Whether a northeastern Ontario short-line railway servicing Sault Ste. Marie exists in 2009 may depend upon the results of contract talks with Algoma Steel.
Negotiations on a new five-year contract involving the Huron Central Railway to move steel expires at the end of this year.
“The outcome of this negotiation will basically tell the story," says Mario Brault, president of Genesee & Wyoming’s Canadian subsidiary, owners of the Huron Central Railway. The short-line railway leases the 305-kilometre long Sault-to-Sudbury track from the Canadian Pacific Railway. As a connector line, the Huron Central hauls steel, lumber, paper products and chemicals to CP intermodal yards and their customers. But the steadily deteriorating track is also a vital link for Algoma Steel and the centre piece of a Sault Ste. Marie transportation study to explore whether it’s feasible for international container freight to be unloaded from train onto truck at the Sault for shipment into the United States.
The City of Sault Ste. Marie’s logistics consultants identified the need for a $154 million investment to address shortfalls in the area’s transportation network. About $50 million to $75 million of that needs to be spent on the Huron Central track. Brault says the railway is not exactly on its last legs, but the line has been a chronic money loser for its Connecticut parent company since the Huron Central’s creation in 1997.
“It’s true that Huron Central’s profitability is not good,” Brault says.
The railway handles between 18,000 and 22,000 car-loads annually, with Algoma Steel supplying between 1 million to 1.4 million tonnes of steel.
“We hope to get enough volumes and revenues to have the Huron Central survive.”
Brault wouldn’t elaborate how much money the carrier has lost in the last decade, but says it’s “several million dollars.”
A major hurdle is operating a 300 kilometre line with one major customer at its western end (Algoma) and few customers in between, he says.
Domtar’s Espanola pulp and paper mill has been a regular shipper “with some hiccups,” but other business has dried up.
The Huron Central is in the middle of a 20-year lease with CP. Brault wouldn’t comment if his railway has an escape clause in the contract.
Its parent company, Genesee & Wyoming Inc., doesn’t post financial results from its individual railways in the U.S., Canada, Australia and Bolivia. But GWI reported earnings of $13.9 million in the fourth quarter of 2007, down from $14.3 million the previous year. Revenues in the quarter increased 14.3 per cent from 2006 primarily due to revenue increases per carload thanks to the appreciation of the Canadian dollar relative to the U.S. dollar.
Algoma Steel president and CEO Denis Turcotte says since logistics issues, including regional rail, factor heavily into his company’s plans to boost steel production, the loss of the Huron Central would be huge.
“We can’t lose it. The multi-modal (concept) is part of the bigger picture.”
Though he says it’s difficult to comprehend “any railroad” not making enough money, Turcotte says an investment must be made by all levels of government and regional stakeholders to ensure the railway’s longevity.
Securing money from government and private sources is a key recommendation by the consultants studying the Sault’s multi-modal concept.
The third and final report was completed by KPMG, Marshall Macklin Monaghan and RGF Consultants who presented to Sault Ste. Marie city councillors, Feb. 25.
The consultants say a solid business case does exist, but recommends approaching Ottawa and the province for a cost-sharing arrangement to fix the line.
Their report says moving containers through the Sault won’t necessarily cut transit times to the U.S., compared to other container routes. And industry is “risk adverse” to trying an unproven route. The carrot to lure shippers must be an extremely competitive rate.
The city is served by two Class I railways, Canadian National Railway (CN) and Canadian Pacific (CP). CN has stated it has no interest in moving containers to Sault Ste. Marie. CP is only slightly more receptive.
CP spokeswoman Breanne Feigel says the railway’s interest in the Sault’s multi-modal concept will be driven by the business case.
“CP has advised the consultants before a project of this scale can be successful (that) customer demand must be secured and there must be buy-in from various government levels interested in supporting the capital costs associated.”
She says CP isn’t prepared to ante up any track improvements for maintenance, but is willing to help secure additional business.
“The Huron Central is a business partner. They’re responsible for capital and infrastructure,” says Feigel.
“Government interest in short-line funding would be of benefit.”
Brault agrees the province and the feds have to step up to assist short-line railways. In Quebec, short-line carriers were successful in securing $75 million through a joint Canadian Strategic Infrastructure Fund involving private and public funding.
Genesee & Wyoming’s Gatineau Railway received $14 million and $5 million was invested in their St. Lawrence-Atlantic Railway for repairs to track, bridges, rail ties, and surfacing improvements.
Brault says he has spoken to the Sault’s multi-modal task force and adds the chances the project materializes depends upon the will of customers to ship to Sault Ste. Marie.
“Our general response has been show us the freight and we’ll move it.”
Though he disputes numbers cited by the consultants for track and bridge upgrades, he acknowledges the need to “beef up our track infrastructure.”
