Just one day after warning it won’t reach forecasted profit targets due to severe drought conditions in Western Canada, the head of Canadian National Railway appealed to Alberta not to further hamstring Canada’s largest railroad by pushing for increased federal regulation.
CN president and CEO Paul Tellier told a Calgary business audience that the Alberta Department of Transportation’s call for broader running rights, which he terms “poaching,” would amount to re-regulating the rail system and
market intervention.
“It means another railroad, which is very often a fly-by-night operator, would be given access on our tracks that we have built, that we are maintaining, that we are servicing – in the name of competition,” Tellier told the Calgary Chamber of Commerce luncheon.
Tellier later told reporters he realizes that Alberta’s submission to the panel now reviewing the Canadian Transportation Act – which advised the federal government to consider allowing other railroads open access to CN lines – may not reflect the official position of the Alberta government. And while his speaking notes took issue with the “conflicting signals” from the provincial government on the issue, Tellier did not include the criticism in his speech, and instead praised Albertans for understanding that business must be globally competitive to succeed.
One of the main issues being studied in the review is how well railways are able to compete, particularly shippers with access to only one railway line. Both Montreal-based CN and Calgary-based Canadian Pacific Railway argue the industry should have as little regulation as
possible, but short-track railways are pushing to gain access to major tracks.
Tellier says rail agreements must continue to be driven by negotiated commercial agreements with rates that reflect fixed and variable costs of the host railway, and not imposed by bureaucrats.
“As you can tell, I feel pretty strongly about it,” Tellier added. “Our railroad is the largest in Western Canada, and we run it from Edmonton. Why? Because this is a friendly business environment. But in the bowels of your Department of Transportation, there are people saying: ‘Maybe we should experiment with open access.’ ”
CN’s revenue is suffering due to significantly reduced bulk commodity revenue, principally Canadian grain revenue, as a result of the continuing drought conditions in the West. Reports suggest that this year’s crop could be less than 50 per cent of the five-year average.
“You have in front of you a CEO, who for the first time in his life yesterday had to issue an earnings warning that for the first time we’re not going to hit our numbers for this year,” Tellier said. “For the first half of this year, we took a $100-million beating in our revenues as a result of the size of the crop. And we expect that the second half is not going to be much better than that.”
CN’s previously forecast growth range was five to 10 per cent. It now says it expects revenues from grain transportation to fall an estimated $170 million this year.
