BUSINESS

A big deal for a tiny railway

Ann Finlayson August 27 1984
BUSINESS

A big deal for a tiny railway

Ann Finlayson August 27 1984

A big deal for a tiny railway

BUSINESS

ECONOMY

Ann Finlayson

Three years ago the Canada Southern was the railway nobody wanted. There were more weeds than traffic along its deteriorating 375-km main line, which runs between Niagara Falls and Windsor, Ont. And the faltering operation’s owner was preparing to abandon it. But now the tiny railway has become the centre of a controversy which could change the configuration of railway competition in Canada’s industrial heartland. This summer the railway’s future has been the subject of two

months of hearings before the Canadian Transport Commission (CTC). Among those attempting to determine Canada Southern’s fate: two giant Canadian transportation multinationals, a U.S. brewing conglomerate, a group of Canadian citizens in league with a controversial American entrepreneur, an irate group of railway employees and an agency of the federal government. The hearings recessed earlier this month until Sept. 12, with the debate unresolved.

The current Canada Southern controversy began when the CTC, which regulates all rail lines in Canada, opened a routine investigation into an agreement between Canadian National Railways (CN) and Canadian Pacific Ltd.

(CP)—acting in partnership—and the Consolidated Rail Corp. (Conrail) of Philadelphia, Canada Southern’s cùrrent major owner. Conrail, the giant U.S. government-controlled freight network, which was formed in 1976 from the assets of several bankrupt U.S. railways, is itself up for sale. CN-CP’s agreement to purchase the line drew immediate objections from other potential buyers, the railway’s employees, many local users and the Canadian government’s Bureau of Competition Policy.

The Canada Southern, which opened in 1873 and once hummed with traffic,

offered U.S. shippers a shortcut between New York and Chicago as an alternative to going south around Lake Erie. But because of U.S. railway reorganization, combined with the fact that Canada Southern’s tunnel between Windsor and Detroit is too small to accommodate modern piggyback container cars and automobile carriers, much of the traffic moved through the United States. By the time Conrail took it over from the bankrupt Penn Central in 1976, Canada Southern was in trouble. Indeed, in 1981 the CTC advised Conrail to improve its service or instead find a buyer who would. Conrail decided to sell.

Last October, CN-CP agreed to pay

Conrail $25.2 million for the railway, the Niagara River bridge at Niagara Falls and the railway tunnel to Detroit. That agreement led to the CTC hearings and parallel proceedings at the U.S. Interstate Commerce Commission (ICC).

Evidently, the parties expected the deal, set to expire on Dec. 31, to be rubberstamped. But last month the ICC delayed its decision until September. The main reason: it had received counterproposals from two other would-be buyers: the Stroh brewery group and Cantunn, Inc., controlled by Detroit-based entrepreneur Albert Atwell.

In June CN-CP submitted a three-inch-thick account of Atwell’s business background to the U.S. hearings. The document included evidence of a $347,000 fraud judgment against the entrepreneur in a Texas court in 1981, a debt he has not discharged. And in testimony before the CTC, Atwell himself estimated his total debt at $3 million. Atwell was unable to satisfy the ICC that he could raise the necessary backing. But, apparently undeterred by his financial and legal misfortunes, he then set up a new company, Windsor-based Erie Express Holding Corp., and began the search for new backers, all the while Q claiming that the Stroh group had copied his plan to develop the Conrail properties.

Eventually, a group of St. Thomas businessmen agreed to invest $400,000 in the company and to assume Atwell’s debts if Erie Express is successful in its bid. In return, Atwell gave up control of the company. Even so, Erie Express lawyer David Little told the CTC hearing that Atwell’s continuing involvement in the company has been a liability in finding further financial support. For its part, Stroh, which had at one point tried to buy Atwell’s Cantunn, formed a partnership with two Canadian companies, Crown Life Insurance and Penfund Management Ltd., in Trans-Ontario Rail Holdings Ltd. of Ottawa.

The federal Competition Bureau welcorned the lively interest in the line. Its brief to the hearings argued that determining the best owner for the line depended in part on the outcome of the U.S. Conrail sale. Said Roy Atkinson of the bureau’s Regulated Sector Branch: “At the very least the CTC should wait to decide until we know who is going to own the connecting lines.” Atkinson added that the railway could become a third competing system in southern Ontario, with enormous advantages to Canadian shippers in penetrating U.S. markets. “CN-CP and Conrail,” he said, “simply want to grab a potential competitor.” Fuelling doubts about their commitment is the lack of a major capital investment program for the badly underfunded rail line in CN-CP’s proposals. But CN spokesman Michael Matthews denied that the rail giants intend to shut the line down: “Look, there has been no evidence at all that this is so.”

The modesty of the CN-CP plans makes the Canada Southern’s employees suspicious,too. Said Dorval Fox, a St.Thomas clerk: “We know that it is hard for the CTC to turn down two giant Canadian railways wanting to buy a U.S. railway. But their company told us that they plan to close the railway. Then they file documents that contradict what they say. We don’t believe what they tell us anymore.” The employees’ association charged at the hearings that CN-CP are mainly interested in the bridge and tunnel properties at either end and would sell off much of the right-of-way to Ontario Hydro. But CN vice-president George Van de Water told the hearing that CN has had “no discussions, no thoughts of selling the CSR right-of-way to Ontario Hydro.”

Canada Southern’s employees, who initially supported the Atwell proposal, have switched their allegiance to Stroh. But, said Fox, most of them still have a high regard for Atwell. “He brought a lot of hope and dreams to this community. He has some very creative ideas for this railway,” he said. Atwood’s creative thoughts centre on a novel plan to enlarge the Detroit tunnel and to have Canada Southern trains haul complete bonded tractor trailer trucks—rather than just trailers—along its line. The plan, he says, would allow operators to avoid high U.S. road taxes and give drivers an eight-hour rest period on long hauls. The Stroh group has also promised to enlarge the railway tunnel and to develop intermodal terminal facilities —yards for exchanging freight containers between trains and trucks—in Detroit and Windsor. Whatever the transport commission’s decision, an appeal to the courts seems probable. And that would mean continued uncertainty about the future of a tiny railway that, suddenly, is in very heavy demand from very eager bidders,