Are you satisfied with CN operation?

[Junctionfan]

This a kind of poll I am interested in seeing how you feel CN is operating. Do you think they are hurting or helping the economy? Do you believe they are running enough trains to support their territory? Do you believe CN should have merged with BC Rail? Are you or not satisfied with CN safety performance?

This is not a CN bashing thread but a designated thread on collecting information on what seems to be a popular concern by both railfans, railway workers, private corportions, government officials as well as private citizens.

[Randy Stahl]

Let me know when you want to start a CN bashing thread... I'm up for THAT!!!
Randy

[Junctionfan]

I suppose a little bashing is understandable. I do have friends who work for CN and they tell me stuff.

[Anonymous]

I think the CN should paint their locomotives in Illinois Central paint and keep the IC name in the south. I dont live in the deep south but I find it funny that the CN railway is running in Mississippi and Louisiana. By keeping the IC name, that has been around for over 100 years and has a more US name, more people would be willing to ship by them.

[Anonymous]

CN Revenue 1997: $5.231 billion
CN Revenue 2003: $5.694

CN Operating Income 1997: $1.185 billion
CN Operating Income 2003: $1.777

CN Operating Ratio 1997: 77.3
CN Operating Ratio 2003: 69.8

CN Share Price 1/1/97: ~ $13
CN Share Price 8/3/04: ~ $45

First-half figures for 2004 were even better than these.

So based on all readily available data, I would say CN is helping the economy and running enough trains. I haven't seen safety data. I am comfortable with CN's merger with BC ... seems an excellent strategic move.

Junctionfan, I would appreciate documentation of the "concerns of railway workers, private corportions, government officials as well as private citizens" about CN's performance. Mark's post goes to the heart of CN's corporate obligations, and I've seen no evidence of failure. One more point: I speculate that CN's common stock and debt instruments are held in very substantial part by pension funds and mutual funds which, in turn, are held in many 401K accounts and similar fiduciary holdings. The demonstrated financial success of CN is redounding to the benefit many, many people similar to you. In most cases, they are not even aware that they are benefiting from this strength.

If their implicit trust in CN is misplaced, they should know.

[Randy Stahl]

Of course one way to achieve an impressive operating ratio is to run the RR into the ground. What the investors don't know is these numbers are going to catch up with them sooner or later...then it will be time for another merger. I am confident to say that indeed the CN operation is slipshod at least. The emplyees are paying with thier lives and limbs!!
Randy

[Junctionfan]

Let me tell you about CN and their so called "great performances".

1/ They own Illinois Centreal and Wisconsin Centreal in addition to DWP, Algoma Centreal, GT, Centreal Vermont and have recently bought BC Rail, Bessemer Lake Erie, DM&I, et al. They only run about 400 trains a day?

2/ Thease companies they buy, they get rid of a large portion of their own workers never mind the work force they aquire when they buy a new railroad. This would increase the unemployment rate. They are short of crews, they lack motive power and constantly are have labour issues. This is not secure shipping for customers. Some of the assembly plants in Canada had to ship all the cars by truck because of the strike. That was inconvient to the automotive companies which is their most profitable customer; if they were willing to do that to them what would they do to their less profitable customer.

3/ Their tracks are utter chaos. Some of the track is out of guauge and their maybe one good tie out of a bunch. Their are slow orders on some of their lines that still have not been fixed; that was 2 years ago. The tracks near the passenger station at one time warped and made the trains twist and jump funny. Thease trains would go at high speed and would carry things like cyclohexane, vinyl chloride, anhydrous ammonia, hydrofluoric acid, liquified petroleum gas and many other toxic chemicals.

4/ CN has had many derailments in various locations over last year. I hear they had a problem with a bridge in BC. Their was nearly a head on collision on the Grimsby Subdivision between St.Catharines and Jordon.

5/ Where has their roadrailer gone? I have also noticed that a lot of trailer that would normally load up in Brampton to go to the states no longer use CN; why is that?

6/ Why has their been so much labour problems. Did you know that when a couple of autoracks derailed in my city, CN didn't use any of their stuff to rerail them; they use the services of a private company. Where have all their MOW crews gone?

7/ I see industries that used rail now shipping only by trucks. Why is that do you think?

