Rail Industry News
October 2000

October 31, 2000
Montreal, Quebec

Canadian National names Sean Finn senior vice- president and chief legal officer

Canadian National President and Chief Executive Officer Paul M. Tellier today announced the appointment of Sean Finn as CN's senior vice-president, chief legal officer and corporate secretary.

Finn, 42, succeeds Jean Pierre Ouellet, who is becoming RBC Dominion Securities Inc.'s vice-chairman in charge of corporate and investment banking activities in Quebec.

Finn was most recently CN's vice-president, treasurer and principal tax counsel.

Tellier said: "Sean is an experienced tax practitioner and has developed strong business experience at CN. He played key roles in CN's highly-successful 1995 privatization and equally successful acquisition of Illinois Central Corporation in 1998. In his new position, Sean assumes responsibility for an array of legal and regulatory matters. CN is fortunate to have within its ranks such an able individual to fill the role of chief legal officer."Finn joined CN in January 1994. He was appointed treasurer and principal tax counsel in August 1996 and became vice-president, treasurer and principal tax counsel in January 2000. He was responsible for CN's treasury and finance activities and managed all CN tax matters.

This month Finn was named Tax Lawyer of the Year 2000 by his peers and was paid tribute by Le Monde Juridique, Quebec's private law practice magazine. He is a member of the Quebec bar and Canadian and American bar associations.

Tellier, commenting on Ouellet's departure from CN, said: "Jean Pierre's legal counsel was always penetrating, and his guidance invaluable in furthering CN's North American expansion strategy. All of us at CN wish him well in his new endeavor."

[Source: CN website.]

October 30, 2000
Montreal, Quebec

CN logo chosen as one of top 50 corporate logos of all time - worldwide

A prestigious international panel of leaders in design and business has chosen CN's logo as one of the Top 50 Corporate Logos of All Time - the only Canadian company to make the list.

The judging panel, made up of architects, industrial and graphic designers and business leaders, chose the 50 global winners for a competition jointly sponsored by the Financial Times and Report on Business (ROB) Magazine. The results were published in the Financial Times magazine, The Business, in the United Kingdom on October 21 and October 28, and in ROB Magazine in Canada on October 27.

When it was created in 1960, the logo was considered bold and audacious, and as the judges remarked, the trademark still looks modern 40 years after its creation. Industrial designer Jasper Morrison called CN's logo "a perfect blend of symbol, typography and intent."

The logo was Canada's sole winner and was voted number 38 in the world. In order to make the Top 50, the logo had to look great, accurately reflect the company's activities and aspirations, and have a positive effect on perceptions of the company among the public and employees.

"CN is proud of this international recognition and of the enduring CN symbol, as innovative today as it was 40 years ago. It continues to depict a strong, bold, forward-thinking company," said Paul Tellier, Canadian National President and Chief Executive Officer.

Prominent Canadians have long recognized the logo's impact. Shortly after it was created, the logo won numerous design awards, and media guru Marshall McLuhan termed it "an icon." Chris Staples, creative director of Vancouver's Rethink Advertising, calls the symbol "...still one of our most enduring marketing icons." According to a poll conducted in 1999 by Angus Reid (now Ipsos-Reid), 99 per cent of Canadians recognize the logo and associate it with CN.

Designed to last
In 1960, Allan Fleming, the young and highly regarded Canadian who designed the CN trademark, made a prophetic pronouncement on its lifespan. "I think that this symbol will last for 50 years at least. I don't think it will need any revision, simply because it is designed with the future in mind."

After months of experimenting with various possibilities, Fleming was struck with inspiration while travelling on a New York-bound airplane. He quickly sketched the idea on a cocktail napkin and CN's logo was born.

Fleming said his vision was to use a continuous flowing line to symbolize "the movement of people, materials and messages from one point to another." As the eye moves from "C" to N", the image suggests fluidity and motion. He also said: "It's a route line that incidentally spells CN."

