Canadian National Railway Canadian Railway Industry In Crisis

The Canadian National Railway (commonly referred to as Canadian National, Canadien National, CN, or CN Rail; formerly referred to as Canadian National Railways or CNR, pre- 1960; AAR reporting marks CN, CNA, CNIS), is the largest freight railway in Canada, both in terms of the size of its track network, and in revenue. It is also one of the six largest railway companies in North America, and currently the only true transcontinental railway, spanning from Nova Scotia to British Columbia and south to the Gulf of Mexico.

1 Canadian Railway Industry in Crisis

In response to public concerns fearing loss of key transportation links, the Government of Canada assumed majority ownership of the bankrupt Canadian Northern Railway (CNoR) on September 6, 1918 and appointed a Board of Management to oversee the company. At the same time, CNoR was also directed to assume control of Canadian Government Railways (CGR), a system comprised of the Intercolonial Railway of Canada (IRC), National Transcontinental RailwayNational Transcontinental Railway logo or herald The National Transcontinental Railway NTR was a historic Canadian railway. Second Transcontinental The completion of construction of Canada's first transcontinental railway, the Canadian Pacific Railway (CP (NTR), and the Prince Edward Island RailwayThe Prince Edward Island Railway (PEIR) was a historic Canadian railway. Construction Located wholly within the province of Prince Edward Island, construction of the PEIR started in 1871, financed by the United Kingdom. Initially built to 42 inch (1067 mm (PEIR), among others. On December 20December 20 is the 354th day of the year (355th in leap years) in the Gregorian calendar. There are 11 days remaining. Events 1803 Louisiana Purchase completed 1860 South Carolina becomes first state to secede from the United States 1915 Last Australian t, 1918 the federal government created the Canadian National Railways (CNR) through a Privy CouncilThe Queen's Privy Council for Canada is the largely ceremonial council of advisors to the Queen of Canada, whose members are appointed by her Governor General in Canada for life on the advice of the Prime Minister. It was established by the British North order as a means to simplify the funding and operation of the various railway companies. The absorption of the Intercolonial Railway would see CNR adopt that system's slogan The People's Railway.

Another Canadian railway encountered financial difficulty on March 7March 7 is the 66th day of the year in the Gregorian Calendar (67th in Leap years). There are 299 days remaining. Events 1799 Napoleon I of France captures Jaffa in Palestine and his troops proceed to kill more than 2,000 Albanian captives. 1848 The Great, 1919Events January January 1 Edsel Ford succeeds his father as head of the Ford Motor Company January 5 Spartacist uprising Socialist demonstrations in Berlin turn into attempted communist revolution with Spartacist League in the forefront January 9 Spartacus when the Grand Trunk Pacific Railway'sGrand Trunk Pacific Railway logo or herald The Grand Trunk Pacific Railway (GTPR) was a historical Canadian railway. A wholly-owned subsidiary of the Grand Trunk Railway (GTR), the GTPR was constructed by GTR using loans provided by the Government of Cana (GTPR) parent company Grand Trunk RailwayGrand Trunk Railway logo or herald The Grand Trunk Railway (GTR) was a historic railway system which operated in the Canadian provinces of Quebec and Ontario, as well as the U. states of Maine, New Hampshire, and Vermont. The GTR had two important subsidi (GTR), defaulted on repayment of construction loans to the federal government. The federal government's Department of Railways and Canals took over operation of the GTPR until July 12, 1920 when it too was placed under the CNR.

Finally, the bankrupt GTR itself was placed under the care of a federal government "Board of Management" on May 21, 1920, while GTR management and shareholders opposed to nationalization took legal action. After several years of arbitration, the GTR was absorbed into CNR on January 30, 1923. In subsequent years, several smaller independent railways would be added to the CNR as they went bankrupt, or it became politically expedient to do so, however the system was more or less finalized following the addition of the GTR.

2 Railway Nationalization

Canadian National Railways was born out of both wartime and domestic urgency. Railways, until the rise of the personal automobile and creation of taxpayer-funded all-weather highways, were the only credible long-distance land transportation available in Canada for many years, and as such, their operation consumed a great deal of public and political attention. Many countries regard railway networks as critical infrastructure (to this very day) and at the time of the creation of CNR during the continuing threat of the First World War, Canadian Prime Minister Robert Borden was not alone in his Union government's actions.

United States President Woodrow Wilson nationalized major U.S. railroads under the Federal Possession and Control Act on December 26, 1917 as part of the war effort, however railways reverted to private ownership control afterward. The United Kingdom nationalized its railway system during the Second World War, however subsequent governments endured harsh criticism for maintaining government ownership into the late 1990s (see British Railways).