Thease are just a few examples of what CN is doing that I see is going to get worse before it gets better. There is no way you could convince me that it will not affect the shareholders profit down the line and endanger Canadian economy as well as any State that has CN running through it.

[Junctionfan]

Is it just me or is it wierd that despite the Operation Ratio has gone down from 1997 (77.3%) to 2003 (69.8%), the Operating Income has gone up from 1997 ($1.185 billion) to 2003 ($1.777 billion). If the operation ratio had gone up in 2003 I could understand the 2003 operating income but where is the money going to. Doesn't it strike you funny that in all that time with the amount of industries they could serve it they wanted to, that they only made a $463 million difference in 6 years. Do you think they should have made more by now?

[MP173]

As a shareholder in CN (from my IC holdings) I am extremely satisfied. It is my second largest holding other than mutual funds and it has been a good performer.

Railroads are not a growth industry. Particularly when compared to other industries. Any growth is going to be in intermodal, which is very marginal. Perhaps they are shedding unprofitable business, much like Conrail did in the 80's.

I live in NW Indiana and regularly listen to the CN radio frequency. I do hear quite a bit that concerns me.

Markham seems to really be plugged. Either a number of trains go dead and are recrewed or there is a recrewing that is done at non terminal locations. I would like some clarification on this.

Are their crews bypassing Battle Creek now? I heard something to the affect that a crew was running thru to Port Huron the other night on 148, the intermodal.

On the other hand....the former South Bend Sub is double tracked (mostly) with CTC for bidirectional running. Still, there seems to be a lot of 10,000 foot trains that can only fit in certain locations as they stage outside of Chciago.

Lets face it....Chicago is a nightmare to either get into or thru.

Too bad the EJE cant be used more as a "toll railroad".

MP

[Anonymous]

The most convincing information on this thread ... a satisfied CN shareholder! (MP173)

I now address in sequence posts begining with Mr. Stahl's of 17:54:28.

Yes, it is possible to run a railroad into the ground, but its difficult make financial and statistical reports look better and better for seven years while doing so and still maintain a functioning system. CN's first-half 2004 performance couldn't have happened if the railroad were in the mud. And let's recall that pre-privatization, CN was not chrome-plated.

Which data do you reference that would show CN's operation to be "slipshod?"

Your final sentence is grim: Perhaps you have facts to back it up, but this is what I found in the company reports:

Train Accident rate, 1997: 2.2 per million train miles
Train Accident rate, 2003: 2.0

Injury Frequency rate, 1997: 7.8 per 200,000 person hours
Injury Frequency rate, 2003: 2.9

Hemphill: Indeed financial and statistical figures can be manipulated. Recall McGinnis at the New Haven! However, since moving from "betterment" accounting to depreciation accounting in 1983 it is much more difficult to "trick" the numbers by running the road into the ground. (I assume the Canadian lines made the change at about the same time as the U.S. lines.)

Rail laid, ties installed, ballast poured figures will be interesting for CN. Is there a Canandian regulatory counter-part to STB (or FRA?) that monitors deferred maintenance? Those figures would be helpful. CSX seems to be the usual suspect in U.S. reporting.

Junctionfan:

1. You imply that 400 trains per day is inadequate to serve the franchise. What is the basis for your concern? Some "blue sky" numbers: 400/day x 365 = 146,000 trains to generate $5.7 billion in revenue. This = $39,000/train. Assume 39 loads/train. that's $1,000/load. Not very high for a transcon/chemical carrier. In reality, CN averaged $1,358/car in 2003. Plug that number back in, and you get only 29 loads per train if CN runs 400 trains /day. By traditional standards one might well argue that they are running too many trains, but emphasis on scheduled operations and good customer service seems to be paying off.

2. Merger economies are to be expected and a growing economy will absorb the displaced workers. (Not to minimize the personal disruptions that individuals experience.)

Busy railroads are expected to be tight on crews and equipment ... look at UP! They have tanked while CN had a banner first-half of 2004.

Railroad labor negotiations are notoriously difficult, but capitulation can be fatal, witness "Saunder's sellout" at Penn Central.

3. Tracks in utter chaos? How can that be, given current performance? Where is the documentation?

4. All railroads have derailments, regrettably. CN's accident rate has trended down slightly in the past seven years. (Anyone know what the U.S. rate was last year?)

5. CN Roadrailer was competing in an intensely competitive short-haul lane, long dominated by trucks. If you can't make a return, better to sell the assets and put the money in the roadbed where most needed.