A new look for a new company
The logo was commissioned after CN had invested close to $2 billion during the 1950s in equipment modernization, computerization, facility upgrades, and new management and financial structures. The logo was at the heart of a broader overhaul of CN's visual image - from locomotive paint schemes and building exteriors right down to the sugar packets used in its hotels.

CN's public relations department believed that the company's visual identity had to communicate the reality of the new CN, recalls Lorne Perry, since retired from CN, who implemented the corporate identity program. "At that time, we believed that if CN had a fresh new trademark, people would be more likely to think of it as the technologically advanced, customer-friendly railway it was rapidly becoming."

Perry says that the flowing signature logo was a departure from the railway heralds of tradition, and was perceived as a risk-taking venture at the time. "There was a lot of controversy about this bold new look and the "CN red", but ultimately the company moved forward with this design because of all the strong features. For the first time, the logo was bilingual and a powerful moving billboard for CN's powerful trains."

[Source: CN website.]

October 27, 2000
Montreal, Quebec

BMWE members ratify three-year collective agreement with Canadian National

Canadian National announced today that Canadian members of the Brotherhood of Maintenance of Way Employees (BMWE) have ratified a tentative three-year collective agreement with the Company that was signed Sept. 1.

The BMWE is one of the largest rail unions in North America and represents more than 3,400 employees at CN in Canada. Its members maintain and repair CN's track, work equipment, bridges and buildings.

The new collective agreement, effective Jan. 1, 2001, provides for wage increases over the term of the contract, wage adjustments for certain classifications and some benefit improvements. BMWE members continue to receive gain-sharing bonuses and maintain the right to participate in CN's employee share investment plan. CN is in active negotiations with its other unions in Canada. CN has six bargaining units, including the BMWE, that represent seven unions and 14,300 active employees. The contracts that remain to be renewed will all expire on Dec. 31, 2000.

[Source: CN website.]

October 24, 2000
Montreal, Quebec

Canadian National's Paul M. Tellier vows to strengthen ties with short-line railroad partners

Canadian National President and Chief Executive Officer Paul M. Tellier says CN is committed to making its connecting short-line railroads full partners in its scheduled freight service offering.

"CN's view is that the future of railroading depends on improving service," said Tellier, speaking to CN's 2000 Short-line Workshop here.

"Scheduled service is the key to making us the best in customer service and efficiency. It's the way to win back business ... We must focus on integrating the service we [CN and short lines] offer together to short-line customers. We want them to gain the advantages of scheduled service."

Short-line railroads are a big part of CN's business. Just five years ago, less than five per cent of CN's business involved short lines. Today, CN connects with about 80 short lines, and nearly a quarter of its business either originates or terminates on short-line carriers."When that much of our business relies upon short-line service, we know we need to work together."

CN has played a leading role in the creation of Canada's short-line industry. Since 1996, when the Canada Transportation Act was enacted, CN has transferred more than 4,600 miles (7,400 kilometers) of track to short-line operators. Today, more than 30 profitable, growing railroads operate lines that CN once owned and which today work best under local management.

Tellier urged short-line operators, at a time of soaring fuel prices, to press governments to lower punitive rail fuel taxes. He also invited short-lines to work with CN to show governments that railroad deregulation has benefited the economy, shippers and the entire rail industry. The Canada Transportation Act, which largely deregulated railroads, did much to create Canada's short-line industry, and now is subject to a statutory review by a federal panel.

"The current system is delivering excellent results: lower rates, improved efficiency, and better service. But the review provides opportunities to improve the system further."

Tellier said the system should be modified to make it easier for large railroads to transfer lines to short-line railroads. Second, he said, the rail industry needs a regulatory system where the bar is set very high before parties submit rate disputes to final offer arbitration. Third, and above all, Tellier, said railroads require a system that permits them to earn their cost of capital to attract the capital the industry needs to meet customer requirements.

Tellier said forced open-access - permitting multiple operators to run over a landlord railroad - would constitute re-regulation that could set the industry back decades. He said short-line operators RailAmerica, Inc. and Cando Contracting Ltd. agree that re-regulation would put all railroads at risk - large and small.

