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Agency Rulings
Order No. 1989-R-24
February 13, 1989
IN THE MATTER OF the application by the Canadian National Railway Company (hereinafter the Applicant), pursuant to section 255 of the Railway Act, R.S.C. 1985, c. R-3, for authority to abandon the operation of the Kincardine Subdivision from Listowel (M. 1.41) to Wingham (M. 30.34), (hereinafter the branch line), a total distance of 28.93 miles in the Province of Ontario.
File No. 39310.241
WHEREAS the Canadian Transport Commission had not rendered a decision on the above-noted application on the date on which the National Transportation Act, 1987, S.C. 1987, c. 34 (hereinafter the Act) came into force;
WHEREAS the application must now be considered by the National Transportation Agency (hereinafter the Agency) by virtue of the provisions of subsection 160(7) of the Act; and
WHEREAS the Agency convened a public hearing into the application beginning on July 26, 1988, in Wingham, Ontario.
UPON consideration of the proceedings, the documentation on file and the evidence presented before and during the hearing, and in compliance with the Report of the Chairman, Mr. Edmund J. O'Brien, dated December 6, 1988, which Report is attached hereto as Schedule 1,
THE AGENCY HEREBY:
- Adopts the findings and recommendations of the Report for the reasons set out therein.
- Determines that the amount of actual losses in respect of the branch line for the years 1984 to 1987 are as stated in the attached Report.
- Determines that the branch line is uneconomic at the present time.
- Determines that there is reasonable probability of the branch line becoming economic in the foreseeable future.
- Determines that the operation of the branch line is required in the public interest.
- Orders that the Applicant shall not abandon the operation of the branch line.
- Orders that the application shall be reconsidered by the Agency no later than eighteen months from the date of this Order.
Schedule 1
Report
IN THE MATTER OF the reconsideration of the application by the Canadian National Railway Company for authority to abandon the operation of the portion of the Kincardine Subdivision from Listowel (mileage 1.41) to Wingham (mileage 30.34), a total distance of 28.93 miles, in the Province of Ontario.
File No. 39310.241
Heard in Wingham, Ontario on July 26 and July 27, 1988
BEFORE:
Edmund J. O'Brien Member, National Transportation Agency
Appearances:
M. Beauchemin for the National Transportation Agency
T. Hall for the Canadian National Railway Company
H.G. Morris/C. Pawluch for Premdor Inc.
W.R. Harris for the Town of Wingham
D.K. Cameron for the Economic Development Committee of the Town of Wingham
A.B. Salvona for the United Brotherhood of Carpenters and Joiners of America
R.J. Timmers for the Ontario Legislative Committee, Brotherhood of Maintenance of Way Employees
E. Squires for the Wingham Business Association
D. Scott for Bruce County, Planning and Economic Development
W.J. Caldwell for the Department of Planning and Development, County of Huron
J.E. Hodgins for J.E. Hodgins Lumber Ltd.
M. Cardiff, MP for the Constituents of Huron-Bruce
P.B. Bowers for Project ReRail
A. Tarc for Para-Saucer Limited
History of the Application
On September 30, 1980, the Canadian National Railway Company (hereinafter CN) applied to the Canadian Transport Commission (hereinafter the Commission), pursuant to section 253 of the Railway Act, R.S.C. 1970, c. R-2 (now section 255, R.S.C. 1985, c. R-3), for authority to abandon the operation of the Kincardine Subdivision from Listowel (M. 1.41) to Kincardine (M. 57.82), a total distance of 56.41 miles, in the Province of Ontario.
Order No. R-35400, issued on July 25, 1983, authorized the abandonment of that portion of the Kincardine Subdivision from a point near Wingham (M. 32.95) to Kincardine (M. 57.82) and ordered the continued operation of the line between Listowel (M. 1.41) and Wingham (M. 32.95). The mileage at Wingham was subsequently amended to M. 30.34 by Order No. R-36558 of April 24, 1984.
With the proclamation of the National Transportation Act, 1987, S.C. 1987, c. 34, (hereinafter the NTA, 1987) this application was deemed to have been made in accordance with the provisions of section 171. As the line had been ordered continued under paragraph 254(5)(b) of the Railway Act (now paragraph 258(2)(b)), the National Transportation Agency (hereinafter the Agency) was required to reconsider the application under subsection 171(4) and to apply sections 161 to 171 and sections 173 and 174 accordingly.
Background
The Kincardine Subdivision is located in an area where economic activity consists of agriculture, cattle farming, and light industry.