6. All U.S. roads use contractors to clear derailments. It is much more efficient than keeping excess MOW employees sitting around waiting for an accident.

7. It appears to me that "precision railroading" has a shot at regaining some of that traffic.

I repeat: who are the "railway workers, private corporations, government officials as well as private citizens" who have the deep-seated concerns about CN?

With regard to Operating Ratio and Operating Income: When OR declines, OI increases, other things being equal. That's why a low OR has been the defining "figure of merit" for financial success in the industry for a century or more.

I have taken only the most superficial glance at CN figures, and I have zero on-the-ground knowledge of the property. I may be fundamentally mistaken on some or all of the above points. But so far I have seen no data nor sources in this thread to suggest that I am. I respect anecdotal reports, for they often reveal underlying reality, but such reports, I believe must then be buttressed by analysis. Let's all keep digging ... most reports that will shed needed light can be found on the web.

Good exchange!

[CliqueofOne]

If someone really wants to know what a person thinks of CN, the best ones to listen to, are the employees of CN, past and present. And the ones to get best opinion from are the Canadian employees. They are the ones that are feeling the wrath of Hillbilly Harrison and his gang of thugs and goons the most. Yet many on this forum absolutely refuse to acknowledge anything that deflates their inflated opinion of Harrison and the new CN. HH lies to, intimidates, and threatens not only the rank and file employees, but the front line supervisors as well. On August 10, I will pass my 34th year on the CNR. I've got 2 years, 9 months and 23 days to go. That's the only thing that lets me survive another day in this dysfunctional railway.
I question the motives, intelligence, and social conscience of anyone that defends the CN of today and its management. The ones that deserve credit. The ones that should be thanked for CN making money for the shareholders are the employees. Any fool can lay off employees, abandon track and defer maintenance and show a profit. Short term as it is. HH has only limited resources that he can squander. One of these days the shareholders will wake up from their slumber, take off their rose coloured glasses and find out the truth about HH. And they will not be amused.
Clique of One. Signal Mechanic. Signal Department. Canadian National Railways. [:(!][V]

[ericsp]

I think CN's new motto is "CN, the UP of the North."

[Junctionfan]

QUOTE: Originally posted by rllewiszz

The most convincing information on this thread ... a satisfied CN shareholder! (MP173)

I now address in sequence posts begining with Mr. Stahl's of 17:54:28.

Yes, it is possible to run a railroad into the ground, but its difficult make financial and statistical reports look better and better for seven years while doing so and still maintain a functioning system. CN's first-half 2004 performance couldn't have happened if the railroad were in the mud. And let's recall that pre-privatization, CN was not chrome-plated.

Which data do you reference that would show CN's operation to be "slipshod?"

Your final sentence is grim: Perhaps you have facts to back it up, but this is what I found in the company reports:

Train Accident rate, 1997: 2.2 per million train miles
Train Accident rate, 2003: 2.0

Injury Frequency rate, 1997: 7.8 per 200,000 person hours
Injury Frequency rate, 2003: 2.9

Hemphill: Indeed financial and statistical figures can be manipulated. Recall McGinnis at the New Haven! However, since moving from "betterment" accounting to depreciation accounting in 1983 it is much more difficult to "trick" the numbers by running the road into the ground. (I assume the Canadian lines made the change at about the same time as the U.S. lines.)

Rail laid, ties installed, ballast poured figures will be interesting for CN. Is there a Canandian regulatory counter-part to STB (or FRA?) that monitors deferred maintenance? Those figures would be helpful. CSX seems to be the usual suspect in U.S. reporting.

Junctionfan:

1. You imply that 400 trains per day is inadequate to serve the franchise. What is the basis for your concern? Some "blue sky" numbers: 400/day x 365 = 146,000 trains to generate $5.7 billion in revenue. This = $39,000/train. Assume 39 loads/train. that's $1,000/load. Not very high for a transcon/chemical carrier. In reality, CN averaged $1,358/car in 2003. Plug that number back in, and you get only 29 loads per train if CN runs 400 trains /day. By traditional standards one might well argue that they are running too many trains, but emphasis on scheduled operations and good customer service seems to be paying off.

2. Merger economies are to be expected and a growing economy will absorb the displaced workers. (Not to minimize the personal disruptions that individuals experience.)

