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. Last Updated: 07/27/2016

North American Rail Plan Touches Nerves

MONTREAL -- It is just steel and stone, a rough line scratched across an immense and largely empty landscape. But for much of the last century, as the whistle of Canadian National freight trains pierced the northern night, the "government railroad," as CN was known, helped define Canada.

The grand old railroad ran from east to west, and so did Canadian commerce - even with American markets lying seductively close to the border. So long as there was a separate Canadian market, and a separate Canadian railway, generations of politicians vowed, there would be a separate Canada.

Now, the current president of Canadian National Railway Co., Paul Tellier, has a different vision of the railroad, of Canada and the North American continent - a vision that some people on both sides of the border reject. Though his focus remains transcontinental, he is looking south, across the U.S. border and beyond that into Mexico.

Tellier wants to merge the Montreal-based CN with a giant American railroad, Burlington Northern Santa Fe Corp., and create the most titanic railroad this continent has ever seen. The behemoth would have 80,000 kilometers of track, combined annual revenues of $12.5 billion, freight service to 32 states and eight Canadian provinces, and cross-border access from Halifax, Nova Scotia, to Mexico City to Long Beach, California.

Not everyone is willing to accept the vision of the new railroad or the changes it represents. In the United States, shippers and unions, burned by service disruptions after other big rail mergers, oppose the deal, a cashless transaction that would create a new holding company, North American Railways. Competing railroads have warned another merger at this time would push the industry into a final round of consolidations that would end with just two enormous networks to serve the entire continent of North America.

In Canada, shippers and farmers are worried the merger would reduce what little competition exists - CN's only national rival is Canadian Pacific Railway Co. And fervent nationalists see the proposed merger as the loss of a revered national symbol and the last spike in the dream of an independent, sovereign Canada.

"We would probably not have the western part of the country in Canada today if not for these railways," said David Orchard, a prairie farmer and chairman of a Canadian group called Citizens Concerned About Free Trade. "This merger would be a betrayal of everything that the founders of the country fought for."

Both freight lines are led by headstrong executives determined to drag American railroads into a new era. Robert Krebs of the Fort Worth, Texas-based Burlington Northern is a bred-in-the-bone railroad man, with 34 years' experience running American trains. Tellier, who joined CN eight years ago, is a former civil servant with a passion for Descartes.

The combined railroad, they say, makes perfect economic sense. North-South traffic across the borders is expanding at a rate of 10 percent to 15 percent a year, while east-west traffic is rising no more than 4 percent annually. U.S. trade with Canada and Mexico has continued to grow even when trade with many other countries flattened out.

The railroads have taken pains to present the deal as a merger of equals. Burlington Northern and CN would keep their own offices, and their locomotives would continue to be painted with their separate corporate logos.

But the balance of power seems to tip toward the Canadians. The parent company, North American Railways, will be located in Montreal, and, by Canadian law, the majority of board members must be Canadian. Krebs, 66, would become non-executive chairman and Tellier, 60, chief executive officer.

The outcry over the Burlington Northern-CN alliance has reached the Surface Transportation Board, the U.S. regulatory agency with the power to review, and possibly block, rail mergers. The board has scheduled an unusual public hearing next month - before the formal merger application is even filed - to look at the rail industry's future.

If railroad consolidation "plays itself out to the endgame that some feel it will," Linda Morgan, chairwoman of the board, wrote in response to the merger announcement in December, "this is the final round."