Stations situated on the line are Atwood (M. 5.94), Ethel (M. 13.03), Brussels (M. 18.60), Bluevale (M. 25.49), and Wingham (M. 29.66). The major user of the line is Premdor Inc. (hereinafter Premdor), a manufacturer of cedar doors and wooden shutters. Premdor uses rail to bring in lumber from British Columbia and the Western United States.
On April 13, 1987, the Railway Transport Committee of the Commission issued a Notice advertising the reconsideration of the application for the purposes of eliciting public comment on the application and/or whether a public hearing should be held to consider the matter. Numerous replies were received in response to the notice. Upon reviewing the submissions, the Commission decided to conduct a public hearing to deal with CN's application.
A Public Hearing scheduled to commence on November 5, 1987 was subsequently postponed at the request of Ontario Hydro and the Province of Ontario as the notice of hearing was received by them only two weeks prior to the scheduled hearing date. The hearing was re-scheduled; however, due to time constraints on the Commission in 1987, the hearing was postponed indefinitely for the Agency to consider.
On May 13, 1988, a notice of reconsideration was issued in accordance with the provisions of subsection 171(2). The Agency had determined that the branch line was uneconomic and included in this notice the actual losses attributable to the operation of the branch line as required by paragraph 163(1)(c).
A public hearing was conducted by the Agency on July 26 and 27, 1988 in Wingham, Ontario.
History of the Line
The Kincardine Subdivision was built by the Wellington, Grey, and Bruce Railway Company, and was opened for operations on December 29, 1874. On August 12, 1882, the Wellington, Grey and Bruce Railway Company became part of the Great Western Railway Company system amalgamating with the Grand Trunk Railway Company of Canada. On January 31, 1923, they became part of CN.
Location of the Line
The Kincardine Subdivision begins at mile 27.9 off the CN Newton Subdivision at the station of Listowel situated at mile 0.00. From Listowel, it extends in a general northwest direction to Wingham at mileage 30.34.
Description of Service
Prior to 1987, local freight service was provided on an as-required basis. Since January 1, 1987, rail service on the subdivision has been limited to once a week way freight service operating from Stratford to Wingham.
Alternative Transportation Facilities
Alternative rail service is available on CN's Newton, Owen Sound, and Goderich Subdivisions as well as Canadian Pacific Limited's (hereinafter CP) Owen Sound Subdivision. CN has an application before the Agency for authority to abandon the operation of their Newton and Owen Sound Subdivision. The area is accessible via four Provincial Highways and several county roads.
Carload Traffic
The majority of the traffic handled on the subdivision is lumber destined to companies located in Wingham. The following table illustrates the total traffic handled from 1984 to 1987.
| Year | Ethel | Brussels | Wingham | Total |
| In Out | In Out | In Out | ||
| 1984 | 6 - | 2 - | 106 - | 114 |
| 1985 | - - | 3 - | 94 2 | 99 |
| 1986 | - - | - - | 116 - | 116 |
| 1987 | - - | 1 - | 133 1 | 135 |
Determination of Actual Loss
The following Actual Losses were developed in accordance with the Railway Costing Regulations and section 157 of the NTA, 1987.
Determination of Actual Loss
| Actual Loss | ||||
| Year | Total Costs | Revenues | Actual Loss | Per Carload |
| $ | $ | $ | $ | |
| 1984 | 532,993 | 252,323 | 280,670 | 2,462 |
| 1985 | 489,045 | 258,522 | 230,523 | 2,329 |
| 1986 | 495,108 | 318,843 | 176,265 | 1,520 |
More detailed cost information is contained in the Statements of Actual Loss which are attached as Appendix B.
Public Submissions
Canadian National Railway Company
CN provided the following information in addition to the evidence submitted by way of their application.
If the Kincardine Subdivision from Listowel to Wingham were to be retained for three years, CN estimated that a rehabilitation program costing $1,199,000 would be necessary with future annual maintenance costs of approximately $248,000. These expenditures would provide for the installation of 24,000 track ties, 7,200 cubic yards of ballast and 5,000 cubic yards for bank widening in addition to minor rail replacement, bridge and culvert repairs. Upon rehabilitation, the subdivision could accommodate carloads with a maximum gross weight of 220,000 pounds per car at a maximum speed of 25 miles per hour.
CN testified that each segment of the line had been examined in isolation to determine if a portion could be operated economically; however, as the majority of the traffic originated or terminated at Wingham, it was concluded that operating a portion was not feasible.
As to interconnection with other CN or CP lines in the area, CN submitted that economic interconnections were not possible.
Furthermore, in addition to their intermodal and piggyback service as well as CP's, CN stated that a total of 57 licensed highway carriers serve the area.
