When measured in ton/miles, North American freight hauling is split almost evenly between trucks and railways. When measured in money, however, the picture changes dramatically. "Trucks capture at least 91 % of the surface freight revenue in the U.S.," reports John Winner, a partner in the Washington-based rail consulting firm Harral Winner Thompson Sharp Lawrence Inc. "Competition from trucks continues to put unrelenting pressure on railways to seek greater efficiencies through mergers. By extending their networks, railroads can compete more effectively with the door-to-door service offered by highway haulers."

Steel tracks will continue to shape the continental economy, as they have for almost two centuries. The ongoing truck-- rail squeeze confronts North American governments, shippers and transporters with a web of interlocking policy decisions. These issues include:

• Will Canadian National or Canadian Pacific be permitted to merge with any of the four dominant American railways? Could Ottawa retain meaningful regulatory control over a continental network?
• Alternatively, should CN and CP be allowed to unite through takeover or merger? If so, how would shippers be assured of competitive rates from a national rail monopoly?
• Federal Transportation Minister David Collenette ardently wishes to see a super high-speed passenger rail service introduced along the Montreal-Toronto-- Windsor corridor. He is also said to yearn for an urban passenger rail corridor between Toronto's Pearson International Airport and the city core. Both dreams require co-operative access to CN's rights-of-way. What economic concessions might the Toronto MP horsetrade to secure CN's good will?

 Already, many western Canadian natural resource shippers-from sulphur to pulp-are captive to just one railway provider, paying heavy freight rates which Ottawa no longer regulates. CN and CP defend this status quo fiercely. Western shippers want reforms. In Britain, for example, there are 25 rail operators with "open access" to compete freely anywhere reached by the tracks.

As CN and CP abandon "uneconomic" branch lines in the West, grain is being trucked long distances to giant terminals on the main rail lines. But these heavy trucks are inflicting expensive damage on roads, which taxpayers must pay for. Can governments divert grain back onto the branch rail system by fostering short-line operators whose running costs are much lower than CN and CP? Should these junior railroads be allowed to compete for other freight, running on CN-CP tracks?

Competitive rail access is triggering tempers from Austria to Australia these days. By treaty, the European Community is obliged to provide fully open access to all comers but the process remains stymied on the continent due to politically powerful rail ministries and national railroads. The hotbed of competition, oddly enough, is socialist-governed Britain. There the entire rail network has been turned over to Railtrack, a regulated private utility. Three years ago, 25 train companies were licensed to operate on Railtrack's network under 20-year franchises. Rail revenues have already surged by 50%, passenger traffic is up 30% and a definite road-to-rail trend is under way.

Unfortunately, three Railtrack accidents within three years have cost 42 lives. Even so, travelling by automobile in the United Kingdom remains 12 times more dangerous. Rail safety has in fact improved overall under the unified network, reports The Economist magazine. Recently, the British government reluctantly acknowledged that it will have to help fund rail infrastructure improvements, much like it already does for highways. But despite teething troubles, open access looks increasingly like a success for Britain.

In the U.S., the federal Surface Transportation Board is holding hearings to discuss proposed rules for rail mergers. A report is due by June. The inquiry follows two botched rail takeovers. "Shippers experienced serious service disruptions when Norfolk & Southern and CSX [the two large eastern U.S. railways] split up Conrail's assets and routes in 1999. The operational challenges were more difficult than the railroads expected," comments Peter Kieran, president of CPCS Transcom, an Ottawa-based transportation consultancy. Also problematic, in part due to weather and other natural disasters, was Burlington Northern's acquisition of Santa Fe, a southwestern road.

Besides Burlington Northern Santa Fe, the other western U.S. heavyweight is Union Pacific. Its title as the largest North American railroad would have been lost to a union between CN and Burlington, proposed in 1999. However, that marriage was blocked by the Surface Transportation Board, pending its examination of earlier merger turmoil. "I don't think regulators will permit the four big U,S. lines to consolidate into two transcontinental structures," suggests Mr. Winner. "But an American-Canadian rail merger is more likely to be acceptable in Washington."

In Canada, Ottawa historically treated railways as monopoly-type utilities, setting their freight rates by regulatory decree. For 15 years, however, deregulation has been evolving. The Canada Transportation Act (CTA), passed in 1996, required a five-year review which is now in progress. Minister Collenette, who was caught offguard by the CN-Burlington merger plan, asked the CTA review panel to consider questions about rail takeovers and competitive access to track.

Merger speculation mushroomed in February when Canadian Pacific announced that it will spin its assets into five independent companies. CP's divisions, although financially healthy, are too small to compete at the top of their leagues. CPRail, for instance, is the smallest of North America's six major railroads. Similarly, Fording Coal and PanCanadian Petroleum could use more scale. Interestingly, PanCanadian immediately announced its largest capital project ever, a billion-dollar commitment to developing the Deep Panuke natural gas field offshore Nova Scotia.