Busy railroads are expected to be tight on crews and equipment ... look at UP! They have tanked while CN had a banner first-half of 2004.

Railroad labor negotiations are notoriously difficult, but capitulation can be fatal, witness "Saunder's sellout" at Penn Central.

3. Tracks in utter chaos? How can that be, given current performance? Where is the documentation?

4. All railroads have derailments, regrettably. CN's accident rate has trended down slightly in the past seven years. (Anyone know what the U.S. rate was last year?)

5. CN Roadrailer was competing in an intensely competitive short-haul lane, long dominated by trucks. If you can't make a return, better to sell the assets and put the money in the roadbed where most needed.

6. All U.S. roads use contractors to clear derailments. It is much more efficient than keeping excess MOW employees sitting around waiting for an accident.

7. It appears to me that "precision railroading" has a shot at regaining some of that traffic.

I repeat: who are the "railway workers, private corporations, government officials as well as private citizens" who have the deep-seated concerns about CN?

With regard to Operating Ratio and Operating Income: When OR declines, OI increases, other things being equal. That's why a low OR has been the defining "figure of merit" for financial success in the industry for a century or more.

I have taken only the most superficial glance at CN figures, and I have zero on-the-ground knowledge of the property. I may be fundamentally mistaken on some or all of the above points. But so far I have seen no data nor sources in this thread to suggest that I am. I respect anecdotal reports, for they often reveal underlying reality, but such reports, I believe must then be buttressed by analysis. Let's all keep digging ... most reports that will shed needed light can be found on the web.

Good exchange!

I will respond to each point by numbering them in order as you have.

1/The Basis is that other than CP, CN is the only railroad which runs on a schedule for even their manifests so right away that should deter people from using CP. Canada has numerous industries and is rich in natural resources. There is alot of places that could support CN service I would wager, if CN would serve them. One industry alone may not be profitable but a lot of industries in one area for example would make it profitable. Their trains do not run that small save for a the odd few mainline ones. Alot of the trains are anywhere from 70 to 150 now with a growing few as much as 170+( ie. CN 334). Running thease trains you would think you would need 4 or 5 engines. They only engines on 334 that I saw one time was C44-9W (4400hp) and SD40-2W (3800hp?). Even though a good portition of the consist was empties, it was still running slow and roaring like a F4 tornado. CN will blow out the moters of the older engines in particular or break a coupler from slack of the train which is my concern. Between Milton and MacMillan Yard, there is a bid of a grade there which would just further endanger the engines and increase chance of a coupler break. I would also add that some of thease trains stop at Aldershot Yard for more cars before they reach the Halton Subdivision.

2/ I have asked CN employees and they have told me they don't have enough motive power or crews to recrew existing trains. Winter of last year, a train sat on the mainline all night because no crews were available to recrew the previous crew that timed out. That is likely why CN is combining some of the trains into "super trains". CN is the only railroad that I know of that has had as many labour issues. The last strike in Canada resulted because of bad negotiations on CN's part with the unions. Diplomacy is everything; you can be money grubing and still avoid a strike or even delay arbitration indeffinately if you at least appear that you are willing to negotiate.

3/ You seriously need to take to take a look at CN mainlines in person and see how the tracks look and how they react to the trains. Check how heavy the rail is and keep an eye out on what rolls down the track like ore trains and dimensionals for example. Go and investigate for yourself. Areas of dubious distinction would be the Grimsby Subdivision and the Stamford Subdivision in my area. Ask CliqueofOne and piouslion for any other lines they can tell you that are in shambles.

4/ Ask railroad crews about accidents or near accidents and what happened. Ask them if they fear for their safety and why. Just because the statistics may not show safety hazards and near accidents, doesn't mean it will show up on a that report. CN management seems to like testing the fates.

5/ If the roadrailer was such a bad idea, than CN wouldn't have started it in the first place. Hunter Harrison was in CN at this time so he would have gotten rid of it if it wasn't working. The only reason which is likely so is that they lost the customers during the strike because it is time sensitive and they took too long to get it on the train and off again. I would imagine they lost it too because the truckers are unionized for the most part and they would support their brothers and sisters out on the picket line right? If the roadrailer service was that bad why is triple crown doing so well. Why can't CN operate their own roadrailer from Montreal or Toronto to Chicago or Vancouver or to New York or to a city they have running rights to on KCS or their own lines that take them to the Gulf of Mexico?

