Canadian National Railway has frozen out a potential competitor by
leasing one of its branch lines to a group of six local governments in
north-central Saskatchewan.
In February, those governments announced plans to buy the 75 kilometre
line from CN and then turn it over to U.S.-based Omnitrax Inc. to be in
charge of rail operations.
But last week Wheatland Rail Inc., the company set up by the
governments, announced that it had a new partner, none other than CN.
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The railway has agreed to lease the line to Wheatland for $1 a year for
20 years.
CN will be the sole provider of rail services on the line, while
Wheatland will be responsible for line maintenance and for securing
grain traffic from producer car loading sites and the lone elevator
remaining on the line.
An official with Wheatland Rail Inc. said the company isn’t
disappointed that it ended up leasing rather than buying the line.
“If CN would have offered this the first month after they put it up for
sale, we’d have jumped at it,” said chief executive officer Armand Roy.
Gary Rennick, chief operating officer of Omnitrax, said he was
surprised and disappointed by news of the deal between Wheatland and CN.
“I’m not totally sure what happened,” he said, adding he hadn’t heard
from Wheatland officials in more than a month.
While there was no legally binding agreement with Wheatland, Rennick
said Omnitrax remained committed to the project, which fit well with
the railway’s efforts to put together a co-ordinated grain gathering
network in the area.
But he added the deal clearly shows that farmers and shippers benefit
from having competition in the rail system.
“CN certainly wasn’t interested in servicing the line before,” he said.
“I think it’s pretty obvious what happened.”
CN spokesperson Jim Feeny rejected any suggestion that CN was pressured
into making the deal by potential competition from Omnitrax.
Rather, he said, the arrangement with Wheatland reflects CN’s
commitment to find “innovative” ways to deal with low density branch
lines.
Those are lines that don’t generate enough grain business to be viable
candidates for traditional, stand-alone short lines, but which still
have the potential to provide some traffic.
“If people commit to use them, then they have a chance of surviving,”
said Feeny.
Since there isn’t enough traffic on the line to justify regularly
scheduled train service, CN plans to offer a unique lower-cost service
arrangement on the line. Trains will be available on weekends or at
night on weekdays, when trains and crews are available and generally
not being used for regular service.
Wheatland’s job will be to organize the producer cars and secure car
orders through the normal allocation process.
Roy said Wheatland will soon begin meeting with producers along the
line, which runs from Bremen to St. Louis, northeast of Saskatoon, to
describe the benefits of shipping grain off the line in producer cars,
rather than trucking it to elevators on adjacent lines.
“We think most producers on this line can probably put anywhere from
$800 to $1,200 per car in their pocket,” he said. “That’s pretty
significant.”
Wheatland has talked about shipping as much as 60,000 tonnes of grain
off the line in the first year of operations, and more than doubling
that to 130,000 tonnes within five years.
Some communities along the line have also said that with the line’s
future now secure, they will be pursuing opportunities for value-added
plants along the line.
As part of the deal, the governments represented by Wheatland agreed to
end a legal battle over the net salvage value of the line.
The six governments are the towns of Wakaw, Cudworth and Domremy and
the rural municipalities of St. Louis, Hoodoo and Fish Creek.
