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End of the line?
Canadian National raises fees but pulls back from cutting service
By RICK ROMELL
Posted: Dec. 11, 2004
Reacting to increases in shipping fees on the Canadian National Railway Co. and an aborted move by the railroad to cut service, some business executives are questioning the firm’s commitment to northern Wisconsin.
The developments have sparked formation of an informal coalition of rail users and a state study on the economic importance of the railroad in the region.
Some immediate fears were allayed when Canadian National, a publicly traded company that runs a transcontinental rail system, reversed course on plans last summer to trim service in Rhinelander from five days a week to three.
Those plans were derailed, but executives and others fear they presage cutbacks down the line.
“The concern is really about the future of rail in Wisconsin and particularly in northern Wisconsin and in rural Wisconsin,” said Patrick Schillinger, president of the Wisconsin Paper Council, a trade association for the pulp and paper industry.
Canadian National, which became the state’s largest railroad with its $1.2 billion purchase of the Wisconsin Central Ltd. three years ago, says it is committed to northern Wisconsin.
At the same time, CN consultant and lobbyist Kevin Soucie said rail lines have a future only if they are profitable.
Though he would not say whether they were making money now, Soucie said some of the lighter-density northern Wisconsin lines, when CN acquired them, were not viable over the long term.
“The service had to be adjusted to make them work financially,” he said.
That involves a delicate balancing act: If costs aren’t cut enough, or rates aren’t high enough, the railroad loses money. At the same time, service reductions and price increases can prompt shippers to switch to trucking - with the reduced freight volumes further undercutting the line’s viability.
That spiral - ultimately leading to abandonment of lines - is what some business people fear will happen, said Jack Sroka, executive director of the Lincoln County Economic Development Corp.
The Canadian National is the only railroad across much of the region and is crucial to many manufacturers, Schillinger said.
“For heavy industrial users like the paper industry, there is no cost-effective replacement for rail service,” he said. “It’s still a very important transportation mode for our members.”
Not everyone shares Schillinger’s concerns.
Ken Morris, general manager of Northwoods Distribution Services, a recently opened Rhinelander warehouse that uses about 45 rail cars a month, said CN reversed its decision to cut service to the city after looking more closely at freight volumes.
“I do give the railroad a lot of credit,” he said. “Once we got the right people involved in it, they re-evaluated the situation and made the right decision.”
Morris is satisfied with the railroad’s current service and the prospects for it to remain at that level.
“I truly believe that they won’t do anything as long as the volumes stay at current levels or increase,” he said.
Others are less certain.
“The biggest problem we have with the CN is they have a business plan; they don’t want to be a short-line, local district railroad,” said Daniel Bruso, manager of the Oldenburg Group Inc. metal fabrication plant in Rhinelander.
Bruso said CN bought the Wisconsin Central chiefly for the main line between Superior and Chicago. Acquiring that track plugged a gap in the company’s continent-spanning system and gave it a continuous stretch of CN-owned rail from Canada’s west coast to New Orleans. But along with the Superior-Chicago route, CN also picked up hundreds of miles of shorter lines.
“They don’t care for that business,” Bruso said. “They don’t want to service it.”
Not so, Soucie said.
“CN is in the railroad business,” he said. “It’s in the business of moving freight, and if someone wants to move freight, as long as it’s profitable, CN is interested in moving it.”
Soucie said CN already held rights to use the Superior-Chicago route.
“They got involved with the Wisconsin Central because there’s business to be made in Wisconsin,” he said.
But the CN’s application to buy the Wisconsin Central, filed with the U.S. Surface Transportation Board, suggests that the Superior-Chicago route was indeed important to the company.
The application said the Wisconsin Central acquisition would “enable CN to secure its service between Superior and Chicago. CN will thus no longer be dependent on haulage service by another railroad under a limited term agreement.”
Shippers on the shorter lines may be misinterpreting other pressures on CN as lack of interest in their freight, said Donald Broughton, a transportation industry analyst for A.G. Edwards & Sons Inc. in St. Louis.
With demand for rail service at record highs and growing across North America, CN is so pressed that even shippers on main lines don’t feel they’re getting as much attention as they want, Broughton said.
He said CN does want to operate regional lines.
But people such as Bruce Ridley, manager of the Packaging Corp. of America paper mill in Tomahawk, say CN has balked at offering long-term service commitments. That, Ridley said, “is disconcerting, to say the least.”
The Tomahawk mill employs 480 people turning out “medium” - the squiggly stuff in the center of a piece of corrugated cardboard.
The mill ships some of that to the company’s cardboard box plant in Colby, about 120 miles southwest of Tomahawk, by rail. The mill used to send medium via the CN - about 20 carloads a month. But in mid-summer, Ridley said, the railroad raised rates for the company on hauls of less than 500 miles and cut service to Colby from five days a week to three.
Ridley wouldn’t quantify the change in rates other than to say they were raised “significantly.” The rate increase was enough to make it cheaper for Packaging Corp. to ship to the box plant by truck, which it now does, Ridley said.
He said the company had cut back rail shipping elsewhere, too, because of changes on the CN. Since January, Ridley said, the Tomahawk mill has gone from shipping out more than 650 rail cars a month to about 550.
It takes 2 1/2 trucks to haul the same tonnage as a single rail car, and making the switch isn’t necessarily simple, Ridley said. Nationwide trucking capacity has been strained by a lack of drivers, and some of the plants the Tomahawk mill ships to aren’t equipped to handle trucks, he said.
Ridley also said the number of sites where logs can be loaded onto rail cars had been reduced, hurting pulpwood producers financially.
Bill Johnson, owner of Johnson Timber Corp., a forest products company based in Hayward, told an Assembly committee in August that “CN is continually threatening to close rail spurs due to lack of volume, or even more disheartening, hiking prices at these spurs to price themselves out of the marketplace.”
Concerns such as Ridley’s and Johnson’s have spurred affected businesses to meet informally as a group and prompted the state Department of Transportation to analyze the economic impact of rail service in northern Wisconsin.
In early November, the department surveyed 13 businesses that use rail. Without that service, the responding companies said, their annual shipping costs would increase by 33% to 500%. The largest of the businesses estimated it would have to pay an additional $5.8 million a year to ship by truck, the report says.
In October, the federal government granted CN’s request to abandon a 37-mile line between Saukville and Kiel. CN said the line’s economic potential didn’t justify the cost of upgrading it. The state is looking into acquiring the line and leasing it to another railroad.
CN has no plans to abandon any rail lines in northern Wisconsin, Soucie said. But he added that every line “is under constant review” for its financial viability, and that the company owed as much to its shareholders.
“The people who trust us with their money depend on us to make wise decisions with their investments,” Soucie said.
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