Canadian National Railway Company: The Time for a Comprehensive Canadian Transportation Policy Is Now, Says Canadian National's Paul M. Tellier.

TORONTO--(BUSINESS WIRE)--Nov. 18, 1999--

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

Canadian transportation industries -- and the governments that tax and regulate them -- must come together now to forge a comprehensive national transportation policy, Canadian National President and Chief Executive Officer Paul M. Tellier said today.

Transportation is crucial to Canadian competitiveness in world markets -- 42 per cent of the nation's gross domestic product is exported -- yet Canadian carriers must contend with complicated regulations, unfavorable tax treatment and differing policy frameworks, Tellier told the Ontario Trucking Association.

Tellier said the lack of a cohesive national transportation policy is harming Canadian competitiveness -- truckers say crowded, under-funded highways in certain regions of Canada threaten their ability to serve Canadian industry in North American markets. And railroads say tax and regulatory inequities compromise their ability to serve Canadian exporters effectively in competition with trucks and U.S. railroads.

Tellier said the critical issue for governments is the development of a clear, balanced, integrated national transportation policy. This policy, worked out in concert with carriers, must ensure adequate infrastructure, promote the most productive use of that infrastructure and permit each mode of transport to maximize its competitive advantages.

"For rail, the issue is our tax and regulatory regime," Tellier said. "Canada must match American regimes that have helped make their system the most efficient and low-cost rail system in the world."

CN, which spent more than $1 billion last year on capital programs, is hamstrung by Canadian tax policies that make it more expensive than in the U.S. to upgrade rail transportation technology.

"We pay almost double the tax rate American railroads pay on inputs such as fuel, property and capital. The tax depreciation period for capital investments is 30 years for Canadian railroads, compared with just eight years for American railroads."

Domestic intermodal equity is another key issue for railroads, Tellier said, stressing CN is forging ahead with the changes and investments necessary to improve its truck competitiveness - it's adopted a new service plan that delivers freight with the consistency of a conveyor belt, and has acquired RoadRailer technology to improve door-to-door intermodal service between Montreal and Toronto.

Yet taxation, again, is a hindrance. "Right now in Canada, taxes are a major inequity between trucks and rail. Rail pays 14 per cent of gross revenue in taxes. Trucks pay 10 per cent. Our taxes help pay for your infrastructure."

Tax and regulatory changes that create a more level playing field between truck and rail will benefit railroads, motor carriers, shippers and the tax-paying and traveling public, said Tellier.

"Both your industry and ours will benefit if more shippers move more traffic from the highways to rails. You reduce the highway congestion that is choking your ability to move. We increase our density, making our networks more viable."

Tellier said government regulation should "encourage rail where it makes sense. This means hours of operation regulations for trucks that don't encourage long-hauls that should be put on rail. It means regulations that encourage railroads to streamline their infrastructure and cut costs."

Railroads were partially deregulated by the Canada Transportation Act of 1996 -- which is subject to a federal review next year -- and the results have been positive:

* Lower rail rates -- rates that have dropped, on average, 27 per cent
  in the 10 years ended 1997;

* Reasonable financial returns -- railroads are getting closer to
  earning their cost of capital;

* Greater rail investment -- over the past five years CN and Canadian
  Pacific Railway have spent $6.1 billion on capital programs, and

* Better service levels -- CN is on course to achieve 90 per cent
on-time delivery of carload freight by year-end.

"We have a lot of work to do to raise the profile of transportation issues -- issues at the heart of Canadian productivity; issues that will determine the standard of living and quality of life of Canadians.

"Let's work together to get a national transportation policy that is transparent, internationally competitive and intermodally equitable. We have no time to lose."

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, Montreal, Halifax, New Orleans, and Mobile, Ala., and the key cities of Toronto, Buffalo, Chicago, Detroit, Memphis, St. Louis, and Jackson, Miss., with connections to all points in North America.