(The Duluth News Tribune posted the following story by Peter Passi on its website on October 20.)
DULUTH, Minn. — Two cornerstones of the Twin Ports’ transportation industry — the Duluth, Missabe & Iron Range Railway Co. and the USS Great Lakes Fleet Inc. — soon could have new owners. And the deal will likely cost the Northland some jobs.
CN, formerly known as Canadian National Railway Co., announced Monday its plans to buy the Duluth-based rail and maritime assets from Great Lakes Transportation LLC, based in Monroeville, Pa., for about $380 million U.S.
The proposed transaction also includes Great Lakes Transportation’s eastern U.S. operations:
— The Bessemer and Lake Erie Railroad Co., a railway that hauls coal, taconite and limestone between Conneaut, Ohio, and steel mills in the Pittsburgh area.
— The Pittsburgh & Conneaut Dock Co., a switching railroad that transfers bulk cargoes from ship to train and vice-versa.
Before the deal can proceed, however, regulators will need to review it. Montreal-based CN said it expects to close the sale by mid-year 2004.
RAIL CUTS LIKELY
CN spokesman Mark Hallman said there are no plans to scale back the DM&IR’s operations, but he acknowledged that the number of people employed probably will decline following the sale.
“We don’t foresee substantial or significant changes in terms of operations,” he said. “Obviously, we’ll be looking for greater efficiencies and to minimize duplication.”
Hallman offered no estimate of how many DM&IR jobs could be shed, but the company should have a better handle on the situation shortly. Hallman said that in a matter of weeks, CN aims to submit plans to the National Surface Transportation Board outlining both its employment and operational plans.
DM&IR employs about 500 people.
“Right now, everything is so new and so fresh that no one knows exactly what to make of the deal,” said Dick DeLano, a DM&IR engineer and chairman of the Brotherhood of Locomotive Engineers Local 163.
“Obviously, people are nervous about the unknown,” he said. “But at the same time, most of us recognize that there could be a lot of positives that could come out of this, too. CN is an experienced operator, and it has the kind of money that’s needed to revitalize our aging car fleet.”
Hallman said that for DM&IR workers who lose jobs, there could be employment opportunities elsewhere in the CN network. The company employed an average of 23,190 people in the United States and Canada during 2002. And Hallman said the company loses 400 to 500 workers per year to attrition.
DeLano said he doubts the idea of transferring out of the region will appeal to many of his co-workers.
“You have to remember, this is a homegrown railroad,” he said, “and people are used to working around the same neighborhoods where they live, whether that’s Two Harbors, Proctor or the Iron Range. People might not want to move to Montreal.”
STEADIER FLEET OUTLOOK
Hallman said CN plans to maintain current Great Lakes Fleet dock operations as well as staff levels aboard its eight ships. The fleet employs about 200 people.
However, no decisions have yet been made about the administrative functions for maritime operations now headquartered in Duluth.
CN won’t operate the fleet itself. Instead, it plans to partner with a small U.S. company called Keystone Shipping Co., based in Bala Cynwyd, Pa.
The Jones Act forbids CN from playing a more active role as owner/operator of the Great Lakes Fleet. The federal law requires ships trading between U.S. ports to be built, owned and crewed by Americans.
Ships in the Great Lakes Fleet have long served the U.S. steelmaking industry, hauling taconite pellets to eastern Great Lakes steel mills and often returning with limestone for Iron Range mines.
Other foreign companies have managed to comply with the Jones Act by entering into arrangements similar to the one CN proposes with Keystone.
When Ispat Inland, a Dutch company, purchased the Minorca taconite plant near Virginia, it also came into some ships as part of the deal. They are now operated by Inland Lakes Transportation Management Inc., of Alpena, Mich.
When the French-owned Lafarge Corp. purchased a cement terminal in Superior, it, too, acquired some ships. They are now under the management of Andrie Inc., based in Muskegon, Mich.
Although Adolph Ojard, executive director of the Duluth Seaway Port Authority, understands CN’s need to partner with another U.S.-based carrier, he said he hopes the company will see the value of keeping maritime operations based at the head of the lakes.
“With this transaction, CN could turn the Twin Ports into even more of a regional transportation center,” Ojard said. “I hope it will continue to see the value of maintaining maritime headquarters here. It’s something I’d like to see given serious consideration.”
ASSEMBLING THE PIECES
Ojard said CN has asked the port authority to support its bid to buy Great Lakes Transportation LLC.
The authority has sometimes been at odds with CN. In 2001, it sent a letter to the Surface Transportation Board voicing its concern about CN’s plans to buy the Wisconsin Central Transportation Corp. railroad.
Great Lakes Transportation LLC, too, called for public scrutiny of that deal, citing the negative impact it could have on maritime traffic.
CN pitched its plan to buy Wisconsin Central as a way to offer an all-rail means of transporting taconite from the Minntac’s plant in Mountain Iron to U.S. Steel’s Edgar Thompson Works in Pittsburgh.
“They were proposing an alternative to water transportation, and they indicated they would market it as such,” Ojard said.
This time around, Ojard believes the situation is different because of CN’s plans to integrate water transport with its rail operations.
In retrospect, David Novak, vice president of Great Lakes Transportation, said his company may have been in error to oppose the CN/Wisconsin Central deal.
“We learned again last winter that there’s no better transportation system than an intermodal one,” Novak said. “It was a cold winter fraught with customer service issues.”
Hallman said the sale of the DM&IR to CN should allow for more efficient transport of freight, including taconite pellets to and from the Twin Ports. If the deal advances, DM&IR would acquire a 17-mile stretch of track that’s a critical link connecting its Chicago-western Canada main line. For years, CN has paid the DM&IR to use the connection shared under a trackage rights agreement. Hallman declined to reveal the annual fees CN pays for the privilege of using DM&IR’s line.
Another benefit to the deal involves CN’s acquisition of a 64-mile Iron Range rail corridor running parallel to tracks it already controls. At present, CN trains using the line are often forced off on sidings to let oncoming cars pass.
“With both lines, we’ll be able to dispatch much more efficiently through that corridor, meaning better service for the Iron Range,” Hallman said.