Tellier said CN is prepared to assist short lines upgrade their rail lines to accommodate heavier freight cars when the investment is economically justified.

CN recently agreed to provide US$2.4 million to the Columbus and Greenville Railway (C&G) in Mississippi. Over the next 10 years, a major C&G shipper, Delta Western Feed Mill, Inc., will use CN to route a substantial portion of grain and grain products to its plant in Indianola, Miss.

[Source: CN website.]

October 23, 2000
Montreal, Quebec

CN's third-quarter 2000 net income rises nine per cent to $216 million, operating ratio improves by 1.4 points to 69.4 per cent. Year-to-date 2000 net income increases 20 per cent to $642 million, excluding non-recurring items in first nine months of 2000 and 1999

Canadian National today reported net income of $216 million for the third quarter of 2000, a nine per cent increase over year-earlier net income of $199 million.

Diluted earnings per share for the quarter ended Sept. 30, 2000, were $1.09, a 14 per cent rise over diluted earnings per share of 96 cents for the comparable period of 1999.

Operating income for the latest quarter rose nine per cent to $407 million. CN's industry-leading operating ratio - the percentage of revenue required to operate and maintain the railroad - improved by 1.4 points in the quarter to 69.4 per cent.

Third-quarter 2000 revenue grew by four per cent to $1,330 million, with carloads rising four per cent to 956 thousand. Operating expenses rose by less than two per cent to $923 million, reflecting continued strong cost control in the face of sharply higher fuel prices and increased expenses associated with higher traffic volumes.

CN President and Chief Executive Officer Paul M. Tellier said: "CN registered solid gains in the quarter and first nine months of 2000. I am particularly pleased with CN's four per cent revenue growth during the quarter and the continuing success of our 'scheduled railroad' operating plan in improving service, controlling costs and increasing asset utilization.

"The majority of CN's seven business groups recorded revenue increases in the third quarter. Strong performances by the railroad's intermodal, automotive, grain and fertilizers, and petroleum and chemicals business units more than offset weakness in metals and minerals revenue, and reduction in coal revenue. Forest products revenue was flat."

"CN's intermodal and automotive units both benefited from a strong North American economy and market share gains. The increase in grain and fertilizers revenue was driven by strong Canadian grain exports, as well as United States and Canadian oilseed exports. Higher demand for industrial chemicals and petrochemicals generated increased petroleum and chemicals revenue."

Four business units recorded revenue increases in the third quarter: intermodal (15 per cent); automotive (15 per cent); grain and fertilizers (eight per cent); and petroleum and chemicals (four per cent). Forest products revenue was flat. Coal revenue declined 20 per cent, and metals and minerals revenue declined seven per cent.

"On the expense side," Tellier said, "CN again benefited from its industry-leading service plan that delivers consistent on-time performance and significant cost and asset utilization benefits. Operating expenses rose by only 1.8 per cent in the quarter despite a 44 per cent increase in fuel expense."

Operating expenses for the third quarter of 2000 declined for casualty and other (36 per cent); operating taxes (10 per cent); equipment rents (six per cent); and labor and fringe benefits (two per cent). Expenses rose for fuel (44 per cent); purchased services (nine per cent); material (seven per cent); and depreciation and amortization (five per cent).

Net income for the first nine months of 2000 was $642 million, excluding a one-time, $58 million after-tax gain (29 cents per diluted share) related to the exchange of CN's minority equity investments for common stock of 360networks Inc. Including this item, net income for the most recent nine-month period was $700 million.

For the first nine months of 1999, net income was $533 million, excluding a $5 million after-tax cumulative effect of changes in accounting policy (three cents per share). Including those accounting policy changes, net income for the period was $538 million.

Diluted earnings per share for the first nine months of 2000 were $3.19, excluding the one-time gain. Including it, diluted earnings per share were $3.48.

For the comparable period of 1999, diluted earnings per share were $2.68, excluding the accounting policy changes. Including them, diluted earnings per share were $2.71.