It should also be remembered that broader geo-political events in Canada and worldwide were leading to governments taking a more interventionist role in the economy, with the growth of the public sector, as well as events in Canada such as the Winnipeg General Strike and the rise of Bolshevism. The latter two events were particularly troublesome to the federal government in Canada, which entered the Russian Civil War in support of the Allies from the First World War, for which at the time, the outcome was uncertain at best. The need to maintain a viable rail network was paramount.

3 Criticism of CNR

Regardless of the political and economic importance of railway transportation in Canada; there were many critics of the Canadian government's policies in maintaining CNR as a Crown corporation from its inception in 1918 until its privatization in 1995. Some of the most scathing criticism came from the railway industry itself, namely the commercially successful Canadian Pacific Railway (CPR) which argued that its taxes should not be used to fund a competitor. Some argue that the CPR could afford to make this criticism, having been itself the child of government and recipient of untold wealth by virtue of land and resource grants, as well as its position as a monopoly from its completion in 1885 until the CNoR started operations on the Prairies at the turn of the century.

As a result of history and geography, CPR served larger population centres in the southern prairies, while the CNR's merged system served as a de-facto government colonization railway to serve remote and undeveloped regions of Western Canada, northern Ontario, and Quebec. The company also became a convenient instrument of federal government policy from the operation of ferries in Atlantic Canada, to assuming the operation of the narrow-gauge Newfoundland Railway following that province's entry into Confederation, and the partnership with CPR in purchasing and operating the Northern Alberta Railway . A company-driven decision to create a radio network across Canada for its passenger train customers led to the federal government assuming total control in 1932, naming the radio network the Canadian Radio Broadcasting Commission, which was then renamed and organized into a separate Crown corporation in 1936 as the Canadian Broadcasting Corporation (CBC).

4 Politics and Government Priorities

It is generally accepted that government policy dictated CNR commercial decisions, whether such decisions were in the nation's interest, or in the political interest of the party in power. As such, CNR lost money for many years, except during the Second World War when its extensive network reaching into the resource hinterland proved beneficial, and during the late 1980s and early 1990s following deregulation of the Canadian railway industry. Where CNR failed to address costs was largely due to government interference, such as the requirement to purchase locomotives from all Canadian locomotive manufacturers, resulting in operational inefficiencies.

CNR was considered to be competitive with CPR in several areas, notably in Central Canada, prior to the age of the automobile and the dense highway network that grew in Ontario and Quebec. The former GTR's superior track network in the Montreal- Chicago corridor has always been a more direct route with higher capacity than CPR's. CNR was also considered a railway industry leader throughout its time as a Crown corporation in terms of research and development into railway safety systems, logistics management, and in terms of its relationship with labour unions.

5 Deregulation and Recapitalization

Another problem that hobbled CNR was in the sheer number of low-volume branch railway lines which did not produce sufficient traffic to pay for their operation. Without deregulation in the railway industry permitting abandonment or sale of a railway line, or even the ability to set prices to match those of trucks, both CNR and CPR paid dearly for owning these inefficient lines. One tactic that CNR perfected was to demarket a line by providing sufficiently poor service to its few customers, that those customers would turn to trucks for improved service and lower costs. Once customers ceased to exist on a small branch line, the federal government would permit the line's abandonment. Had deregulation been in place several decades earlier, it is conceivable that many Canadian branch lines would have been viable in the hands of short line operators, saving millions of dollars for taxpayers funding highways, since the railway lines had already been publicly funded in their construction.

From the creation of CNR in 1918 until its recapitalization in 1978, whenever the company posted a deficit, the federal government would assume those costs in the government budget. The result of various governments using CNR as a vehicle for various social and economic policies was a subsidization running into billions of dollars over successive decades. Following its 1978 recapitalization and changes in management, CN (name changed to Canadian National Railway, using the shortened acronym CN in 1960) started to operate much more efficiently, by assuming its own debt, improving accounting practices to allow depreciation of assets and to access financial markets for further capital. Now operating as a for-profit Crown corporation, CN reported a profit in 11 of the 15 years from 1978 to 1992, paying $371 million CDN in cash dividends (profit) to the federal government during this time.

5.1 Cutbacks and refocusing

CN's rise to profitability was assisted when the company started to remove itself from non-core freight rail transportation starting in 1977 when subsidiary Air Canada (created in 1937 as Trans-Canada Air Lines) became a separate federal Crown corporation. That same year saw CN move its ferry operations into a separate Crown corporation named CN Marine, followed similarly by the grouping of passenger rail services (for marketing purposes) under the name VIA. The following year ( 1978), the federal government decided to create VIA Rail as a separate Crown corporation to take over passenger services previously offered by both CN and CPR. CN Marine was renamed Marine Atlantic in 1986 to remove any references to its former parent organization. CN also grouped its money-losing Newfoundland operations into a separate subsidiary called Terra Transport so that federal subsidies for this service would be more visible in company statements.