CN also testified that the operation of the subdivision by a short line railway would not be likely or economic considering the low traffic volumes and based on two recent studies done on the area. It was also concluded from one of these studies that trucks could compete with rail on costs for hauls of between 500 and 700 miles.
If the branch line was abandoned, CN was of the opinion that the major user, that being Premdor, could utilize CN piggyback service which was more economical based on the present boxcar rates. Other options would be truck transportation from origin or shipment from rail to highway carrier at Stratford. CN testified that through interrogatories, Premdor stated that there would not likely be a significant cost difference incurred directly or indirectly by Premdor in the unloading from road trucks as opposed to railcars for their raw materials. Any difference would be attributable to the freight rate. CN did indicate that their marketing people had attempted to discuss the options of piggyback or transhipment from a railhead point with Premdor between September and December 1986; however, Premdor expressed no interest in this regard.
With respect to the usage of trucking as an alternative, under cross-examination, CN testified that many of the carriers licensed to serve in the area have connections to Western Canada but the connections were interline. Referring to Exhibit No. CN-13 which was a "Comparison of Door to Door Transportation Costs by CN Rail Piggyback (Dry Vans) Versus Rail Box Cars From B.C. (Vancouver, New Westminster) to Wingham, Ontario on Western Red Cedar", CN did not disagree with Premdor that using 1987 Premdor traffic volumes at 1988 rate levels including the 1988 revenue share of the U.S. traffic and particle board, that approximately $600,000 would be generated in revenues for CN from Premdor.
In addition, a break-even analysis was submitted by CN based on the 1986 traffic mix, revenues, costs and losses. Based on these statistics, CN stated that 466 carloads would be required to be handled on the line before it showed a profit although this figure was developed incorporating future annual maintenance costs.
CN also testified under cross-examination that boxcar rates on lumber to Wingham had increased 12 to 29 percent as of June 30-July 1, 1988. As to piggyback rates, CN was unaware when they had been increased in the past or when the rate may increase in the future.
Under re-examination, CN stated that they incorporated future maintenance costs in their break-even determination rather than deferred maintenance costs because the latter was not reflective of a long-term operation and they would subsequently, begin to increase.
Furthermore, CN testified that the rail rate increased to Wingham due to a combination of events. Previously, the rates were developed according to certain zones. CN began increasing rates to areas where traffic density was light and gave incentives to areas which had heavy traffic volumes. CN also developed a charge per car rather than a charge per hundredweight. CN had determined that 200 to 300 stations including Wingham had fallen into their low productivity, high cost factor category which were subsequently affected by increased rates.
Premdor Inc.
Mr. Spears testified that of their five facilities across Canada, the wooden doors produced at the Wingham facility are unique to the Premdor organization and are not made in any of their other facilities. With the advent of free trade, Mr. Spears stated that they are expecting to increase production of their high end product line fabricated at Wingham currently being sold across Canada and in the Middle East, Japan and Europe.
Mr. Spears also testified that the raw materials used in manufacturing at Wingham, primarily western red cedar and ponderosa pine from the western United States, is virtually all supplied in random lengths and is loose loaded. The manufacturers refuse to cut the lumber in equal lengths and bundle it because it is costly and too much waste occurs.
Under cross-examination, Mr. Spears testified that if the red cedar operation conducted at Wingham was moved to Calgary or a further point west, the Wingham plant would be closed. A major expense would be incurred to relocate equipment used in the manufacturing process, and the workers in those areas would have to undergo a long training period to be able to start manufacturing again. He also added that they could not even move their Wingham operation to Scarborough because a new facility would have to be constructed, and physically, there was no room to build such a facility.
Mr. Wilhelm, the plant manager presented evidence showing that from 1985 to 1987, cedar door production increased at a growth rate of 10% to 42% and that 99.9% of their employees were from the surrounding area. Mr. Wilhelm also stated that Premdor used 124 carloads in 1987 and would probably require a similar amount in 1988.
Upon being asked about the use of Premdor trucks to bring lumber back to Wingham from an alternative railhead such as Stratford, Mr. Wilhelm stated that the finished products are trucked to Toronto for distribution; however, in many instances, the truck picks up small component items such as glass which means no lumber can be picked up on the back haul.
Under cross-examination, Mr. Wilhelm added that according to one of their west coast suppliers, Weyerhauser Canada Ltd., the most equitable way to move kiln dried cedar from the mill to the customer is by boxcar because with piggyback, there is a degree of difficulty in loading and unloading which makes the lumber prone to substantial damage. He further stated that two other suppliers indicated that to use truck or piggyback would result in additional charges of $20 to $30 per thousand board feet.