Operating income for the first nine months of 2000 rose 14 per cent to $1,207 million. CN's operating ratio for this period improved by 2.4 points to 70.1 per cent.

Revenue for the latest nine-month period increased by five per cent to $4,035 million, with carloads rising six per cent to 2,847 thousand. Three business units recorded increased revenues: automotive (22 per cent); intermodal (12 per cent); and grain and fertilizers (11 per cent). Revenues were flat for petroleum and chemicals, metals and minerals, and forest products. Coal revenue declined 18 per cent.

Operating expenses for the first nine months of 2000 increased by one per cent to $2,828 million. Expenses declined for casualty and other (17 per cent); equipment rents (14 per cent); operating taxes (five per cent); and labor and fringe benefits (three per cent). Material expenses were flat. Expenses rose for fuel (51 per cent); depreciation and amortization (five per cent); and purchased services (two per cent).

The financial results in this press release are reported in Canadian dollars and were determined on the basis of United States generally accepted accounting principles (U.S. GAAP).

CN's senior executive officers will speak to financial analysts tomorrow, Oct. 24, about the Company's third-quarter results. A live Internet broadcast of CN's New York analysts' presentation will be available at CN's web site, www.cn.ca, starting at 9.45 a.m. EDT. Please access the web site prior to the presentation to install any necessary software. Following the broadcast, an Internet replay will also be available at CN's site.

A copy of the slide presentation to analysts will be on CN's web site Oct. 24 at 9.45 a.m. EDT. To retrieve it, click on "Investors" and then on "Analyst Presentations."

[Source: CN website.]

October 23, 2000
Montreal, Quebec

Canadian National declares fourth-quarter 2000 dividend

The Board of Directors of Canadian National today declared a fourth-quarter 2000 dividend on the Company's outstanding shares. A quarterly dividend of seventeen and one half cents (Cdn$0.175) per share will be paid on Dec. 29, 2000, to shareholders of record at the close of business on Dec. 8, 2000.

[Source: CN website.]

October 23, 2000
Montreal, Quebec

CN, BNSF announce agreement to provide seamless agricultural services in Iowa and Illinois

Canadian National Railway Company (CN) and The Burlington Northern and Santa Fe Railway Company (BNSF) announced today a Service Agreement that provides agricultural products customers with new seamless service using routes in Illinois and Iowa.

Under the agreement, which took effect Sunday, Oct. 15, CN will provide haulage service for BNSF between East Dubuque, Ill., and Cedar Rapids, Iowa, and BNSF will provide haulage service for CN between East Dubuque, Peoria and Centralia, Ill.

For CN customers, the agreement reduces round-trip miles on movements from the Iowa market to grain and oilseed processing areas, Mississippi Valley animal, aquaculture and poultry feeders and the Gulf export market. In addition, it will reduce transit times and train volumes in the Chicago terminal area. CN Iowa unit train programs can now move via Galesburg, Ill., on BNSF instead of on CN's longer route through the Chicago area.Ed Harris, vice-president of CN's Midwest division, said: "This Service Agreement is an excellent example of CN and BNSF working together after they unwound their combination plan. It will allow CN to increase car and train velocity and provide our customers with new and improved service. More direct access to Decatur, Ill., processors will improve cycle times significantly, as well as cycle times for traffic destined to Mississippi and Gulf markets."

Pete Rickershauser, BNSF's vice-president, Network Development, said: "When we terminated the BNSF/CN combination agreement, we said we would try to capture, to the extent that they can be realized by separate entities, the improvements and efficiencies that were identified as part of the combination preparation.

"This joint effort between BNSF and CN was identified as a rail customer benefit in studies related to the proposed combination. Implementing this Service Agreement provides agricultural commodity shippers and receivers throughout North America with new competitive service offerings, and expanded opportunity and market presence in the Iowa-Illinois markets."

Current and potential customers in BNSF-served grain-producing areas will have what amounts to single-line service to grain processors in Eastern Iowa. Those same processors will likewise have access to various destination markets served by BNSF using this new single-line service offering.

