How CB Rail is Bad for US Business

It’s speculation … but let’s start with the facts.

Fact #1: The last westbound train left Cape Breton Island in December, 2014. Since then the rail lines have not only been idle, but deteriorating. Cost estimates for restoring the rail line to operational condition now approach $200-million.

Fact #2: The 300-ish kilometre stretch of rail that connects Cape Breton Island to the rest of Canada is operated by US rail company G&W (Genesee & Wyoming). G&W has very few Canadian assets. Most of the rail lines across Canada are controlled by either CN (Canadian National) or CP (Canadian Pacific). So, any trains travelling from Cape Breton to parts west would ultimately spend most of their time on CN or CP tracks; less than ideal for G&W.

Fact #3: Government subsidies for the Cape Breton rail line were suspended in September 2014, after which G&W announced plans to abandon and pull up the tracks, intending to sell-off the steel rails for their salvage value. A new government deal was negotiated to prevent G&W from completely abandoning the line: starting in 2017 Nova Scotia began paying G&W $60,000 each month (recently reduced to $30,000/month) for as long as the tracks stayed on the ground.

Fact #4: G&W is a major short-line/regional player in the US rail industry – handling freight to and from most ports in the US. The Northeast Region (see map below) is particularly important in this case, as G&W carries freight to/from the port cities of Portland, Boston, Providence, New York, Philadelphia, and Baltimore – and inland, north to Montreal and Quebec City.

Fact #5: A good number of the ports and container terminals along the US Eastern seaboard are operated by Ports America.

  • Portland ME
  • Boston MA
  • Davisville RI
  • Brooklyn NY
  • Manhattan NY
  • Norfolk VA
  • Wilmington NC
  • Newark NJ
  • Jersey City NJ
  • Camden NJ
  • Philadelphia PA
  • Baltimore MD
  • Charleston SC
  • Savannah GA

Fact #6: Brookfield Asset Management and its subsidiary Brookfield Infrastructure Partners own controlling shares in both Ports America and G&W; having acquired 62% of Oaktree Captial (parent company of Ports America) in March 2019, followed by their acquisition of G&W in December 2019.

The majority ownership of both Ports America and G&W gives Brookfield a substantial market share in the North American container shipping industry.

Fact #7: While the Cape Breton rail line sits neglected and deteriorating, marketers are working to attract investment in NovaPorte – a proposed mega container terminal project. If successful, NovaPorte would be among the largest container terminal operations in North America; starting at 1-million TEU capacity and ramping up to 3-million TEUs when the facility becomes fully operational. (NOTE: the marketing of NovaPorte is a controversial subject, which I will not even attempt to broach here).

Fact #8 (last fact, I promise): According to NovaPorte representatives everything is in place and construction is set to begin – contingent on repairs and upgrades to the crumbling G&W rail line on Cape Breton Island. BUT … G&W shows no interest in restoring rail service on this line, and NovaPorte will remain little more than conceptual until trains can run on Cape Breton Island tracks.

The Question (and conclusion)

Why is G&W (Brookfield) – with their virtually bottomless pockets – reluctant to invest $200-million to restore service on their dilapidated rail line?

Because … an operational class-3 railway connecting Cape Breton to the rest of Canada would make NovaPorte a viable possibility.

NovaPorte, a 3-million TEU container terminal at the mouth of the St. Lawrence seaway, would pull considerable shipping traffic northward – to Canada – away from the congested ports in the US. This would be a serious financial blow not only to Ports America, but also to G&W as freight traffic between the US interior and the Eastern seaboard declines.

To Brookfield, investing a few million in Cape Breton would mean losing more than a few billion in the US. In fact the opposite makes more sense; Brookfield investing to ensure trains never return to Cape Breton Island would help secure their US business.

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