Mr. Morton, Vice-President of Premdor Operations, testified that certain components currently being fabricated at their Scarborough location would be transferred to Wingham in the future if the line was retained. He stated that this transfer would be occurring because the Scarborough plant was getting old and they required additional manufacturing and warehouse space. The Scarborough operation was scheduled to be shutdown by the end of October, 1988. He added that with this shutdown, a minimum of 40 carloads would be transferred to their Wingham facility with another 40 possible carloads, and if efficiency and costs were right, Premdor could handle 120 carloads at Wingham. This would also increase employment at the plant. He also added that Premdor has continued to use rail cars because it is the choice of the supplier.
Mr. Morton further stated that the line would be in a break-even position if it handled from 164 to 174 carloads annually, based on 1987 cost figures and 1988 rates.
Mr. Morton also prepared an analysis on the increased costs which Premdor would bear in the event of abandonment of the Kincardine Subdivision. This analysis was based on several assumptions such as availability of a suitable storage warehouse; traffic moving at current rate levels; boxcars continuing to arrive at no less than two at a time; each railcar generating approximately two tractor-trailer loads of product; Premdor employees would be used for loading and unloading of the product necessitating the need for their accommodation and meals; boxcar capacity versus trailer capacity was 33-35 mbf and 20 mbf respectively; 219 tractor-trailer trips per year would be required using one tractor and three trailers to be leased by Premdor requiring 200 working days; and one-third idle time at railhead while Premdor personnel await return of tractor for further loading. Assuming these conditions and a damage estimate of $30,000, Mr. Morton concluded that Premdor would be faced with additional transportation costs of $205,795 annually if the line were abandoned. However, as the rail rate to Stratford was less than the rail rate to Wingham, Mr. Morton revised his figures stating that the additional transportation costs would probably be about $175,000 to $180,000.
Mr. Morton further testified that the use of piggyback as an option for alternative transportation was more expensive than boxcar rates; however, as piggyback rates increased as of June 1, 1988, the two modes were roughly competitive.
Mr. Morton also commented on exhibits CN-13 and CN-14. He was of the opinion that the revenue per boxcar was not $2,575 as CN submitted, but rather it was $3,378 or a difference of approximately 31 percent. He also stated that with anticipating the handling of 165 carloads in 1988, based on 1987 rate levels and maintenance costs of $220,000 claimed by CN, Premdor would generate $600,000 in revenue which would place the line in a break-even position.
Under cross-examination, Mr. Morton disagreed with CN's calculations for the number of carloads required for revenues to meet operating expenses on the line. It was his opinion that using 1988 rates and potential traffic, Premdor and Hodgins Lumber could generate revenues of approximately $816,000 while CN's operating costs would be approximately $600,000. Under further questioning, and production of documents, Mr. Morton revised his figures to indicate approximate revenues of $637,000 with operating costs of $600,000 to $700,000. He added, however, that his revenue figures were based on the minimum carloads that would move from Scarborough to Wingham once the Scarborough facility was closed. Mr. Morton further testified that in the medium case scenario in terms of carloads of product that would be diverted to Wingham when Scarborough closed along with increasing Hodgins Lumber traffic from 15 carloads in 1987 to 20 in 1988, the line would be very close in meeting the total costs stated in NTA-2, which was CN's claimed operating costs for 1987.
Mr. A.B. Salvona
Mr. Salvona represented Local 3054 of the United Brotherhood of Carpenters and Joiners of America, and more specifically, the bargaining unit of the production staff at Premdor. He stated that abandonment would not only affect Wingham, but the surrounding communities as well. If the plant were closed as result of an abandonment, these communities would be deprived of incomes generated by the workers at the plant of approximately $3.2 million annually. As Premdor is the major employer, Mr. Salvona testified that Wingham would become a virtual ghost town as these workers would have to relocate elsewhere.
He was also of the opinion that abandonment would generate additional traffic for the highways in the area, possibly having an effect on the public and their safety.
Mr. Salvona concluded his evidence by endorsing the position of Premdor.
Mr. W.R. Harris
Mr. Harris, Deputy Reeve of the Town of Wingham, strongly opposed CN's abandonment application. Mr. Harris stated that the alternative modes of transportation, namely road, water, and air are not as readily available or feasible as rail service. In order to maintain and expand existing industries, especially in small communities like Wingham, Mr. Harris testified that rail service cannot be withdrawn as this would have a very severe and detrimental impact in the Town.