[Source: CN website.]

October 20, 2000
Montreal, Quebec

CN works with BNSF to create seamless RoadRailer network linking Montreal and Toronto with the U.S. Pacific Southwest

Canadian National Railway Company (CN) announced today it has implemented a service agreement with The Burlington Northern and Santa Fe Railway Company (BNSF) to create a seamless bimodal RoadRailer network linking Montreal, Toronto, Chicago and the United States Pacific Southwest (California and Arizona).

The partnership extends CN's Montreal-Toronto-Chicago RoadRailer service for general merchandise to the Pacific Southwest from Chicago over BNSF. It also expands BNSF's refrigerated Ice Cold Express service for Pacific Southwestern shippers of fruits and vegetables beyond Chicago to Toronto and Montreal over CN lines. The new service began Oct. 16.

Mark Lerner, CN's director of RoadRailer services, said: "Shippers in Southern Ontario and Quebec now have access to a seamless, 3,000-mile RoadRailer network reaching key markets in Arizona and Southern California."

"This truck-competitive RoadRailer service gives CN shippers of retail products, food, beverages, automotive parts, packaging - anything that fits in a traditional dry highway trailer - a new transportation tool to take advantage of fast-growing north-south trade flows."

Steve Branscum, group vice president, BNSF Consumer Products, said: "The demand in the Midwest and Eastern Canada for fresh produce from the Pacific Southwest is significant, especially during the winter months. Through this BNSF-CN partnership, we can now give growers and grocers access to new markets with a true truck-competitive transportation alternative."

CN and BNSF are using a common terminal in Chicago. This improves transit times by eliminating the need for cross-town draying of trailers over congested highways in Chicago. CN and BNSF both use 53-foot Wabash National RoadRailer trailers and bogies in unit train service. BNSF uses refrigerated trailers (or ReeferRailers); CN employs high-cube dry and protective service RoadRailers.

Bimodal RoadRailer trailers are equally at home on the rails or on highways. The slackless RoadRailer technology ensures a smooth ride. In addition, the ReeferRailers feature state-of-the-art technology for temperature control and satellite tracking for real-time status reports.

The BNSF Ice Cold Express was introduced in June 1999 as a weekly service for temperature-controlled products moving between Southern California and Chicago, with connecting over-the-road service to several locations in the Midwestern and Northeastern United States. In May 2000 the service increased to two trains per week in each direction.

CN introduced its Toronto-Montreal RoadRailer service in September 1999 and extended it to Chicago on Oct. 16, 2000.

Mark VII, a full service transportation and logistics management company headquartered in Memphis, Tenn., will continue to co-ordinate the sales and operations services of the Ice Cold Express.

[Source: CN website.]

October 18, 2000
Indianola, Mississippi

Canadian National supports Mississippi shortline railroad, Delta economy with US$2.4 million for rail infrastructure upgrades

Canadian National (CN), the Columbus and Greenville Railway (C & G), and Delta Western Feed Mill, Inc. jointly announced today that CN has agreed to finance US$2.4 million in track improvements to enable the C & G to handle loaded railcars weighing up to 286,000 pounds. As part of the agreement, Delta Western, an affiliate and largest customer of the C & G, has committed to route via CN for the next 10 years a substantial portion of the inbound grain moving to its catfish feed production plant on the C & G mainline west of Indianola.

Railcars with a maximum gross weight of 286,000 pounds have become standard in the railroad industry, improving efficiencies but posing a problem for smaller railroads such as the Columbus and Greenville, whose infrastructure was designed to handle lighter loads. Cars with a 286,000-pound capacity can carry 400 more bushels of grain than cars operating at the previous weight limit of 263,000 pounds, a more than 10 per cent gain in carrying capacity.

