CN: Railroad/Shipper Co-Operation - Not Government Controls - Will Deliver Better Rail Service Quality, Says Canadian National's Paul M. Tellier.

WASHINGTON--(BUSINESS WIRE)--March 17, 1999--CN (ME:CNR.) (TSE:CNR.) (NYSE:CNI) Railroads and shippers working together to produce market-driven rail service improvements - not the imposition of government controls on railroads - will deliver the quality of rail transportation shippers want, says Canadian National President and Chief Executive Officer Paul M. Tellier.

Tellier, speaking to the Rail Customer Forum today, said the U.S. rail industry isn't perfect. "But I can assure you there is much to admire in how Americans run their rail system." In the past 20 years, U.S. rail consolidation and de-regulation have revitalized a once-moribund industry, making railroads - and their customers - more efficient, productive and competitive.

Tellier acknowledged that rail mergers have sometimes created service issues for shippers. But he said railroads have heard shippers' concerns loudly and clearly and are working hand in hand with their customers to improve rail service quality. The market place requires no less, he said.

Tellier cautioned that it would be a "mistake to turn to regulation to solve temporary service issues. The problems are being fixed by an industry that is determined to provide better service - that must provide better service to compete."

Tellier said market forces have made the U.S. economy the most powerful in the world, and that Americans would be poorly served "if governments ran the nation's railroads." The bottom line in the rail service debate, he said, is that "a market solution is better than a regulated solution."

Tellier stressed that rail consolidation does not necessarily entail rail disruption. He said CN and Illinois Central Corporation, assuming regulatory approval of their merger transaction, are determined to integrate their operations methodically and safely.

"There will be no artificial deadline for completing the integration. Our actions will be based on two over-riding concerns: safety and service."

Tellier said the CN/IC merger, which is subject to oral argument before the U.S. Surface Transportation Board (STB) tomorrow, March 18, will promote competition, extend shippers' market reach to three North American coasts and create efficient single-line service by joining two railroads end-to-end. There will be no abandonments, no loss of service and overall improvements to the environment, he said. The STB will vote on the transaction March 25.

Tellier, in addressing shipper service issues, said rail customers should not lose sight of the fact that the market forces unleashed by the Staggers Act of 1980 have benefited both railroads and shippers. Since 1980:

- U.S. rail labor productivity has tripled, capital productivity has doubled and the industry accident rate has declined by 70 per cent;

- Railroads have invested US$230 billion in infrastructure and equipment - they could not have made that investment without the prospect of an adequate return on capital;

- Railroads have developed a truly competitive intermodal transportation service for the transportation of containers and truck trailers;

- Railroads have cut shippers' rates by 55 per cent.

"Clearly," Tellier said, "rail competition and service levels are inseparably linked to deregulation."

Tellier said the STB, the rail industry regulator in the U.S., has contributed to the solution of legitimate rail service concerns raised by American shippers in the past year.

The STB, for example, has established procedures for shipper access to other carriers during temporary periods of poor service, helped galvanize agreements between large and small railroads and resolved the service emergency in the western U.S.

"These are significant actions and the shipping community is in a better position today than it was one year ago because of them.

"Not all these decisions are unanimously supported by the railroads ... But I think we should all welcome an honest and aggressive debate on what has caused our problems and what we can do to fix them."

Tellier said Canada's railroad regulatory regime is no prescription for U.S. shippers' service issues, stressing that the Canadian system reflects significantly different, geographic, historical and market realities than those in the U.S.

Some of Canada's regulatory measures arose from railroad overbuilding in the early 20th Century and the subsequent failure and government takeover of some railroads.

The U.S. experience is different, Tellier said. "Railroad networks were privately financed on the premise that access would cover the networks' true economic cost. Any change in this premise would reduce the railroads' ability to get the additional capital they need to improve their networks for the benefit of shippers."

Tellier said: "To borrow all or part of the Canadian regulatory system would be a step backwards. It looks like an easy solution, but it's the wrong solution.

"Instead, let's work together on the real issue: the quality of service."

Tellier, who has outlined a Customer Bill of Rights listing areas where railroads can improve service - if shippers are willing to work with them - said railroads owe their customers a service with no secrets, no surprise and no excuses.

For their part, shippers can help railroads deliver a better transportation product, improve asset utilization and earn their cost of capital by providing rail carriers with reliable information, accurate and timely orders and efficient loading and unloading of freight cars.

"Let's work for better service within a system that has already built the best railroad industry in the world. We know how to make it better. Now let's work together and get the job done."

Canadian National Railway Company serves all of Canada and the U.S. Midwest, including the ports of Vancouver, Montreal, Halifax and the key cities of Toronto, Chicago, Detroit and Buffalo, with connections to all points in North America.