Mr. Harris further testified that if the Agency were to grant CN's application, financial assistance should be given to current users to adapt facilities and purchase equipment required to adjust to using alternative modes of transportation; compensate current users for additional transportation expenses; leave the line, right of way, and associated structures intact for a period sufficient to allow for private enterprise to start operations; and, provide the provincial government with incentives so that improvements are made to area roads.
Mr. D.K. Cameron
Mr. Cameron appeared on behalf of the Economic Development Committee of the Town of Wingham. He testified that the line should be preserved in the interests of Premdor and J.E. Hodgins Lumber Ltd. If Premdor were to leave Wingham should the line be ordered abandoned, Mr. Cameron stated that the effect would be disastrous on the Town and would result in the loss of many jobs. He added that the highways are inadequate as an alternative mode of transporting goods, particularly in the winter.
Mr. Cameron also stated that while CN complained about the poor condition of the line, in his opinion, no maintenance of any account had been done in the last 15 or 20 years.
Under cross-examination, Mr. Cameron testified that no industries had established themselves in Wingham that required rail service; however, he had shown numerous people the Wingham industrial park and described to them its proximity to the rail line.
Mr. M. Cardiff, MP
Mr. Cardiff appeared on behalf of the constituents of Huron-Bruce in opposing the abandonment application. Mr. Cardiff testified that as a former rail user, he discontinued using rail because of poor service, and that problem also existed at present. He acknowledged the fact that it was difficult to justify the lines' economic viability, however, if abandoned, it would be difficult to re-open it. Mr. Cardiff also added that some major lines should be left in this part of Ontario for the opportunity of future development and because the area could possibly use a distribution terminal.
Mr. R.J. Timmers
Mr. Timmers appeared on behalf of the Ontario Legislative Committee, a subcommittee of the Brotherhood of Maintenance of Way Employees. He testified that with respect to roadway maintenance, none is being performed on the line with the exception of some fencing. A track patrol does carry out a visual inspection of the line weekly, to report any unsafe and maintenance conditions that are required. In his opinion, the subdivision was in relatively good shape and was running under safe operations. This being the case, Mr. Timmers testified that CN's claimed future maintenance cost of $220,000 would not likely happen if required. He also stated that the highway is not an adequate highway for alternative transportation to industries in this area.
Mr. Timmers further added that his information and research led to the conclusion that CN was proposing to abandon 27 percent of their trackage in the Great Lakes region. In his view, it would not be in the public interest to populate the highways with the traffic being generated by this 27 percent.
Mr. J.E. Hodgins
Mr. Hodgins, a local businessman from Wingham in the retail lumber and building supply industry, was opposed to CN's proposed abandonment of the subdivision. He testified that his company and other retail lumber companies require rail service to remain competitive with other dealers being served by rail as truck freight rates exceed rail car rates. He testified that there is a $10 per thousand spread per board feet on average between rail and truck which could mean on his shipments, a differential of up to $900.
Mr. Hodgins also testified that an informal pooling operation of local supply businesses, led by his own, generated approximately 15 carloads in 1986 and 11 carloads in 1987 and he was under the impression that 1988 volumes would be increasing appreciably over these levels up to at least 20 carloads.
Under cross-examination, Mr. Hodgins stated in rough terms that 83 percent of his lumber shipments originate in British Columbia while 17 percent came from the mills in Northern Ontario and Quebec. All his shipments from British Columbia were handled by rail. It was his opinion that CN could more actively solicit railcar freight business in Northern Ontario and Quebec. He was not aware that rail rates were available out of these areas because the lumber he is offered, is offered in truckloads.
Mr. W.J. Caldwell
Mr. Caldwell, representing the County of Huron Planning and Development Department, pointed out the County's opposition to the proposed abandonment on the basis that such an abandonment would hinder the economic development of the County.
It was his opinion that employment, present investment and growth and future services were related to rail retention. He raised two problems facing the County, that being the farm crisis and employment/demographic trends. In attempting to cope with these problems, Mr. Caldwell stated that the County has been pursuing a number of approaches. One approach is to attract new industries and it was his opinion that one of the factors that new industries consider in establishing in an area, is the provision of rail service. He also stated that the railway was important to retain the existing industries in the area.
Mr. E. Squires
Mr. Squires, representing the Wingham Business Association, was opposed to CN's abandonment proposal not only because it was economical transportation for existing industries, but it also was an indispensable tool in attracting new industries. He suggested that this was one instance where government action was needed to allow an equal opportunity of development for the rural areas of Canada. He noted that if the railway were abandoned, potential growth for Wingham would be weakened; indeed, the economic base in place at present could deteriorate.
