(The Canadian Press circulated the following story by Ross Marowits on April 22.)
MONTREAL — Canadian National Railway Co.’s (TSX:CNR) tough-talking boss warned Chicago residents Tuesday that opposition to its planned expansion could threaten area jobs and cause economic stagnation.
CEO Hunter Harrison told the Montreal-based railway’s annual meeting that Chicago’s standing as the rail capital of North America will be threatened if a move to relieve congestion is blocked.
“This cannot continue,” he said of the snail’s pace in which railcars pass through the midwestern capital where the meeting was held. It often takes longer to pass through the city than to travel the more than 1,300 kilometres from Winnipeg.
“This causes unreliable service for our customers. It is extremely difficult to run a scheduled precision railroad in those kinds of conditions.”
Communities that don’t want increased rail traffic have mounted opposition to CN’s US$300-million acquisition of the Elgin, Joliet & Eastern Railway Co. from US Steel.
Regional communities delivered a letter to CN shareholders Tuesday saying the deal will negatively impact the environment, economy, traffic and overall quality of life for hundreds of thousands of residents who live along the EJ&E line.
The letter “makes it clear that opponents will do everything in their power to derail the transaction unless Canadian National makes the investment necessary to fix – in totality – the problems it will create in these communities by running unprecedented numbers of freight trains on the EJ&E rail line,” the groups said.
But Harrison suggested they suffer from not-in-my-backyard syndrome by saying they want to be bedroom communities of Chicago, but don’t want trains in their backyards.
“Where does growth go?” he asked shareholders. “Where does the rail capital of the world want the growth to go? On the congested core lines today. Should it move to the highway?”
Harrison said at most 15 to 24 additional trains would pass through those western suburbs per day, adding two minutes an hour to railway crossing usage.
Alternatives debated for more than 10 years have failed to reach fruition. And unlike efforts that involved taxpayer funding, this acquisition is paid with private funds.
While expressing confidence the acquisition will ultimately be approved, Harrison said failure would cost jobs, commerce, tax base, economic losses and Chicago’s standing as a rail hub.
The railway has committed to spend US$100 million on improvements and US$40 million to mitigate the impact on communities.
“I clearly believe that this transaction is for the greater good of the overall Chicago area,” he said.
Walter Spracklin of RBC Capital Markets said the acquisition is important to relieve congestion for Chicago and other markets.
“Chicago has a problem, it’s congested and there needs to be solutions made,” he said in an interview. “I don’t know whether EJ&E will be a cure-all but will certainly help CN.”
CN’s takeover of most of the EJ&E, announced in September, is subject to approval by the Surface Transportation Board.
The railway argues that dispersing trains along the periphery of the Chicago metropolitan area would increase the speed of commerce by cutting rail congestion in the inner core. It also says the change would improve safety and generate environmental benefits including reduced locomotive emissions, less blockage of level crossings and fewer idling trains.
CN shares were down 75 cents to $51.55 Tuesday afternoon on the Toronto Stock Exchange, the day after Canada’s largest railway reported its first-quarter earnings declined four per cent to $311 million and trimmed its profit forecast for the full year.
North America’s largest railway was hammered by winter storms, a strong Canadian dollar and a weakened U.S. economy that hurt its largest segment of forest products.
Harrison said 2007 marked the most challenging year in his 44 years in railroading.
Nonetheless, CFO Claude Mongeau told shareholders the company expects improvement in the rest of the year.
“We’re also hopeful that the economy will eventually recover in the second half and with that we think we will have a good year again in 2008.”