Shipper Fired Up

Shipper Fired Up

Copyright 2004, Traffic World, Inc.

The owner of the biggest blast furnace in North America says it''s in danger of getting burned by Canadian National Railway.

Steel producer Ispat Inland, a subsidiary of Ispat International of the Netherlands, one of the top steel companies in the world, wants the Surface Transportation Board to require CN to hit service standards equal to that of the Duluth Missabe and Iron Range Railway, which CN is trying to acquire.

The DM&IR is part of a package of three U.S. regional railroads and a lake vessel company, collectively known as Great Lakes Transportation, that CN proposed to buy last October for $380 million.

Ispat Inland told the Surface Transportation Board March 3 it was basing its demand on its experience with CN after the Canadian Class 1 bought the Wisconsin Central regional railroad in 2001. Since then, CN has handled only 27 percent of the taconite pellets that the steel company has tendered to them from a mine in Minnesota formerly served by WC.

"CN has chosen not to compete for anywhere near the amount of business that Wisconsin Central competed for," said Jeffrey Moreno of the Thompson Hine law firm and attorney for the shipper.

The sharp words from a leading shipper marked a rare negative look at CN, the Montreal-based railroad that has been as methodical and efficient as its schedules in spreading its network around North America with acquisitions. The approach has won CN high praise on Wall Street as an efficient moneymaker.

More than 95 percent of the taconite production from Ispat Inland''s mine is used by the company''s steel manufacturing plant in East Chicago, Ind. Before CN bought WC, taconite moved via a DMIR-water route through Duluth, Minn., during the summer navigation season and via a DMIR/WC-water route during the winter through docks at Escanaba, Mich.

Since CN''s purchase of the WC in 2001, CN has "utterly failed to sustain the service commitment made by WC on its winter season contract by refusing to provide sufficient train sets crews and motive power to meet Ispat''s needs," the company said. If CN were to acquire the DM&IR, it would become the origin carrier at the mine, extending its "service attitude" year-round and causing problems that would "dwarf" what the shipper experiences in the winter, the company said.

"As we speak, we''re on the ragged edge of shutting down the biggest blast furnace in North America," said Bruce Klimak, a purchasing manager for Ispat Inland, who also testified at the STB. He claimed that CN could not consider increasing the amount of resources dedicated to the steel company''s business without a 30 percent hike in rates.

"All we ask is that the STB allow Ispat Inland to terminate the contract and allow us to turn to (Burlington Northern Santa Fe Railway, which can also access the steel company''s mine) for service, if CN cannot meet DM&IR''s performance standards," Moreno said.

CN admits to service problems but says it is working on them. "We''re not perfect," said James Foote, CN''s executive vice president, sales and marketing. "We''ve worked with Ispat Inland, I''ve visited with them and I''ve made personal commitments to them. Unfortunately we fumbled in terms of providing high levels of service."

STB Chairman Roger Nober, presiding over his second merger proceeding since becoming chairman in late 2002 said Ispat Inland''s request was "not the kind of thing we have considered" in past rail acquisitions of similar scope, but that "we will look at it and take the complaint very seriously."

The GLT buy would be CN''s third with U.S. properties in the past six years, including WC and Illinois Central, which CN acquired in 1998. Key to the GLT deal would be 64 miles of DM&IR track that parallel CN between Superior, Wis. and Virginia, Minn. The acquisition would allow CN to incorporate directional running (one-way traffic in each direction) to increase capacity and boost service on CN''s busy mainline between Chicago and Western Canada.

The GLT package also includes the Bessemer and Lake Erie Railroad, the Pittsburgh & Conneaut Dock (a small switching railroad) and Great Lakes Fleet, which operates a fleet of eight lake vessels.

BNSF, which was prepared oppose the merger unless the STB conditioned it on giving the railroad future build-in/build out opportunities to CN lines, withdrew its opposition in a settlement with CN a half hour before the oral argument began.

The STB is scheduled to issue a decision on April 9.