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The Northwoods River News | Rhinelander, Wisconsin

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November 14, 2019

9/17/2019 7:30:00 AM
Lawmakers, business leaders point fingers at Canadian National Railway
But CN says service follows demand, and there isn't much

Richard Moore
Investigative Reporter


Business leaders and state and federal lawmakers are complaining about the lack of dependable, adequate freight rail service in the Northwoods, and about the economic disruption that lack of service causes, and at recent hearings in Rhinelander and in Marquette, Mich., they took aim at whom they think is to blame for a lot of it: the Canadian National Railway (CN).

CN is the largest freight rail company in northern Wisconsin. It acquired the Wisconsin Central railroad in 2001, including the tracks that cross northern Wisconsin and run into the upper peninsula of Michigan.

The hearings were sponsored by Northwoods state Sen. Tom Tiffany (R-Minocqua) and Michigan state Sen. Ed McBroom, who represents most of the upper peninsula. At the Rhinelander hearing, Tiffany said he was looking for solutions.

"We've been hearing for years about rail service not being what many industrial shippers would appreciate, and there are some really great concerns about that, and I've been hearing them for years," Tiffany said.

A few years ago, Tiffany said, he tuned out the problem of dismal freight service in northern Wisconsin because he didn't see any viable solutions coming forward. Now he says he's hoping those solutions can be found.

"That is what we're hoping will come of this, some solutions and some cooperation," he said. "We want the shippers and the rail system to be able to work together and to be able to ship more product via rail throughout the region."

Of particular concern, Tiffany said, was the line cutting across northern Wisconsin through Oneida County.

"In particular, I think there is a critical connecting link here that is not functioning in northern Wisconsin, and that's the Hwy. 8 corridor," he said. "If you look from Rhinelander to Goodman, that rail segment is not operating at this point, and I think it could be a critical east-west corridor."

Tiffany said adequate freight rail service was critical to economic development in northern Wisconsin.

"We want to drive this issue up to the federal level, and see if we can find some solutions where our shippers can send more product," he said. "But as much as this is about existing enterprises out there that could perhaps ship more product, this is also about opportunity. I've heard from companies that are considering northern Wisconsin or the upper peninsula, and transportation is one of the three critical things, along with energy costs and work force, in being able to locate their businesses."

At the hearing, Tiffany presented a map from Wisconsin's chief economist showing levels of small business growth in the state over several years. The map indicated widespread growth across most of the state. Notably, though, three counties in northeastern Wisconsin - Florence, Forest, and Marinette - showed negative growth, as did much of the upper peninsula.

"We shouldn't be leaving counties behind," Tiffany said.



Letter aims at CN

In a June 24 letter to officials of CN, Tiffany and McBroom were blunt in their assessment of the service CN was providing in their regions.

"In our discussions with those we serve, we have heard that the rail service is considered unreliable and irregular, causing economic disruption in our region," the lawmakers wrote.

The two said the map by the state's chief economist clearly shows that areas with inadequate rail service in northern Wisconsin have also been lagging behind the rest of the state in business expansion.

Tiffany and McBroom said business leaders throughout their district had also been expressing concerns about CN.

"The evidence, presented by a variety of businesses as well as county and state government officials, made it clear this situation should be addressed expeditiously," they wrote.

The lawmakers went on to ask for a number of things, including consistency of service whereby freight would be picked up with consistency and regularity. They also asked for a rate study.

"A study should be conducted of rates being charged on shipment of commodities," they wrote. "What we are experiencing, in addition to the less than adequate service, is the application of excessive rates and charges. For example, we've heard from Michigan businesses whose rates have increased by 1,000%."

Tiffany and McBroom also urged that a study of other forced expenses be undertaken.

"For example, Michigan businesses have had lease costs and rates increase to more than 100 times higher," the letter stated. "Even more difficult has been insurance requirements placed on businesses. One business in Michigan is being forced to spend more than $20,000 for a liability policy. How can CN contend it seeks local business when the costs leave few, if any, shippers able to afford these costs?"

The high rates and associated costs make it very difficult for many businesses to use rail service and require them to revert to less economic truck transportation that is more energy intensive and less efficient, the lawmakers argued, further saying it would be beneficial to better utilize rail services, especially given the challenges facing road infrastructure.

