Canada's Big Rails Seek To Share Track, Cut Losses

But planned layoffs are politically sensitive for new prime minister

CANADA'S two major railroads - the Canadian Pacific and the Canadian National - have been negotiating for nearly a year on a plan to merge, sell, or abandon much of their money-losing eastern operations.

Government approval is required. And executives for both companies have appeared to raise trial balloons in the press recently, knowing any such plan must pass muster politically as well as meet an economic need.

All appeared to be running smoothly until last week's federal election. Now many wonder whether Canada's new prime minister will feel compelled to slam on the brakes.

Jean Chretien's Liberal Party landslide crushed the avidly pro-business Progressive Conservative Party. ``Jobs, jobs, jobs,'' was Mr. Chretien's rallying cry and is his first priority. Already Chretien is moving to implement a $6 billion (Canadian; US$4.5 billion) plan to create 65,000 jobs.

The two railroads' plans, however, appear to be running in the opposite direction. The changes CP Rail System (the rail subsidiary of Canadian Pacific Ltd.) and Canadian National (CN, a government-owned ``crown'' corporation) are discussing would cut thousands of jobs and abandon or sell off thousands of miles of track, most analysts agree.

Many say the railroads have a good case: labor costs are too high and hurt competitiveness. Yet the problem is one of timing and political credibility.

``A brand new government doesn't want to offend,'' admits an executive within the railroad community who asked not to be named. ``They [Chretien's Liberals] want to retain credibility and reach out. I'm hoping we'll be able to persuade the Liberals that enough homework has been done to move pretty quickly into action [on merging operations] instead of into a policy review mode that can take years.''

The CN, which is in the most serious financial shape, has already embarked on massive layoffs, announcing an $887 million charge against earnings last year in order to cut 11,000 jobs through 1995. CN and CP together lost $1.3 billion in 1992.

``The status quo is no longer possible. It's a nonstarter,'' CN president Paul Tellier was quoted as telling Maclean's magazine. ``The reason is that both railways are dropping too much money.''

CP Rail System President Robert Ritchie told the Financial Post: ``Some joint work arrangement with CN is the most intelligent option we can pursue.... The best time to do that is within the first six months of the government's mandate.''

BUT can a prime minister who campaigned on creating jobs afford to okay a plan that costs so many of them?

``We will certainly remind him [Chretien] of what he has said if the cutbacks at Canadian National continue,'' says Theo Stol, vice president of the Canadian Brotherhood of Railway, Transport & General Workers.

Peter Gosman, a CN vice president, told the Monitor that something must be done. ``Between the two of us [CN and CP], we don't have enough traffic to support the massive infrastructure,'' he says.

In the West, both railroads make a profit hauling wheat, coal, phosphate, lumber, and other bulk goods long distances - operations that have long subsidized the companies' money-losing eastern corridor operations.

Distances hauled in the east are shorter and the goods tend to be manufactured items such as cars and parts that can be shipped competitively by truck, Mr. Gosman says. Both railroads also have lines that run close together, making their fight over the same traffic highly costly.

In such cases, Mr. Tellier says his preference is for sharing maintenance and other costs of a single line. Unprofitable lines should be abandoned, he says. The CN plans to sell or abandon about half of its 9,000 miles of track east of Winnipeg, Manitoba, by 1995. Last week, CN North America announced its 320-mile Central Vermont Railway, which runs from Cantic, N.Y., to New London, Conn., was up for sale.

``You can go one of two ways, merge it all into one company and remove competition and shrink the plant dramatically - that's the ultimate and most radical solution,'' says Harvey Romoff, former vice president of CP's European operations, now retired. ``But that would no doubt be opposed strongly by the shipping community that welcomes shipping competition.... They'd have to fight a real battle.''

Working against the plans of CP and CN executives is history. Both railroads are powerful symbols of Canadian unity. Both have proud histories of nation building, their rails binding the huge expanse of Canada, its commerce, and its people, together.

Railroad executives say nostalgia is partly responsible for an inability to convince government to drop costly regulations.

``The government is going to have to bite the bullet,'' the unnamed railroad executive says, ``because we just can't afford the same amount of parallel infrastructure we used to have. They might say, `why don't we do this over a longer period,' and we'll say: `We just can't do that.' ''

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