"The financial support we are providing to improve rail service to Delta Western, as well as other C & G shippers, demonstrates our commitment to Mississippi and to the Delta region in particular," said Paul M. Tellier, President and CEO of Canadian National. "We consider the Columbus and Greenville one of our key partners in providing competitive, customer-focused rail service to a state that we or our predecessor companies have served for almost 150 years. The better the service we can provide shippers, the better for the region's economy overall. As Mississippi grows, we grow."

Tellier announced CN's financial support of the C & G upgrade at a ceremony marking the 25th anniversary of the establishment of the C & G under its current management. U.S. Surface Transportation Board Vice-Chairman Wayne Burkes was among the attendees at the ceremony.

The improvements to the C & G that CN will fund will also allow Delta Western and other C & G shippers to take advantage of CN's "Efficiency Trains," grain trains of 75 or 100 cars that cycle between origin and destination points. Efficiency trains operate with incentives for the shipper, the railroad and receiver to load, move and unload grain within time limits in order to maximize equipment utilization. C & G's participation in the handling of Efficiency Trains will mark the first time CN has entrusted the demanding and time-sensitive movement of Efficiency Trains to a carrier with whom it interchanges traffic.

"The opportunity to receive CN Efficiency Trains on the C & G in combination with the increase to 286,000-pound capability will significantly reduce our transportation costs and lower the overall cost of our fish feed by as much as four dollars per ton," said Lester Myers, President of Delta Western. "Demand for catfish products is spurring vibrant growth in the catfish industry. We want to stay - and we want to help keep the Mississippi Delta - in the forefront of that growth. Being able to receive 286,000 pound-cars of grain in CN Efficiency Trains at our Indianola production plant will make us both more efficient and better able to keep pace with the growing demand for our product."

"We look forward to a long-term partnership with Canadian National," concluded Myers.

"This agreement benefits all involved: the C & G, CN, and Delta Western, as well as the people, businesses and farmers of the central Mississippi Delta," said Roger Bell, President and CEO of the Columbus and Greenville Railway. "Not only does this agreement secure long-term rail business for the C & G, it will enable us to provide better freight service to all shippers on our line."

The upgrade of C & G track between its interchange with CN at Greenwood, Miss., and the Delta Western plant to handle heavier cars will complement a program that C & G began earlier this year to replace 38 miles of lightweight, jointed rail with heavier, continuous welded rail (CWR). CWR improves safety, provides greater train efficiency, and reduces maintenance costs for both track and equipment. The upgrade to 286,000 capacity will itself include replacement of 20,000 crossties, the ballasting, surfacing, and lining of track, and installation of an additional two and one-half miles of heavier rail. The project also calls for rebuilding or strengthening 11 bridges and rebuilding 20 rail-highway grade crossings. The work will take place over the next year with completion scheduled for the fourth quarter of 2001.

CN and C & G expect to move 1,500 carloads of grain to Delta Western in the first year after completion of the track upgrade and 2,000 carloads annually in subsequent years.

Tellier emphasized that shortlines such as C & G play a critical role in North America's rail system and illustrated how important shortlines are to CN.

"More than 20 per cent of CN's business either originates or terminates on shortlines," said Tellier. "When that much of our business relies upon partnership with shortlines, we know we need to work together."

Tellier explained that the financial assistance package made possible by the effort of CN, C & G, and Delta Western set "a new standard of cooperation between a Class I railroad and the shortline industry."

CN, he said, fully supports the joint initiative of shortlines and the larger Class I railroad to seek a congressional solution of the challenge shortlines face in upgrading to handle 286,000-pound cars. That initiative would lead to 80-percent federal funding of upgrades with a 20-percent match from railroads or other non-federal sources.

"But we're not waiting for Congress to act," said Tellier. "We're moving ahead where our financial support for 286,000-pound capability is economically justified."

Delta Western is the largest producer of catfish feed in the world. In business since 1965, Delta Western sells and delivers directly to catfish producers throughout Mississippi, as well as in Arkansas and Alabama. Delta Western, which employs 85 people and is headquartered here, has recently doubled its capacity and anticipates making further plant improvements in 2001.