Paul Tellier, CN's president and CEO, has pondered aloud about gobbling up CP, which will be a much easier morsel to swallow as a stand-alone company. Mr. Tellier, formerly Canada's top federal civil servant, is a man with proven determination and impeccable political connections. For decades, CN bled red ink as a federal crown corporation. When the feds privatized it in 1995, Prime Minister Jean Chretien thoughtfully offloaded its longterm debt of $800 million onto taxpayers. Mr. Tellier proceeded to shatter CN's featherbedding unions, slash costs and modernize its operations.

A case in point: railroads normally wait until enough freight has accumulated before assembling a train. But as of September 1998 CN became North America's first-and still only-- major railway to operate its freight trains by schedule. "Our on-time performance is better than 90%. Equipment utilization rate improved so much that we could remove 600 locomotives from our fleet," reports CN spokesman Mark Hallman. "We've shaved 24 hours off our delivery time between Chicago and Vancouver. Given tight, predictable deliveries, we're drawing customers away from trucks." CN's cost-to-- revenue ratio is also acknowledged to be the best among North American roads.

Minister Collenette remains noncommittal on mergers but has expressed enthusiasm about urban transport to the National Post: "The people in Ottawa, my colleagues, the prime minister, the bureaucracy, realize they cannot simply say that the problems of our urban areas are the problems of the provinces," he comments. "We have to be there as partners." Although the Grit politician has not yet detailed what he has in mind, his enthusiasm for passenger rail projects in the Liberal heartland of Ontario is well known in the industry.

Mr. Tellier may need his political friends in Ottawa to overcome adversaries from western Canada. Bulk shippers say they desperately need rail competition. Omnitrax, one of North America's largest short- line operators, is eager to provide it. What could be a long, bloody showdown was formally launched this month when the Denver- headquartered railway applied to the Canadian Transportation Agency for the right to run its trains on CN track at a government-set fee.

CN and CP maintain that Canadian shippers pay North America's lowest freight rates, a whopping 60% below worldwide norms. "Average revenue per ton-mile has dropped by 35% in real terms since the mid- 1980s as a result of competitive pressures," insists a Canadian Pacific submission to the CTA review panel. The railways' return on investment is reasonable, their executives note, so shippers are not being gouged. If the government gives Omnitrax and other competitors "forced access" to CN and CP lines, the big railways fear their best customers will be filched. In that case, they warn that it will be impossible for them to make the long-term capital investments needed for a top-flight rail infrastructure.

CP advertising: Populated the West, now reaping profits from westerners.

Ian May chairs the Western Canadian Shippers' Coalition. "Average rail rates are low in Canada," the Vancouver-based executive agrees. "But how are those low averages achieved by the railways? By p\rice discrimination against us, that's how. Where there is competition from trucks, the railroads shave their prices to get business. But trucks cannot haul most bulk goods for long distances at economic rates. So the resource industries are frequently forced to ship by rail. To make matters worse, many sites are served by one railway only. In these cases, CP and CN charge what amount to unregulated monopoly prices. The resource sector is subsidizing rail rates for other shippers."

Rail density is low in the West, so captive rail shippers are far more common than in central Canada. Coal, lumber, petrochemical and other producers are precisely the high-paying customers that CN and CP fear would be cherrypicked by competing railways if more open access to their mainline track network is permitted under Ottawa's regulations. But if CN and CP had to forgo their lush western resource revenue, and if these railways could not raise freight rates elsewhere due to truck competition, the rail infrastructure as a whole might deteriorate due to lack of net income and investment capital.

The Omnitrax revolt is unusual. "There are 40 shortline railways in Canada. Most of them have negotiated running rights with CN and CP," points out Bill Rowat, president of the Railway Association of Canada. But every shortline feeds into a Class 1 railway's track, giving CN and CP an overwhelming negotiating advantage and ensuring that the smaller outfits are not permitted to compete along their main lines.

Omnitrax, in sharp contrast, wants the Canadian Transportation Agency to set the rental payment made to the Class 1 railways for using their track. "The usage fee should reflect realistic infrastructure costs, not whatever price a monopoly operator can impose," says Gary Rennick, head of Omnitrax Canada. His company has applied for running rights on more than 1,500 miles of underutilized CN main line in Saskatchewan and Manitoba, the largest bid of its kind in Canadian history. Given this "managed access" to its own salt- water port at Churchill, Man., Mr. Rennick says his railway could relieve grain trucking pressure on roads across a significant swathe of the prairies.

Omnitrax is not asking for the right to pick up freight along the CN main line. Not yet, anyway. But the Western Canadian Shippers' Coalition thinks the precedent of a government-set rental rate for running rights on the CN-CP network would create a valuable precedent. Given a fixed track usage fee, short-line operators could work out their costs for servicing currently captive shippers across Canada. As CN's Hallman remarks about the Omnitrax application, "It's going to be an interesting hearing."