6/ Any employee with the licence to operate that kind of machinery could be an Mow worker too. As far as the contracting, the contractors were using their own equipment. Where is CN's?

7/ "Precision Railroading" is an excuse that CEOs and COOs make to increase the shareholers wallet with increase price of shares. That whole idea essentially means that they serve the industries if they feel like serving them. This is of course rediculous. If they can afford to buy BC Rail, BLE et al, and attempt to buy Ontario Northland they can afford to indulge in some "non precise railroading". You can't make up a train if you don't have a decent number of "non precise" customers to constitute it. Unless your objective is to solely run bridge traffic and unit trains, you need "non precise railroading" customers.

Who have the deep-seated concerns about CN? Ask the industries of Hamilton Ontario who was once served by CN but now is switched by Rail America because I guess CN thought industries like Stelco Steel, Dofasco Steel, Colombia Chemicals, Agrium, Siemens-Westinghouse and a good few others was not "precise" enough. Ask the Assembly Plants of Oshawa (GM) and of St.Thomas and Oakville (Ford) that were forced to ship by trucks during the last strike. Ask CliqueofOne and piouslion who work for CN. Ask the other CN workers who will want to speak off the record in fear of being repromanded for speaking out. Ask the Government of Ontario who refused to sell off Ontario Northland because CN couldn't guarantee no employment streamlining. Ask Transport Canada who has gone to investigate accidents and have been given the run around by management. Ask the BC Government that was originally reluctant to sell BC Rail to CN. Ask the people who have had to be evacuated due to a derailment and than other people who live near the tracks, ask them how they feel. You take a good look at my area and take a look at our laws governing the way tracks should be (you can find that on Transport Canada website) and you will find that CN is essentially breaking the law. I encourage you all to get first hand information from yourself(view tracks), the people I suggested you should ask and those who are not in management postions with CN because of course they won't tell you the realities. Keep in mind, are management positions protected by the union?

[Junctionfan]

Another place to confirm my point about mistreatment of CN employees is CBC News. Ask them about an incident that took place with an employee being repromanded for speaking out. I saw the story on the News awhile ago.

[Anonymous]

Mark:

Your query about making sense of roadway investment statistics is a good one. Trends in the physcal units (ties, rail, and ballast), viewed with a knowledgeable "eye" on the over-all company performance in the areas of safety, service and finance and comparable views of competitive lines is about as much as one can do at a distance.
My experience suggests these elements will provide useful insight.

There is nothing like an engineering evaluation, but who can do that? Only the railroad itself, or an experienced engineering consultant with access to the property. Knowledgeable railroad employees and knowledgeable rail fans can certainly give an informed layman's view of gross roadway conditions at a given time and location (perhaps even over a division), but few can make enough observations to give a "system-wide" view.

Back to your question, though. I don't know what years you were looking at, but I suppose recent ones. I think the reason you didn't identify anything unusual is because there wasn't anything unusual. The Class I's are in good shape. Were one to dig out data on PC, MKT, CRIP, and even as recently as SP, a different picture would emerge.

One can't trust "numbers" to the total exclusion of anecdote, but over time some quantitative confirmation must emerge or I discount the anecdotes.

[Anonymous]

CliqueofOne's post on 08 Aug. at 00:36:01

Employees of any organization have many kinds of opinions, and you certainly have yours! And you are certainly correct that employees are the heart of your railroad ... employees in every function.

For a rairoad to be brought into existence, or to continue in existence decisions must be made ... often very difficult ones ... and they must be implemanted. To not act, or to act recklessly, leads to disaster. The wreck of the Penn Central is the classic example in North American railroading. It has been my impression that the government of Canada concluded that CN had to change direction or face, if not calamity, accelerating decline.

Change affects lives ... many negatively, to be sure. And some decisions may be executed insensitively. C'est la vie. I take no personal offense at being included among those who "defend" CN, for I simply look at the broad view as presented by the company, regulators, press and investors. Based on that view, CN seems to be doing very well. Yet, I remain open to information that would convince me to think differently.

It is marvelous that you will have given 36 years of railway service to your fellow citizens upon your retirement. Would that railroads, especially CN, remain strong throughout your retirement.