Columbus and Greenville Railway, with 65 employees, provides rail transportation services to local communities and dozens of shippers across North Central Mississippi and the heart of the farm-rich Mississippi Delta. The C & G, which traces its historical roots to the 1878 founding of the Greenville, Columbus and Birmingham Railroad, began operations with its current corporate structure on October 30, 1975.

[Source: CN website.]

October 16, 2000
Montreal, Quebec

Canadian National to sponsor Canada's Paralympic Team at Sydney

Paul M. Tellier, president and chief executive officer of Canadian National, announced today that CN will sponsor Canada's Paralympic Team competing at the Summer Paralympic Games in Sydney, Australia, Oct. 18 to 29.

"The Canadian Paralympic Team's record of success in international competition reflects tremendous dedication and commitment," Tellier said. "All Canadians should be proud of these extraordinary athletes and their accomplishments, and cheer each of them on to medal winning performances again this year."

"CN is proud to support the team and the organization that prepares it for competitions around the world. These young men and women are tremendous international ambassadors for all Canadians." CN's $50,000 sponsorship of the Paralympic Team is part of the company's donations program that supports health, safety and education organizations and institutions in Canada and the United States.

"Paralympic athletes are a strong source of inspiration for us all," said Denis Coderre, secretary of state, Amateur sport. "Their success is the result of constant effort and outstanding force of character. And it is thanks to sponsors like CN, that Canada is a world leader in the Paralympic movement."

The Canadian Paralympic Committee (CPC) is a non-profit, charitable, private corporation recognized by the International Paralympic Committee since 1989. As such, the CPC is responsible for co-ordinating all aspects of Canada's participation in the Paralympic Games.

[Source: CN website.]

October 11, 2000
Montreal, Quebec

Canadian National calls for greater rail deregulation

Canadian National said today the clear shipper benefits of rail deregulation merit further easing of rail regulation in Canada.

CN made its comments in an initial submission to a federal government panel conducting a statutory review of the effectiveness of the Canada Transportation Act of 1996 (CTA).

CN said Canadian rail freight deregulation has been a success for the Canadian economy, shippers and taxpayers. It has significantly contributed to the substantial economic recovery of Canada's railroads, but this recovery is incomplete and fragile.

Because rail recovery is unfinished, CN said, the revenue adequacy of Canada's major railroads must figure prominently in the CTA review panel's analysis of competitive rail access issues. An interim panel report on access concepts is due by year-end.Open access - allowing multiple carriers access to a network owned by another railroad - would constitute a major structural change to Canada's rail transportation system. Open access regimes in other countries are all significantly subsidized by taxpayers and fall well short of the performance and policy objectives met by Canada's current regulatory system.

CN said the shipper benefits of the CTA and National Transportation Act of 1987 are clear. Today, rail freight rates paid by Canadian shippers are the lowest in the world - 60 per cent below the international average. Since 1987, shippers have benefited from a 35 per cent decline in real freight rates. Moreover, deregulation has given rail customers in Canada the highest level of shipper protection of any jurisdiction in the world and significantly more protection than shippers enjoy in the United States.

Equally significant, Canada's rail freight industry no longer requires operating subsidies - subsidies that were costing Canadian taxpayers hundreds of millions of dollars every year.

The CTA also paved the way for CN's privatization and the dramatic improvement of rail freight efficiency. Currently, CN is the most efficient railroad in North America.

CN said Canada's rail industry faces major hurdles in spite of the benefits of deregulation. Despite impressive service performance and productivity gains, rail's share of the growing freight transportation market is still shrinking and more than eight years of sustained economic growth has increased rail traffic volume, but revenues only modestly.

Railroads' single greatest challenge, therefore, is to increase business, recapture market share from trucks, and compete head-to-head with U.S. railroads for business in the fast growing, but competitive North American market. In Canada, 99 per cent of all rail business is subject to intense competitive pressures, whether from trucking, rival railroads or alternate sources of goods.

