EDMONTON – It’s a shopper’s dream come true – $20 million in the bank and orders to spend it.
With that amount, Gordon Clanachan figures he can buy at least another 640 kilometres of railway, maybe more.
Spending money on rail lines deemed less profitable by the two major Canadian rail companies may not seem the most sensible idea, but this regional rail carrier believes it has tapped into a specialized market.
“There’s tremendous growth potential. It’s something new, exciting and expanding,” said Clanachan, president of Railink.
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In the next 18 months, Railink hopes to double the 1,600 km of track it now owns.
As the major rail carriers dump lines they feel are no longer economical to operate, Railink and a handful of American regional carriers are there to snap them up.
The theory is it costs less to operate a small rail company and they can make more money on the rail lines than CN and CP. While a smaller company can shave costs by having more flexible workers and paying lower salaries, the key to making money is increasing traffic on the line, said Clanachan. That traffic can be generated by offering personalized service to their key clients.
“It’s largely customer service, it’s not revolutionary,” said Clanachan, from the head office in Edmonton.
A manager stationed in North Bay, Ont. deals with the business on the company’s 626-km Ottawa Valley line. His top priority is looking after the customers who use the line. The company also has managers for its 400 km of track in Quebec.
All Railink managers are responsible for setting prices on their line, staffing, marketing and operations.
In its prospectus for going public, Railink said it was able to increase traffic and attract new business because of a push on marketing and an ability to be flexible to work with companies, even adding extra trains for special needs.
Clanachan said the staff has an eye out for business. On a train run through the bush, the workers noticed a logging operation near the tracks using trucks to haul logs out of the bush. They’re now hauling their logs by rail.
“That’s the philosophy. We want to have local autonomous businesses in each of these locations.
“We can’t manage a railway in Ontario from here. We don’t want our customers in Ontario calling here. We want them to call locally.”
It’s Railink’s goal to develop a larger western Canadian presence. It operates its 319-km Stettler subdivision in central Alberta and this week will be hauling freight on its newly acquired 322-km line from Boyle to Fort McMurray.
It is bidding on two lines in northern Saskatchewan and will be looking at lines CN plans to drop, from Roma Junction to Hines Creek in northern Alberta and a 1,029-km track from Smith, Alta. to Hay River, NWT.
“That’s a long piece of track. That’s a plum, certainly,” said Clanachan.
He and vice-president Shawn Smith are able to take a closer look at these rail lines because they have money in the bank raised when the company went public June 25. It offered 3.75 million shares at $7.25 a share. The shares closed Thursday at $8 after jumping to $8.25 earlier in the week when the company announced its second quarter results and finalized a deal for a rail line in southern Ontario. The highest closing price was $8.40 and the highest trading price was $8.50.
“The stocks are doing very nicely,” said Clanachan.
The company raised $27 million through the stock market. After paying commissions and buying out preferred shares, it has about $20 million to buy rail lines.
“Every company would love $20 million in the bank. It’s good to have that amount of cash there so we can react quickly to invest in properties.
“The profit’s good, the revenue growth is great and the cash situation is right for expansion. Providing we do the right things we believe the market will be able to provide us with more funds.”
There are no rules for how many lines $20 million will buy. Railink leased the Hagersville, Ont. line from CN for $100 per year for 21 years. Other lines cost $100,000 a mile to buy.
Jan Bowland, co-ordinator of KPMG’s transportation issues, said there are many investors willing to put money into the growing regional transportation carrier business. Using the United States as a model, Bowland can see a growing interest in short line or regional carriers in Canada.
“There is a success story and a track record in the U.S. and that’s what a number of the investors in Canada are looking at.
“A number of the short-line carriers have gone public and issued shares and the success record down in the U.S. is reasonably good,” said Bowland, of Calgary.
“The success record for short-line and regional carriers is ahead of other start-up businesses.”
