(The Canadian Press distributed the following article by Allan Swift on June 5.)
MONTREAL — Canadian National Railway Inc. is still keen to buy regional railways despite the setback this week with Ontario’s ONRail, CN’s chief executive said in an interview Wednesday.
Hunter Harrison, who replaced Paul Tellier in January, said the rail giant is still interested in pursuing the acquisition of B.C. Rail, which was put up for sale last month by that province’s government. While his predecessors at CN and managers of other large railways have for several years abandoned or sold huge stretches of underused track, Harrison likes the concept of owning small railways.
“I don’t know if there’s a trend back, but we’re doing that,” said Harrison candidly.
“There are various short lines and regional railroads that could potentially have a nice fit for us at the right price.”
Although CN got rid of 9,600 kilometres of track in the late 1990s, mostly sold to short-line operators, Harrison said owning short lines that feed traffic to CN’s main lines gives CN control of the traffic, so it can co-ordinate a better service.
“I never did buy the proposal that all big railroads should do was run the main line and let somebody else worry about the smaller customers and switching. I think if we’re going to be a railroad we ought to do it all.”
The straight-talking career railroader is incredulous that eight months of talks with the Ontario government to buy Ontario Northland Railway were scuttled this week because the government insisted on job guarantees for ONRail workers.
CN was selected by the Ontario government out of three bidders to negotiate the takeover, and talks began last October.
Harrison said CN would be ready to re-open the ONRail file, but “If the province maintains their position that they have to have seven-year protection for the people, we won’t do the event. I don’t know many people who have a seven-year (job) guarantee,” Harrison growled.
The plan to privatize B.C. Rail ran into controversy last month when the railway’s unions, opposed to the sale, released an evaluation report that suggests if CN won control, it would likely eliminate 70 per cent of B.C. Rail’s 1,764-member workforce.
BC Rail is Canada’s third largest railway, with about 2,240 kilometres of operating track, but is not profitable.
Harrison took over the CEO position in January from Tellier, under whose leadership CN became the most efficient railway in North America in terms of operating ratio, a measure of expenses out of revenue.
Harrison said his goal now is to grow the railway.
Despite the slow U.S. economy, and although the massive mergers and acquisitions of the 1990s are over, Harrison said CN (TSX:CNR) can still grow through small rail acquisitions and by winning back market share from the trucking industry.
Contrary to most other major railways carrying bulk commodities like grain and coal, 80 per cent of CN’s freight is merchandise and inter-modal containers and trucks.
Those goods, from consumer goods to chemicals and automotive parts, are sensitive to competition by trucks.
Harrison said CN uses only about 65 to 70 per cent of its track and terminal capacity, so it would be relatively easy to add cars and locomotives as volumes increase.
Harrison, credited with pioneering the concept of scheduled trains in the United States, recently began trials with the concept between Halifax and Chicago, whereby trains leave and arrive at consistent times, like passenger trains or airplanes.
Harrison has proven that customers are willing to commit to train service if the trains can provide the same on-time delivery as the more nimble trucks can.
“That’s where this whole concept of the scheduled railway has the greatest leverage.”
Harrison said the spring rains and snow on the Canadian prairies bode well for a strong grain crop this year, and in turn improved results at the railway.
Last year’s droughts cut CN’s 2002 revenues by $220 million.