In such a market, CN said, the rail industry's capacity to compete depends on cost recovery and its ability to renew its infrastructure to provide shippers with better service. Railroading is a highly capital intensive business - today CN spends about $1 billion annually, or 20 per cent of annual revenue, on capital improvements.

To achieve full cost recovery and the lowest rates for shippers, railroads employ differential pricing - pricing based on the elasticity of demand for rail transportation, not cost formulas. Differential pricing optimizes contributions to high fixed costs for the benefit of all stakeholders, especially the most rail-dependent shipper.

Even with differential pricing, the rail industry's rate of the return on capital - 8.4 per cent - is lower than most other major industry groups. In this period of sustained economic growth, CN is now beginning to earn its cost of capital, but it is far from earning its cost of capital over a full economic cycle.

Railroads face a fundamental reality - differential pricing is essential to rail viability. Conversely, the inability to price according to demand would lead to lower levels of service and higher rates or subsidies.

CN said any recommendations for regulatory change based on access - including access provisions for regional railroads - must maintain the integrity of differential pricing and be measured against a set of core principles that first addresses:

• Full cost recovery;
• Access reciprocity, permitting all railroads to have reciprocal rights to access each others lines;

Then includes:

• Full deregulation, because under open access, market forces, not regulation, should drive industry efficiency, service and price;
• Commercial arbitration of rate disputes;
• Regulatory rules that are competitive with the United States and respect North American Free Trade Agreement (NAFTA) and World Trade Organization (WTO) rules.

CN said any access proposal that fails to address each of these principles would constitute regulated or forced access and could represent a subsidy and/or expropriation under NAFTA or WTO rules.

Current proposals, such as a regional railroad focussed on grain transportation or the competitive access rates proposals, fail to meet the core principles outlined above and both would undermine differential pricing.

To respond to such proposals would quite simply constitute an unwarranted -- and possibly unlawful transfer of wealth from one participant in the transportation system to another, CN said.

CN firmly believes that the principles that underlie Canada's current legislative and regulatory system should be the basis for the future.

CN said the onus is on the Canadian proponents of open access to demonstrate that such a system would improve efficiency, deliver economic benefits to all stakeholders and maintain the competitiveness of Canadian railroads.

CN will address in full its call for further rail de-regulation, an integrated national transportation policy compatible with North American regulatory trends, and tax equity for Canadian railroads in a filing with the CTA review panel on November 17, 2000.

CN's initial CTA submission is available on its 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, 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.

[Source: CN website.]

October 5, 2000
North Vancouver, British Columbia

BC Rail Announcement - Fuel Surcharge

For the past 18 months BC Rail has absorbed the increased price of fuel as we recognize marginal fluctuations to be an inherent part of providing transportation services. However, during this period we have experienced a fuel cost increase of over 40% and given sustaining price levels, we must now take action to mitigate the adverse financial impact that it is having on our business.

Effective October 15, 2000 a fuel surcharge will be applied on all originating carload traffic (Interline, Local and Export) that currently is not governed by cost recovery clauses in established Freight Transportation Agreements. The magnitude of the surcharge on aggregate represents a fuel cost recovery of approximately $0.25 CDN per mile, with a minimum charge of $30.00 per car and a maximum charge of $85.00 per car respective to length of haul.

BC Rail Intermodal currently has a 6% surcharge in place covering Trailer load and Less-than-Trailer load traffic effective October 1, 2000..

I want to assure customers that we have evaluated a variety of options to deal with this situation and have determined the surcharge formula to be an equitable way to deal with this unexpected cost increase.

Once the West Texas Intermediate Crude Oil Price (WTI) falls below the benchmark price of $26.00 USF for 30 consecutive days the fuel surcharge application will be reviewed.

While no one welcomes or anticipates sharp increases in fuel prices, we trust you will understand the economic impact it has on transportation costs and our ability to provide an environment for stable transportation services in the long term. Should you have any questions or concerns please feel free to contact our offices.

Sincerely,

D.R. MacLean
Vice President, Marketing & Sales

[Source: BC Rail website.]

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