[gabe]

Mr. Hemphill,

I think I disagree with your analysis concerning the three things a railroad is required to do. It is not without a point, but I think there is another side of that coin.

Railroads are exempted from a variety of antitrust legislation. That exemption was undoubtedly created because of the recognition that railroads serve the public interest and we, as a society, should remove the barriers to serving the public interest. If they use this exemption to ruthlessly line their pockets at the expense of the public interest, they are not only taking advantage of this exemption they risk losing it and shooting themselves in the foot.

I, of course, am not saying that railroads should allow the concerns of the public to trump concerns of proffitability. But I do believe that, if there is a way they can serve the public and make money, they really had ought to do so.

In the event that the cries from the shippers are eventually heard by Congress the "endgame" may very well be the end of a private rail network. If Congress is willing to reduce the level of regulation to help serve the public interest, they likely would be willing to increase it as well. We all know what that will result in.

Gabe

P.S. Was Wisconsin Central so unprofitable?

[zardoz]

QUOTE: Originally posted by ericsp

I think CN's new motto is "CN, the UP of the North."

I heard the new slogan at Union Pacific, which was intended to foster a friendly, community-like feeling, did not go over so well. The managers liked it, but the allegedly intended feelings did not quite translate well. I also heard that other railroads are considering some variations of the ex-Union Pacific slogan :
UP, YOURS.

[:-^]

[oltmannd]

Was the WC so unprofitable? Probably. If you can't sustain an OR under 80, you basically have no chance a long term survival.

The railroad industry in North America, on the whole, remains unprofitable in the long term. There is not enough income being produced over time, to reinvest in the physical plant and systems to sustain the industry in the long term plus provide a reasonable return to investors as capitalism requires. This is what the industry and gov't refer to as "revenue adequacy" and the industry as a whole has flunked the test every year since the gov't started measuring. Further, the industry does cannot raise enough capital on their own to support the projected growth over the next ten years. Increasingly, RRs are looking to public sponsorships of capital improvements.

The trick for RRs is to find ways to increase net income without making huge investments.

[daveklepper]

Mark, I have to respond to you. Legally, you are quite correct. But that is not why CN, just like the other five biggies, supports local on-line charities, runs employee specials and Santa Calus trains, etc. Adam Smith's version of Capitalism was ENLIGHTENED self interest, not just simple greed. All of the biggies especially have to consider what is good for the industry and good for the North American economy so their stockholders and workers can be assured of income ten years from now, not just next month.

[gabe]

Mr. Hemphill,

Thanks for your response. Reading your response, I think you are correct, and our positions are not that far apart. I do not doubt that CN/WC is more profitable than an independent WC/CN. But, is the added profitability of a CN/WC worth the risk of added regulation to the stockholder's long-term interests?

When I said "we all know what will result," I was referring to either pre-Staggers Act regulation or nationalization (perhaps my phrasing was not appropriate for such a conjunctive allusion). But I, and others, consider either an absolute disaster for our rail system from the viewpoint that pre-Staggers regulation was unfair to railroads and led to many of the bankruptcies that I am sure you are well aware of (some would fairly argue it was the evolution of the rail industry that led to such bankruptcies, others--like myself--would argue that the regulations tied the hands of railroads and did not allow them to adapt to that evolution)

More trucks on highways that are already so crowded that cruise control is obsolete, extremely disgrunteled shippers, regions deprived of rail service creating industrial vacumes--in my opinoin--will get Congress' attention.

If CN/WC can avoid these problems, I will gladly raise my glass to them. But if the anecdotal evidence is representative of larger trends, I just don't think the risk of any further regulation is worth the added profit for the stockholders' long-term interest.

My concerns boil down to whether the CEO of today is looking out for the stockholder of tomorrow as well as they are looking out for bottom line of today.

Thanks again,

Gabe

[gabe]

An interesting and informative observation, rllewiszz, especailly regarding rebates and secret pricing.

However, if your contention is that railroads are regulated--I don't want to speak for Mr. Hemphill--but I certainly wont disagree with you. My regulatory point is that there are many regulatory restrictions that other corporations are subject to that railways are not and if railroads use the regulatory advantage to beat shippers over the head (certainly the claim put forth by those responding to this heading), there are going to be unfortunate problems.