Mr. Squires also pointed out that the loss position of the subdivision had been improving over the last two years, with revenues up by 26% and costs down by 7%, resulting in a decrease in losses of 37%, from $286,070 in 1984 to $176,265 in 1986. He was of the opinion that aggressive pursuit of revenues by CN accompanied by continued containment of costs could lower losses and place the line in a break-even or possible profitable position. He further stated that abandoning the line would not save CN much money, considering the fixed costs that would accrue after the abandonment, such as $114,000 for capital costs related to road property.
While expressing the hope that the operation of the line was to be continued in the event that the line was ordered abandoned, Mr. Squires requested that compensatory, financial, technical and research assistance be given to the town to plan an alternate course of development.
Under cross-examination, Mr. Squires stated that he was personally not aware of any new developments in Wingham that would be rail-oriented.
Mr. P. B. Bowers
Mr. Bowers, a representative of Project ReRail, testified that his group was opposed to the abandonment proposal of CN. He stated that Project ReRail was developing rates for a potential customer and that this volume (300 to 500 carloads per annum) would be more than enough to make the line economic in the future.
Mr. Bowers proposed if the line were ordered abandoned, that the track remain in place until there is a response from both the federal and provincial governments to the Project ReRail Business plan, which is currently in the preparation stage. The plan develops the idea of a regional railway which would more than break-even on operations.
Under cross-examination, Mr. Bowers gave certain details about the potential customer, though he would not name the customer by name citing confidentiality. The customer would be shipping either potash or grain and using other subdivisions including the Newton and Owen Sound routes. He also noted that the customer would probably not locate on the line if it was run by CN.
Mr. Bowers disagreed with the recent Peat Marwick Consulting Report, "An Analysis of the Business Opportunities for Rail Service in Mid-Western Ontario" stating that a $20 million rehabilitation program for the area was far too costly, and that his group had proposed a program that cost less than half of that amount. He also stated that there is the possibility that Project ReRail is prepared to invest its own dollars in a joint venture with the users of the line to purchase and maintain it. He indicated that the venture would spend $2 million on maintenance in the first year, and $2.5 million per year thereafter for three or four years. There would be a capital investment for rehabilitation of $10 million to start. Mr. Bowers indicated that his group had a potential of funding of $60 to $100 million at 3-3.5 percent interest.
Mr. A. Tarc
Mr. Tarc, President of Para-Saucer Limited, testified that in the event of the abandonment of the branch line, his company would be prepared to take over the line and run a rail-bus passenger train service between Owen Sound and Stratford. In addition, they would be willing to handle light freight from Wingham to Listowel and return on an experimental basis for two years and requested that the Agency approve and support this proposal.
Findings
I was appointed by the Agency to enquire into and report on the application by CN for authority to abandon the operation of the Kincardine Subdivision between Listowel and Wingham in the Province of Ontario. Accordingly, the evidence presented at the public hearing held in Wingham on July 26 and July 27, 1988 has been reviewed as has the correspondence on file and that which was submitted by other parties who did not appear at the public hearing.
After considering my report, the Agency must first determine whether this branch line is uneconomic and if it is not and there is no reasonable probability of its becoming economic in the foreseeable future, the Agency must order that the operation of the branch line be abandoned. The Agency must also order the abandonment of the operation of the line if it determines that it is uneconomic with a reasonable probability of becoming economic in the foreseeable future, unless it determines that the line is required in the public interest.
For the prescribed financial years of 1984 to 1986, the Agency determined that actual losses were as follows:
| Year | Actual Loss |
| 1984 | $280,670 |
| 1985 | $230,523/td> |
| 1986 | $176,265 |
This determination was made pursuant to section 163 of the NTA, 1987, and was issued with the May 13, 1988 Notice of Public Hearing.
During the course of the Public Hearing, CN's claimed costs, revenues, and actual losses were introduced as evidence. This information had not been verified by the Agency at that time and CN stated that they and Premdor would have liked to have seen the Agency's determination. Premdor requested that CN's claimed figures be considered with some skepticism. In order to remove any doubts or skepticism to these submitted figures, the Agency undertook to analyze CN's 1987 claim and determined that for the 1987 financial year, the actual losses incurred in the operation of the Kincardine Subdivision between Listowel (M.1.41) and Wingham (M.30.34) were $216,326.
Therefore, the Agency has determined on the basis of the evidence before it that the branch line was uneconomic in the financial years of 1984, 1985, 1986, and 1987.