CN also divested itself during the late 1970s and throughout the 1980s of several non-rail transportation activities such as trucking subsidiaries, a hotel chain (sold to CPR), real estate, and telecommunications companies. The biggest telecommunications property was a company which was co-owned by CN and CP (CNCP Telecommunications) which, upon its sale in the 1980s, was renamed Unitel (United Telecommunications) and upon corporate affiliation with Rogers Communications, was renamed AT&T Canada . Another more-famous telecommunications property wholly-owned and built by CN was the CN Tower in Toronto which still keeps its original name but was divested by the railway company in the 1980s as well. All the proceeds from such sales were used to pay down CN's accumulated debt. At the time of their divestitures, all of these subsidiaries required considerable subsidies which partly explained CN's financial problems prior to recapitalization.

CN also was given free rein by the federal government following the 1987 deregulation of the railway industry to make tough business decisions in its rail freight operations and remove itself from money-losing branch lines, some of which it had been forced to absorb through federal government policies and outright patronage. During the mid-to-late 1980s, thousands of kilometres of railway lines were abandoned, including the complete track networks in Newfoundland (this being CN subsidiary Terra Transport , the former Newfoundland Railway) and Prince Edward Island (the former PEIR), as well as numerous branch lines in Nova Scotia, New Brunswick, Southern Ontario, throughout the Prairie provinces, and on Vancouver Island. Virtually every rural area served by CN in some form was affected, creating resentment for the company and the federal government.

6 CN's U.S. Subsidiaries Prior to Privatization

CN's railway network in the late 1980s consisted of the company's Canadian trackage, along with the following U.S. subsidiary lines: Grand Trunk Western Railroad (GTW) operating in Michigan and Illinois; Detroit, Toledo, and Ironton Railroad (DTI) operating in Michigan and Ohio; Duluth, Winnipeg, and Pacific Railroad (DWP) operating in Minnesota; Central Vermont Railway (CV) operating down the Connecticut River valley from Quebec to Long Island Sound; and a former GT line to Portland, Maine, known informally as the Grand Trunk Eastern, sold to a short line operator in 1989.

7 Privatization

In 1992 a new management team led by ex-federal government bureaucrat, Paul Tellier, started preparing CN for privatization by emphasizing increased productivity, achieved largely through aggressive cuts to the company's bloated and inefficient management structure, as well as widescale layoffs in its workforce, and further abandonment or sale of branch lines. In 1993 and 1994 the company experimented with a rebranding exercise that saw the names CN, Grand Trunk Western, and Duluth, Winnipeg, and Pacific replaced under a collective CN North America moniker. In 1995, the entire company including its U.S. subsidiaries reverted to using CN exclusively.

The CN Commercialization Act was enacted into law on July 13, 1995 and by November 28, 1995, the federal government had completed an initial public offering (IPO) and transferred all of its shares to private investors. Two key prohibitions in this legislation include, 1) that no individual or corporate shareholder may own more than 15% of CN, and 2) that the company's headquarters must remain in Montreal, thus maintaining CN as a Canadian corporation.

7.1 Purchasing Illinois Central

Following the successful IPO, CN has recorded impressive gains in its stock price. In 1998, during an era of mergers in the U.S. railway industry, CN purchased the Illinois Central Railroad (ICR), which connected the already existing lines from Vancouver, British Columbia to Halifax, Nova Scotia with a line running from Chicago, Illinois to New Orleans, Louisiana. This single purchase of ICR changed the entire corporate focus of CN from being an east-west uniting presence within Canada (sometimes to the detriment of logical business models), into a north-south NAFTA railway feeding Canadian raw material exports into the U.S. heartland and beyond to Mexico through a strategic alliance with Kansas City Southern Railroad (KCSR).

7.2 Failed BNSF Merger

In 1999, CN and Burlington Northern Santa Fe Railway (BNSF), the second largest rail system in the U.S., announced their intent to merge, forming a new corporate entity North American Railways to be headquartered in Montreal to conform with the CN Commercialization Act of 1995. The merger announcement by CN's Paul Tellier and BNSF's Rob Krebs was greeted with skepticism by the U.S. government's Surface Transportation Board (STB), and protested by other major North American rail companies, namely CPR and Union Pacific Railroad (UP). Rail customers also denounced the proposed merger, following the confusion and poor service sustained in southeastern Texas in 1998 following UP's purchase of Southern Pacific Railroad (SP). In response to the rail industry, shippers, and political pressure, the STB placed a two year moratorium on all rail industry mergers, effectively scuttling CN-BNSF plans. Both companies dropped their merger applications and have never refiled.