What's more, Tiffany and McBroom wrote, they have been hearing for several years about ongoing and increasing problems associated with continually deteriorating CN rail service.

"The shippers and receivers of rail freight, most of whom are located in Rhinelander and Tomahawk, Wisconsin, all report the same poor service and high costs," they wrote. "Businesses would like to use rail but are told that their level of need can't be accommodated because it is not large enough while what is described by the rail provider as required by them far exceeds the businesses' capacity."

In the upper peninsula, the lawmakers continued, businesses have also experienced snide and unconcerned responses from the CN operators when approached.

"All of these concerns add up to being significant barriers to job providers in our communities, and they feel unable to voice their concerns as they fear retribution," they wrote.

Tiffany and McBroom said the lack of adequate and efficient rail service in their regions is putting jobs in jeopardy and exacerbates the reality that many young people in the regions are forced to move elsewhere to make a living.

The lawmakers said they intended to pursue various options to improve freight rail service in northern Wisconsin and in the upper peninsula.

"One possibility, given CN's low level of interest in providing service in this area, is to work with other rail entities to have them provide the needed service by way of railroad trackage rights, licenses, leases, and perhaps outright sale of the property," they wrote. "We note that some of the relevant trackage is inoperable, out of service, or constructively abandoned."

And, they wrote, if it appears that the two states cannot get adequate rail service from the existing entities, they would explore the possibility of taking those issues before the United States Surface Transportation Board.



At the hearing

At the Aug. 27 hearing in Rhinelander, a line of business owners and industry representatives corroborated the allegations against CN made by Tiffany and McBroom in their letter, complaining about inadequate, inconsistent, and deteriorating service, as well as of sky-high costs.

Steve Dahlquist of Rhinelander, the CEO of Northwoods Distribution Services Inc., a licensed and bonded freight shipping and trucking company in Rhinelander, told a typical tale.

"I'm here to tell a little story about my business," Dahlquist said. "I've got a Northwoods distribution service right here in Rhinelander. I started the business 17 years ago. My first dealings with the CN were excellent."

Dahlquist said he called CN back then and told them he was interested in putting in a cross docking facility in Rhinelander.

"Within two weeks I had five different CN representatives get ahold of me, from their engineering firms to their sales reps, from their track planners to their production people," he said. "We were looking at cross docking paper and other products. They were excellent and the rates were reasonable."

That was from 2005 to 2007, but after that rates began to get out of hand, Dahlquist said. And, he said, the service end of things went down the toilet.

"We used to get six-day-a-week service when we first started and it was that way for seven years," he said. "You could set your clock by it. Everything was perfect. And then around 2007, maybe a little bit more, they went to three days a week. That only lasted about three months. Then they went back to four days a week, and then back to three days a week and it changed about every six to eight months up here in Rhinelander. The service was poor, let's put it that way."

Recently, Dahlquist said, the service is back to five days a week: "But we went from days to nights. We changed three times this year."

The trains actually show up about 70% of the time, Dahlquist said.

"We don't get a call until after they were supposed to be delivered that they are not coming," he said. "This is a communications gap that CN has never fixed in the last 10 years."

Bottom line, Dahlquist said, the service is poor, though some of CN's personnel try their best.

"I haven't seen a train master in eight years," he said. "I used to see one once a month. The train engineers used to come in at least once, if not twice, a month just to introduce themselves. We don't get any communications at all from the CN."

Dahlquist also disputed what has been a central contention by CN - that freight service follows demand, and that the demand in northern Wisconsin and the upper peninsula just isn't there.

"We do approximately 1,200 cars a year," he said. "That was two years ago. This last year we did 1,700 cars, give or take 25. We expect to do around 2,500 this year."

However, Dahlquist said, due to the lack of service, his customers can't get rail cars and so therefore they are shipping by truck.

"Right now we are receiving 5% of our product by truck, some from Canada, some from the southern U.S. that used to all come by rail, and their biggest complaint is that they can't get equipment," Dahlquist said. "I don't know if pricing has anything to do with that, I can't say. But I can say that, of 100% that used to come by rail, now you're getting 10 to 15 - maybe more, this month it will be way over 20% - coming by truck."

What's more, Dahlquist said, his own company has enough demand that he could expand, but can't because of CN's lack of service. Indeed, Dahlquist said, two years ago he had considered expanding his business.

