 and Burlington-OmniTRAX 758.
“Clearly there are huge differences in employment commitments, job commitments,” MacPhail said. “It raises questions about whether costs to customers will go up or down, or whether service levels will rise or fall.
“The government has been singularly unsuccessful in explaining why they are now flip-flopping on their promise to keep BC Rail.
“I’m not in any way suggesting that Mr. Tretheway is wrong, but the government hasn’t explained any of that to the communities.
“Given that there has been a huge amount of analysis done regarding who will own BC Rail, it’s even more incumbent on [Premier] Gordon Campbell to release all documents related to the sale of BC Rail,” she said.
“From the dearth of information on the [BC Rail] Web site, one can only assume that it’s based on how much financial proceeds the government will get from the sale. We can’t in any way determine whether the maintenance of local jobs or the economic health of the communities served by BC Rail are as important as the cash grab of the government.”
Documents obtained by The Sun show that CN was aggressively promoting itself as the “Natural Fit” to take over BC Rail even before the analysis were completed.
Last month, however, CIBC World Markets transportation sector analyst Rossa O’Reilly touched off a controversy when she described CN as the “most logical candidate” for BC Rail.
A potential conflict emerged because CIBC is also the B.C. government’s adviser on the BC Rail bidding process.
B.C. Finance Minister Gary Collins subsequently criticized her comments as “highly inappropriate.”
“That’s not their decision to make,” Collins said.
He said the government’s decision will not be based exclusively on the financial aspects of the deal.
“Government will make the decision based on what’s in the best interests of British Columbia and particularly those communities along the line after lots of consultation with the local shippers, the local communities and the mayors, etc.
“So government’s decision will not just be a financial decision. It’ll be what provides the best service and the best value to the province of British Columbia.”