7.3 Purchasing Wisconsin Central

After the STB moratorium expired, CN purchased Wisconsin Central (WC) in 2001, which allowed the company's rail network to completely encircle Lake Michigan and Lake Superior, permitting more efficient connections from Chicago to Western Canada. The deal also included Canadian WC subsidiary Algoma Central Railway (ACR), giving access to Sault Ste. Marie and Michigan's Upper Peninsula.

7.4 Purchasing BC Rail

On May 13, 2003 the provincial government of British Columbia announced that the provincial Crown corporation, BC Rail (BCR), would be sold with the winning bidder receiving BCR's surface operating assets (locomotives, cars, and service facilities). The provincial government is retaining ownership of the tracks and right-of-way. On November 25, 2003 it was announced that CN's bid of $1 billion (CAD) would be accepted over those of CP and several U.S. companies. The transaction was closed effective July 15, 2004. Many opponents- including CP Rail- accused the government and CN of rigging the bidding process, though this has been denied by the govenment. Also contested was the economic stimulus package that the government gave the cities along the BC Rail route- some saw it as a buyoff done in order to get the munipalites to cooperate with the lease, though govenment has asserted that the package was intended to promote economic development along the corridor.

7.5 Purchasing Great Lakes Transportation

CN also announced in October 2003 an agreement to purchase Great Lakes Transportation (GLT), a holding company owned by Blackstone Group for $380 million (USD). GLT was the owner of Bessemer & Lake Erie Railroad, Duluth, Missabe and Iron Range Railway, and the Pittsburgh & Conneaut Dock Company. The key instigator for the deal was the fact that since the Wisconsin Central purchase, CN was required to use Duluth, Missabe and Iron Range Railway trackage rights for a short 17 km "gap" that existed near Duluth, Minnesota on the route between Chicago and Winnipeg. In order to purchase this short section, CN was told by GLT that it would have to purchase the entire company. Also included in GLT's portfolio were 8 Great Lakes vessels for transporting bulk commodities such as coal and iron ore as well as various port facilities. Following Surface Transportation Board approval for the transaction, CN completed the purchase of GLT on May 10, 2004.

7.6 CN today

Since the company operates internationally in two different countries, CN apparently maintains some corporate distinction by having its U.S. lines grouped under Grand Trunk Corporation for legal purposes [1], however the entire company in both Canada and the U.S. operates under CN, as can be seen in its locomotive and rail car repainting programs.

Since the ICR purchase in 1998 CN has been increasingly focused on running a scheduled freight railroad/railway, meeting on-time performance with rail industry-leading consistency. This has resulted in improved shipper relations, as well as reduced the need for maintaining pools of surplus locomotives and freight cars. CN has also undertaken a rationalization of its existing track network by removing double track sections in some areas and extending passing sidings in other areas.

CN is also a rail industry leader in the employment of radio-control (R/C) for switching locomotives in yards, to the detriment of employees since this results in reductions to the number of yard workers required. CN has frequently been touted in recent years within North American rail industry circles as being the most-improved railroad in terms of productivity and the lowering of its operating ratio , acknowledging the fact that the company is becoming increasingly profitable.

7.7 Recent controversies

Controversy arose in Canadian political circles in 2003 following the company's decision to refer solely to its acronym "CN" and not "Canadian National," a move some interpret as being an attempt to distance the company from references to "Canada," particularly in the U.S. where Canada's decision to not participate in the 2003 invasion of Iraq was unpopular. Canada's Minister of Transport at the time called this policy move "obscene" [2] after nationalists noted it could be argued the company is no longer Canadian, being primarily owned by American stockholders. The controversy is somewhat tempered by the fact that a majority of large corporations are being increasingly referred to by acronyms. Despite this, the company is still legally called the Canadian National Railway.

In March, 2004 a strike by the Canadian Auto Workers union showed deep-rooted divisions between organized labour and the company's current management.

8 See also

Former component railways:

Former subsidiaries:

9 External links

10 Sources

Current (operating) Class 1 railroads of Canada

CN, CP

Current (operating) Class 1 railroads of the United States

AMTK, BNSF, CN, CP, CSXT, KCS, NS, UP

Historic ( fallen flag) Class 1 railroads of the United States

ACL, AGS , ATSF, B&LE, B&M, B&O, BAR , BN, C&O, CB&Q, CG , CGW, CNTP , CNW, CR, CRIP, CV, D&H , DMIR , DRGW, EJE , FEC, GN, GTW, IC, ICG, MEC , MILW, MKT, MP, NYC, NKP, N&W, P&LE , PM, PRR, SAL, SBD, SCL, SOO, SOU, SP, SSW , T&P , VGN, WAB, WP

Railway companies of Canada S&P/TSX Composite Index Canadian history Companies of Canada Illinois railroads Wisconsin railroads

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