Having determined the economic status of the branch line, the Agency must make a determination as to whether there is a reasonable probability of the branch line becoming economic in the foreseeable future.
In order to make an assessment on future economic viability of a line, the Agency must consider those factors which would increase revenues on the line. The main source of revenue is obviously carload freight although revenue attributable to business sites leased on railway property and siding agreements are also taken into consideration.
With respect to the potential for the Kincardine Subdivision to become economic in the foreseeable future, considerable evidence was presented utilizing a break-even analysis of traffic, costs, and revenues. Under CN's Exhibit CN-14, CN concluded that 466 carloads would be required for the branch line to meet operating costs based on the 1986 traffic mix in the short term. Premdor disagreed with CN's figures and offered evidence to indicate that the line could possibly come close to meeting the break-even point based on 1988 rate levels and traffic projections and using CN's 1987 claimed costs.
Subsequent to the hearing, Counsel for Premdor provided the Agency with a submission outlining further developments for expansion plans at their Wingham facility and a forecast for increased traffic levels which might result with respect to the expansion. This submission indicated that as of October 15, 1988, certain portions of Premdor's operations being performed at their Scarborough plant would be transferred to the Wingham facility. As a result of this phasing out of operations at Scarborough, it was Premdor's submission that three to four additional carloads would be required per month at Wingham. In addition, to accommodate the transference of the Scarborough operations to Wingham, Premdor would be investing $40,000 to upgrade their Wingham facility. Based on this information, Premdor concluded that in their opinion, a 1988 break-even point would be 185 carloads of traffic based on CN's 1987 cost figures indexed upwards 5%, and increasing maintenance costs by $90,000.
Upon examining the break-even evidence presented at and subsequent to the hearing, I have found that Premdor's submission would be an unreliable indicator of the break-even position of the line because it is being based on 1988 projected and not actual traffic levels, the projected revenue figures used are assuming that CN is handling the movement directly with no interlining occurring, and the assumption that CN's operating costs would only be 5% higher than those in 1987. As a substantial component of the operating costs are variable with the level of traffic handled, the 1988 cost levels cannot be assumed to be a straight percentage increase.
Similarly, I can see no reason why to base any decision on CN's break-even projection of 466 carloads because it is based on 1986 cost and traffic information when more updated and relevant figures were available at the time of the hearing.
From the evidence presented at the hearing, I am able to draw some conclusions as to the reasonable probability of this line becoming economic in the foreseeable future.
Traffic on this branch line has been increasing from 1985 to 1987 from a low of 99 carloads in 1985 to a high of 135 carloads in 1987. In fact, with the exception of 1985, carload traffic has consistently exceeded 100 carloads annually since 1981. Accordingly, carload revenues have been increasing annually which has had the effect of reducing the actual losses being incurred. The two main customers on the line, Premdor and J.E. Hodgins Lumber Ltd. presented evidence which indicated that traffic trends would be increasing in the future. Premdor has acquired additional traffic amounting to a minimum of 3 to 4 cars monthly with the transference of part of their Scarborough operations to Wingham and J.E. Hodgins Lumber Ltd. has begun a pooling operation with the local dealers in the area, which he stated would increase his carload requirements. While this evidence indicates that traffic and thus associated carload revenues would be increasing on the branch line, the issue germane to this application is whether or not this increase in traffic can significantly reduce the actual losses being incurred to place the line in a reasonable position of becoming economic in the foreseeable future.
In examining Exhibit PD-2, I have seen a growth rate of 42% in the number of doors being manufactured by Premdor from 1986 to 1987 exclusive of the transferring of the Scarborough plant operations to Wingham. Mr. Spears also testified that besides Premdor's Canadian market, sales are also being made in the Middle-East, Japan, and Europe. Whether this growth continues in the foreseeable future remains to be seen. What I can report from the evidence adduced at the hearing is that Premdor made certain commitments starting back as early as 1975, when they first purchased the Wingham facility from one of their competitors, Lloyd Thruax. They honored their commitment to retain those employees working for Lloyd Thruax at that time; they met their obligations to increase plant employment, and they kept their pledge to increase plant production. Now from Premdor I learnt that the Wingham plant will be expanding and a minimum of an additional three to four cars will be required monthly. Premdor has stated that their minimum carload requirements for 1988 would be 164 with a likely amount being 204 carloads. Statements such as these cannot be considered incredulously in light of Premdor's well established credibility. Mr. Hodgins's pooling operation only began in late 1986 and although his total carload requirements for 1987 only amounted to 11, for 1988, up to July, he had received 7 carloads with his busiest season yet to come. He anticipated receiving twenty carloads minimum.