A possible counter to my point is that government regulation concerning consolidation and market control has been remarkably laxed in the 1990s and it is not just the rail industry that has reaped the ability to corner various markets (the music industry being a good example).

However, I think congress is much more apt to realize that the decreased competiveness caused by consolidatoin will have detrimental effects than they are to realize that the music industry's current funk is directly related to industry consolidation.

[Junctionfan]

I think that the railroad industry has monopolised on rail service because of the constant merging. For example; in the U.S in order to get from Buffalo to Chicago you had the option of the Pennsylvania, C&O, Erie Lackawana and the New York Centreal. Now the option is CSX or NS. Also the greed factor has gotten pretty bad. No one is content in what they already have...a nice profit; they wan't more and more and more like it was a drug addition and they need a bigger hit. In Canada CN and CP were fierce competitors at one point. Now they don't seem to have the same competitive spirit anymore. I thought with better technology and more efficient locomotives, the spirit would have heightened but find people like Hunter Harrison is not interested in owning a railroad but a bank. His tachtics in running things would be outstanding if he was the CEO of an investment company, bank, commodities brokerage but not a railroad. In my opinion the way you get more money is you serve more people. I am not talking about 1 werehouse in the middle of the boonies as profit; I am talking about an area that sees trains but is under utilized. A subdivision that costs money to maintain, doesn't see alot of trains but it is vital for accessable bridge traffic. How do you make the line more profitable and help make the line pay for it self?, operate more, serve any and all industries in the area that you can and look hard. One thing that CN is doing that reminds me of the Roman Empire. The Romans were very expansionistic and what did it get them-their destruction because they streched their resources to thin and so was conquerable and they were constantly at each others throats-civil wars. CN is doing the same thing. They are expanding and they are at each others throats-management versus workers, and they will fall like the Romans because who will want to do business with someone who can't get their stuff together.

[Anonymous]

Free markets are full of surprises, mostly positive. Most economists who are not total ideologues seem to find this so. I recall the great hand-wringing of the late 1970's over deregulating natural gas ... Grandma was going to freeze to death because the energy companies would ratchet up prices. Didn't happen. Countless similar examples exist.
"Pricing power," always an evanescent phenomenom. Railroad coal rates ... long subject to tumultuous regulatory battles ... have collapsed since Staggers. Yet only recently the STB ruled that a railroad must cut its rates to yet another utility, based on a maximum rate theory which uses "stand alone" costs as the relevant measure. In the deregulated electrical power generating industry, coal delivery costs are subject to the full play of market forces: alternate coal supplies; more efficient coal-burning generators; natural gas burning generators; nuclear power; co-generation; more efficent refrigerators ... the list is endless. There is always competition for economic rents, and if a company or industry thinks if it can get a greater share by hobbling a supplier with regulation (or out-negotiating them on secret contracts), they often will do it. I repeat: Railroad management now and for decades pasts must be, and have been, poor monopolists. They still can't earn the cost of capital.

[gabe]

Mr. Hemphill,

(all of which is qualified with "in my opinion")

(1) Railroads are subject to the regulation of the Surface Transportation Board, whereas the vast majority of other industries are not. The administrative/executive nature of the STB, gives railroad regulation a distinctive (and loosened) flavor. Although most trust regulation has the executive as its initiator, the judicial remedies available under Sherman Anti-trust Act make it less mercurial than actions taken by the STB.

(2) Railroads are not subject to the Sherman Anti-trust Act. Individual railroads have control over certain markets/regions that is unquestionably less extensive than the pre-dissolved trust of AT&T (so ironic that the companies after AT&T used a train in their commercials to illustrate how customers now have a choice). It is one thing for railroads to have captive customers, but to have captive States as customers?

I am not intending my observations to have a normative quality. I am just contending that if Walmart became the only retail store in Montana, various anti-trust laws would require the injection of a competitor. I realize Union Pacific does have a Montana branch line, but pre-Montana Rail Link Burlington Northern had the equivelant of an-all Walmart Montana--much to the chagrin of the Montana Export Grain Market.

(3) As the previous writter alluded to, the consolidation of the industry has taken transportation corridors from several competitors to two (if the customers served by the corridor are lucky). Though I cannot think of a major corridor off the top of my head that is only served by one railroad, there are regions of the country that are. Do Montana grain farmers have that much of a choice if BNSF were to say it will haul their grain at $2 a ton when farmers in Illinois, who have 20 railroads to chose from, might get $1.50 a ton?