"I put a foundation in to put more expansion on and the way things were going, and threats of CN selling out or maybe closing down this line, with all the rumors I got the foundation in and it's as far as I went," he said. "I shut the project down. Right now we've got a 75,000-square-foot building and it's probably about 20% full. It's not because we can't get the product. It's not because we don't have the business. We have the business."



CN's response

Both at a hearing and in a letter released right before the hearing that responded to the lawmakers June 24 missive, CN defended itself vigorously.

In the letter, CN vice-president Derek Taylor assured the lawmakers that CN was committed to transporting goods both in the Northwoods and in the upper peninsula.

"In 2019, we passed the $1 billion mark of private capital investment in Wisconsin since we acquired the Wisconsin Central in 2001," Taylor wrote. "In addition, through nearly a 10-year period (2007-2018) CN invested more than $150 million in Michigan's upper peninsula."

Those investments have allowed CN to maintain track speed, Taylor wrote, a vital component of service delivery. In addition, he wrote, that long-term capital investment had enabled CN to restore daily service, Monday through Friday, between Rhinelander, Tomahawk, and Park Falls in March.

But the truth is, Taylor continued, freight rail service follows demand.

"The frequency of service provided needs to be balanced with the traffic volume," he wrote. "Operating a daily train that only handles one or two cars is very costly. A decline in service on a particular line follows the decline in business on that line from the loss of a customer or a reduction in demand from a customer."

CN's operations involve a continuous process of matching the level of service provided with the cost of providing that service, Taylor wrote, and, when the demand has shifted, CN has matched the level of service needed.

"As a couple of examples from a bit further west, we reopened seven miles of dormant track from Ladysmith to Tony, Wisconsin, in 2018 to help meet a customer's needs," he wrote. "We have also worked with several logging companies in the same area to assist them with relocating three log landings in order to improve the fluidity of a rail line."

That said, Taylor wrote, CN recognizes that as service follows demand the company has a role to play in facilitating demand growth. As an example of that, Taylor wrote, CN has proposed loading sites in northern Wisconsin for those who desire to use rail but do not have their own direct track access.

"In reality, with these transload opportunities, no one in the region would be without rail service," he wrote. "In Niagara, we have identified a transload site that will be developed by a private entity."

CN has also identified multiple other sites across the region where transloading is an option, including Park Falls, Prentice, Bradley, Rhinelander, Goodman, Pembine, L'Anse, Ishpeming, and Rapid River, Taylor wrote.

"These sites only need the demand and CN can move forward with development," he wrote. "An example of what can work occurred this month in Green Bay where a logistics and trucking company leased a track to provide transload services with CN for handling dry bulk, sand, bentonite, lime, fly ash, cement, and plastics."

Taylor said CN engages in continuous dialogue with community and business leaders through its numerous memberships and participation in commerce and industry associations and organizations, and engages in dialogue, too, with state agencies such as the Michigan and Wisconsin departments of transportation.

As far as allegations of excessive rates and insurance requirements, not to mention of unreliable and irregular service, Taylor said the company could not address those without knowing which specific customers and circumstances the lawmakers were referring to, but would be happy to engage with those shippers to address any concerns.

CN representatives, along with Oneida County Economic Development Corporation executive director Stacey Johnson, had just recently visited Northwoods Distribution and spent about an house discussing their business interests, Taylor wrote.

Taylor wrote that CN was also always willing to work with short-line rail providers, but that it was a tough challenge, though the company had been in talks with some of those lines to have them lease and operate some of CN's Wisconsin lines.

"Despite a short line's lower cost structure, they have consistently advised us that they find the economics of operating this trackage very challenging," he wrote. "A general rule of railroading is that for a given piece of track to be viable for a short line there should be 100 revenue cars, per mile, per year. These lines fall significantly below that threshold."

The bottom line is, Taylor concluded, CN is not just a business that passes through the communities of the Northwoods and the upper peninsula.

"We have employees that live, work, and grow their families across the region," he wrote. "These jobs bring competitive salaries, unmatched retirement savings plans and medical benefits. Railroad jobs are considered among the best blue collar jobs in the country. Many of our efforts to inspire and help today's youth become tomorrow's railroaders are centered in your districts."

Richard Moore is the author of the forthcoming "Storyfinding: From the Journey to the Story" and can be reached at richardmoorebooks.com.





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