Canadian National's Paul M. Tellier Calls for Road Relief and Shipper Tax Credit to Lower Shipper Rates and Cut Government Road Costs.

Business Editors

OTTAWA--(BUSINESS WIRE)--March 20, 2001

CN (NYSE:CNI)(TSE:CNR.)

Paul M. Tellier, president and chief executive officer of Canadian National Railway Company, today urged Canadian governments to adopt an innovative tax credit regime that would lower shipper rates, increase rail freight volumes and cut government road repair and construction costs.

Tellier, in a speech here today, said CN's proposed Road Relief and Shipper Tax Credit "has the potential to bring enormous benefits across the economy." It would:

-   Reduce freight rates for shippers by hundreds of millions of
    dollars;

-   Divert about 100 million tonnes of freight from highway to rail
    every year - the equivalent of three million truckloads;

-   Save about $500 million annually in highway maintenance and
    construction costs borne by governments, and

-   Reduce greenhouse gas emissions by some nine megatonnes annually.

Tellier said the revenue-neutral tax credit, utilizing $160 million in annual fuel taxes already levied on railroads in Canada, would go to shippers - not railroads. Shippers would receive tax government diversion credits as incentives to move freight by rail rather than road.

By re-engineering their transportation processes to use rail instead of truck, Tellier said, shippers would also enjoy an immediate 10 to 15 per cent reduction in freight rates - that's how much cheaper rail is over truck. With greater rail freight density, CN would have room to cut rates further.

Tellier said the tax credit would also "help make Canada's transportation system more environmentally sustainable. On average, rail is five times more fuel-efficient than inter-city trucks and generates one-fifth of the greenhouse gases per tonne-kilometre."

"The tax credit wouldn't cost governments anything, because they would save even more on infrastructure costs related to increasing road traffic volumes," he said.

Tellier said the tax credit would help rectify the serious imbalance in governments' transportation policies that have produced increasingly congested highways while railroads have unused freight transportation potential.

Tellier, in addressing the Canada Transportation Act (CTA) review process, said it's vital that policymakers resist intense pressures to use the process to fix Canada's farm income crisis - a crisis prompted by a grain subsidy war between the United States and European Union.

Tellier stressed that, while farm input costs have risen substantially in recent years, CN's rail rates for grain transportation have declined by almost 50 per cent since rail deregulation commenced in 1987.

Tellier said CN is aware of the impact of the income crisis on farmers, but pointed out that the farm income crisis is "not an issue for the CTA review. It's a policy problem the Government of Canada has to address within the context of World Trade Organization and North American Free Trade Agreement rules."

Tellier also said the CTA review process should not be used to reward "poachers" seeking forced access to CN's and Canadian Pacific Railway's main lines.

Forced access would "damage Canada's rail infrastructure in the long run," Tellier said. "It would put the network at the disposal of those who did not build it, do not maintain it and who are not responsible for the service it provides. It's been tried elsewhere, and it doesn't work.

"Most importantly for Prairie farmers, forced access would imperil the viability of light-density lines. Forced access would divide between two carriers the revenues that are already marginal with just one carrier."

Tellier said CN is a leader in negotiating the creation of successful short-line railroads in Canada and the United States, and it is working closely with the Prairie Alliance For the Future (PAFF), a non-profit organization spearheaded by the Brotherhood of Maintenance of Way Employees. PAFF, in a fresh approach to light-density grain lines, is planning a cooperative to operate 1,600 kilometers of CN grain lines in Manitoba and Saskatchewan.

"The PAFF example shows that there are many possible solutions to encourage short lines.

"CN has already told the Government of Saskatchewan that we are prepared to work with it and other governments and communities to find innovative ways to share the acquisition and operating costs of proposed short lines.

"Other ideas may well emerge as we begin discussions with Prairie governments. We believe that good-faith commercial negotiations will best serve the transportation interests of the Prairie provinces. We are confident we can build new partnerships."

A copy of Tellier's speech is available on CN's web site, www.cn.ca.

Canadian National Railway Company spans Canada and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico, serving the ports of Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans, and Mobile, Ala., and key cities of Toronto, Buffalo, Chicago, Detroit, Memphis, St. Louis, and Jackson, Miss., with connections to all points in North America