I realize my observations rest on anecdotal evidence and it may be the case that regions served by one rail line (that were once served by several) are being treated fairly. I do, however, believe that if two railroads serve the same area and are legitimate competitors, customers will certainly get a fair price.

I wish I could answer the other questions raised under #3. In a perfect world, railroads would (at least for now) be taking all of their money and re-investing it for capacity to meet the demands of the future and prepare themselves for an era I believe they will be very profitable (highways are just too crowded to keep adding trucks).

(4) The "unfortuanate problems" I am alluding to is either: (1) we will live in a country which has a transportation system that treats customers badly and hampers the flow of commerce. This will put us at a competitive disadvantage to other countries (the difference between a first, second, and third-world country is not the wealth of the country but the ability of its infrastructure/transportation to facilitate the growth of wealth) or (2) Congress will revert to either pre-Staggers regulation or nationalization. I do not think either alternative has proven overly effective in the past or abroad.

Alas, my concern is that railroad CEOs are not the only one who feel as thought "they are staring down the barrel of a gun"--nice article by the way.

Gabe

P.S. I know that I am not the only one who misses the Wisconsin Central.

[MP173]

rllewisz:

I think we discussed earlier the "smoke filled rooms" of rate making. What a strange time in history.

I believe the Sherman immunity has been removed for trucking companies, although quite frankly it has been 14 years since I was involved in that industry on a marketing aspect, and thank goodness that aspect of my life is over.

Regarding Buffalo to CHicago, I know the NKP offered service and I believe the Wabash did also.

Market forces allow buyers and sellers to negotiate the best possible price, terms, and service available. There are always options...sometimes they are just not very attractive options. Look at the huge diversion of freight traffic over the past 50 years....from boxcars to trailers, which can now ride either by truck or by rail.

Grain and coal ... plus other commodities do not have quite the options. But, the options are there. Where does one place a power plant or grain processing facility?

Mr. Market is not always fair to all parties, but it does have the ability to eliminate ineffcient operations (of all kinds) over time.

MP173

[PNWRMNM]

Gabe,

The railroads are NOT exempted from anti trust regulation in the US. They were for a time with regard to rate making through tariff bureaus, but that was aboloished with the Stagers Act or shortly thereafter.

Mac

[gabe]

How fascile . . .

[andrewjonathon]

While I can't comment on CNs treatment of its employees the financial statistics of certainly make the company look good. The numbers look even better when you consider that in the last five years CN has lost almost all of its coal revenue in Canada. Not from company performance but because the mines have closed. In their recent financial report they stated that by the end of 2004 CN will not longer haul any metalurgic coal in Canada as the last mine they serve closes. Despite this lost business their profits and revenues have continued to increase. How many railroads in North America could survive the loss of their coal business and yet continue to prosper. People may not like the management style but it seems to be working for the investors.

One final word, while employees may do the work for the company, it rare that any company prospers without a management team that has a vision and constantly strives to achieve. I am sure many of the same employees at CN that are now helping the company earn record profits can remember the good old days of the 1980's and 1990's when the question wasn't management style but how long it would take before the CN lost so much money that it would be shutdown. Many of the employees are the same so what is the difference? It has to be that nasty, evil management in Montreal. In the corporate world, I guess the definition of success is evil.

[CliqueofOne]

"While I can't comment on CNs treatment of its employees"

Then don't talk about something that you have absolutely no idea of. One thing I've found about the mismanagement team of HH is. "A fool will always have greater fools to admire him", and "The figures don't lie, the liars figure." As for CN losing money in the 70s, 80s and 90s. Well there is a fool born every minute. Someones rear end was sucking air whenever that statement was repeated by the anti Crown Corporation right-wing Corporate Welfare Bums. I've seen enough of CN to know that the company is just winging it these days. I've got a long service pass to ride the Via trains in Canada. When I'm retired in just over 2 years and 9 months with just shy of 37 years on I doubt if I'll put my life in danger using the pass since the tracks are falling apart. When some big-shot asks me for proof I offer to spike a photograph to their forehead. So far none of these clowns will take me up on the offer. I can't believe anything so stupid is able to get the position in the company that these jokers hold. Signal Mechanic. Signal Department. Canadian National Railways. [:(!]