I was also informed by CN that $1.2 million would be required to upgrade and rehabilitate this branch line with annualized maintenance expenditures of $248,000 subsequent to the rehabilitation for a three year period thus there is no feasible way for this line to become economic. Premdor was somewhat skeptical regarding these figures as am I. Over the last four years CN has spent a total of $385,480 in direct track and roadway maintenance costs exclusive of overheads or an average of $96,370 annually which was subsidized by the Canadian taxpayers. CN deemed this level of maintenance sufficient for the level of traffic offering and had no reason to defer maintenance as they were being made whole under the Branch Line Subsidy Program. This level of maintenance was sufficient to handle volumes on average of 100 cars annually and I cannot believe that an eight fold increase in maintenance costs, exclusive of overheads, is suddenly required to permit safe, future operations over this portion of track. Therefore I conclude that CN's forecast of future expenditures is overestimated.
I must also therefore conclude that with the Premdor plant expansion and increased production imminent in the foreseeable future, and the possibility of Mr. Hodgins adding more local dealers to his pooling operation, there is reasonable probability of the branch line becoming economic in the foreseeable future.
Having made this determination, the Agency is obliged to consider section 166 of the NTA, 1987 which requires that where a line has been determined to be uneconomic by the Agency, but has also been determined that there is reasonable probability of becoming economic in the foreseeable future, the line must be abandoned unless the line is required in the public interest.
In determining whether the operation of a branch line or segment is required in the public interest, the Agency shall consider all matters that in its opinion are relevant to the public interest, including those matters under section 167 of the NTA, 1987.
Although CN has been incurring annual actual losses, these amounts have been declining and traffic on the branch line has been increasing. With the prospects for potential additional traffic being generated and moving at competitive rates with roadway maintenance expenses being consistent with previous years, these losses would be expected to be offset.
The Agency must also take into consideration the alternative transportation facilities available or likely to be available in the area and whether these facilities can meet the needs of the shippers. I have found that CN's claim that shipments could be railed to Stratford and trucked to final destination inadequate as it would represent additional transportation costs of approximately $175,000 to $180,000 on Premdor. Furthermore, CN proposed that the best cost scenario for both Premdor, J.E. Hodgins Lumber Ltd., and the Canadian taxpayer was the utilization of piggyback as rates were less than carload rates. However, as was mentioned several times during evidence, Premdor and J.E. Hodgins Lumber Ltd. cannot dictate to their suppliers as to the choice of transportation mode. In addition, through Interrogatories, it was determined that for Premdor, the most equitable fashion for moving the majority of their product which is Western B.C. kiln-dried cedar is by boxcars as damage can result by utilization of the piggyback system. Shipping by boxcar also protects the product better. CN submitted that piggyback vans protect the product equally as boxcars and any damage resulting from unloading would be due to Premdor's employees regardless of whether the shipments arrived by either of these two modes. While this statement may be true, the product is not loaded by Premdor's employees and furthermore, Premdor's shipments of cedar are loose-loaded and therefore not suitable to be shipped piggyback in this fashion. In addition, Premdor's suppliers will not cut, stack, and band the cedar for piggyback shipment and even if they were to do so, Premdor would be facing increased costs for purchasing the lumber in this fashion of specific lengths.
CN offered to meet the transportation requirements of the area through alternative team tracks and stations, transhipment facilities at Stratford, and intermodal and container facilities. While I acknowledge that CN has made efforts to deal with Premdor on using Stratford as an alternative railhead in lieu of operating the branch line, I have already addressed my concerns in this regard under alternative transportation facilities proposed by CN.
Is it more economic to use alternative transportation facilities in the area served by the branch line? CN submitted that the potential annual subsidy would be approximately $174,000 and by using intermodal facilities, Premdor would save $115,000 over the current rail rate. However, if Premdor were to have to resort to unloading at Stratford and transferring their shipments to truck, their additional transportation costs would equal or slightly exceed the amount of potential annual subsidy thus I cannot see it being more economic to use alternative facilities.
Upon considering all the evidence pertaining to this application, I have come to the conclusion that although the operation of this branch line is presently uneconomic, there is reasonable probability of its becoming economic in the foreseeable future and the operation of CN's Kincardine Subdivision between Listowel (M. 1.41) and Wingham (M. 30.34) should be ordered continued in the public interest.
I would recommend to the Agency that the application be reconsidered within eighteen months from the date of the Order giving effect to this Report. It is my opinion that this will allow sufficient time for Premdor to demonstrate to the Agency that they can increase traffic levels on the line.