Algoma Railway merger underway.

Steel and lumber industry view acquisition as positive move

Shippers along the 475-kilometre stretch of the Algoma Central Railway expect business as usual with the merger acquisition of its Chicago-based parent company, Wisconsin Central by Canadian National (CN).

Having the single line access to both coasts and the United States deep south, fewer interchange points, greater efficiencies, access to a larger rail car fleet and assurances of stable freight rates has companies feeling content with the railway transaction expected to receive regulatory approval this fall.

"It should be a benefit since it's one less railway to pass (product) through for our customers," says Lloyd Hotchkiss, a shipping schedule coordinator with GP Flakeboard in Sault Ste. Marie. "For the most part I can't see this as being anything but positive."

The mill annually exports between 450,000 and 650,000 square feet of medium density fibreboard via Wisconsin Central to customers in the United States Midwest,

Hotchkiss says being directly linked to CN's vast car supply should enable them to utilize more flat cars instead of the 10 to 15 box cars they ship out on weekly basis. And with some reduced switching costs, it might extend their market reach deeper into the States.

Hearst Mayor Jean-Marie Blier, whose lumber town of 5,200 sits at the northern terminus of the Algoma Central line, was assured after meeting with ON and Wisconsin Central officials that the acquisition poses no surprises in service and car supply for local forest products companies like Columbia Forest Products, Tembec and Lecours Lumber Company.

"They will maintain the same services now and for the future, and at the same cost - which is very important," says Blier.

He mentions they seemed "very receptive" to increasing services in Northern Ontario, especially with additional volumes likely on the horizon thanks to a possible mine development nearby. MCK Mining Corp. is conducting a drill program on a large phosophate deposit about 110 kilometres north of town.

"There's no talk of a branch line (to the site) yet, but that opportunity will come," says Blier whose community is also served by the Ontario Northland Railway. "So we'll see what will happen in the future. We're hopeful it will be better and they'll maintain the same service as today, and do better."

Officials from both railways huddled with customers in February asking for letters of support to send as part of their application package to the transportation board.

The deal is subject to Wisconsin Central shareholder approval, scheduled for April 4, and a subsequent review by the U.S. Surface Transportation Board.

The transportation board imposed a moratorium last year on railway mergers after CN and Burlington Northern Santa Fe Railway proposed a merger that would have created North America's largest railroad.

It's believed the transaction will meet regulatory approval and slip under the 15-month ban oh mergers. Wisconsin Central had (US) $370 million in revenue in 2000, but is regarded as a regional Class II carrier rather than a larger Class I carrier like CN.

The acquisition fills in a critical gap in CN's system linking the Pacific and Atlantic Coasts, through Wisconsin, with the Gulf of Mexico. It also ends a turbulent chapter for Wisconsin Central as some shareholders demanded the company be sold. CN owns 25,000 kilometres of track, including a 4,000-kilometre stretch operated by Illinois Central connecting Chicago to New Orleans.

Major customers like Algoma Steel stand to reap the benefits of having direct access to two transcontinental Class I railways in CN and Canadian Pacific. CP owns a 290-km line from the Sault to Sudbury, which is operated by the Huron Central, a short-line railway.

"We have two competitive options so it's not a major issue for us," says Ed Bumbacco, Algoma's manager of corporate logistics, purchasing and stores. He expects a "seamless merger" similar to CN's earlier acquisition of the Illinois Central Railway in 1998 and doesn't anticipate any car supply problems.

The steelmaker ships about 75 to 60 percent of plate and sheet product to Southern Ontario through Canadian Pacific.

But prompt just-in-time service takes on greater emphasis with Algoma this year as the steelmaker prepares to bring in about half of its iron ore requirements by rail on a year-round basis from Northern Michigan. The steel maker expects to haul between 1.2 and 1.4 million tons of taconite ore pellets this year from the Tilden Mine at Ishpeming directly into their blast furnace.

Bumbacco says the closure three years ago of the Algoma Ore Division in Wawa resulted in about 95 per cent of their iron ore being brought in by ship. The rest was hauled by rail during winter months. But crammed dock space in stockpiling raw material in the months leading up to winter freeze-up meant seriously looking at just-in-time delivery by rail.

Bumbacco is interested in tapping into CN's guaranteed car program which Algoma could never enter as CN cars were delivered to the nearest interchange point at Oba for Wisconsin Central to deliver south to the Sault.

"We're expecting the status quo on freight rates. If CN can improve the efficiencies we like to think there might be some advantages for Algoma."

Mark Hallman, a CN spokesman says once the sale has been approved by the transporation board in the fall, the railway intends to offer a service implementation plan with assurances that service levels will be "equal to or better" than the current car supply level.

Their guarantee car program applies only to centre-beam lumber cars, but the railway intends to extend that policy to other car types such as boxcars and gondolas irrespective of this transaction.

Hallman wouldn't speculate on any possible workforce reductions among the 260 employees at the Algoma Central Railway or the future of the rail car repair shop at the Sault.