The leader of Maine’s newest railroad is spending more than $10 million this year on track upgrades and faster locomotives to bring the historically troubled line to profitability.
Rail veteran John Giles has taken charge of the Central Maine & Quebec Railway. The new railroad replaces the Montreal, Maine & Atlantic, which was driven into bankruptcy after one of its oil trains derailed in Lac-Megantic, Quebec, last year, spawning a catastrophic fire that destroyed a large part of the downtown and resulted in 47 deaths.
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Giles, 65, works for the investment management firm Fortress Investment Group, which this spring spent $15 million, plus another $10 million in legal costs, to purchase the assets of the rail line linking Searsport and the outskirts of Montreal.
Giles wants to modernize the railroad so it can operate safely and efficiently, carrying lumber and other forest products as its primary cargo. The line still goes through Lac-Megantic and won’t carry oil through the town until at least 2016, he said, adding that the railway doesn’t need to haul oil to make money.
The plans to upgrade the tracks, which will allow train speeds to increase from 10 mph to 25 mph, will be complemented by a new corporate culture that focuses on serving the needs of the railroad’s industrial customers.
“We need to get into the shoes of the user – be they the shipper or the receiver,” Giles said during an interview Tuesday at the company’s headquarters in Hermon. “We need to help them answer the question of how to stay competitive and to grow.”
Still, transforming the railroad will take time, he said. “Let’s face it, there is a heavy lift to be done here,” he said.
Giles will speak about the railroad’s future in Bangor on Wednesday at a forum sponsored by the Action Committee of 50, a nonprofit economic development corporation.
The railroad’s success is critical to the economy in northern Maine because it provides a transportation link to the Midwest via Quebec, and also to international markets through the Port of Searsport, said David Cole, a consultant for the group and a former commissioner of the Maine Department of Transportation.
“This railroad serves the heartland of Maine,” he said.
Central Maine & Quebec Railway’s 481-mile network connects to major Canadian railroads, extends to northern Vermont and to Millinocket, and offers the most direct freight connection between Montreal and Saint John, New Brunswick.
Cole said the business community is pleased that Fortress Investment Group is keeping the rail network intact and has placed an experienced railroad executive like Giles in charge.
“As important as this is, they are not miracle workers,” he said. “It’s going to take time to build up this railroad to its former prominence.”
DECADES OF TROUBLE TO OVERCOME
Some wonder if the railroad can ever succeed, considering the deteriorating condition of Maine’s industrial economy and that the section between Brownville Junction and Jackman is the longest stretch of rail without customers east of the Mississippi River.
Chalmers “Chop” Hardenbergh, editor of the Atlantic Northeast Rails and Ports, an industry newsletter, has seen other new railroad owners make similar statements about improving customer service and profitability.
“For me, it’s wait and see,” he said.
Indeed, this rail line hasn’t enjoyed much success since one of its previous owners, the Bangor and Aroostook Railroad, lost a major part of its potato business in the late 1960s.
The Montreal, Maine & Atlantic bankruptcy was the second in 12 years for a company operating the railroad. The previous owner, Iron Road Railways, had acquired the surviving segments of the struggling Bangor and Aroostook Railroad in 1995, but went bankrupt in 2002.
Giles remains optimistic. He said the rail upgrades, which are scheduled to be completed by Nov. 1, combined with the higher speeds will allow for faster service for customers and lower labor costs per trip. A trip from Farnham, Quebec, to northern Vermont, which typically takes two days with the slower locomotives, soon will be made in one.
In addition, the Montreal, Maine & Atlantic had operated 40 old locomotives that were in poor condition, broke down frequently and were costly to maintain. Giles has replaced them with a fleet of 19 somewhat newer locomotives that need less maintenance.
He said the newer locomotives also use nearly half the fuel to carry the same amount of freight as did the old locomotives.
Giles also is increasing the size of the sales and marketing staff.
EXPECTING TO BE PROFITABLE IN 2015
Gaynor Ryan, chief administrator and a 20-year veteran who has survived two bankruptcies while working for the railroad, said Giles has brought enthusiasm and a fresh approach.
“He has so many ideas for changing the way we have always done business,” she said.
Giles, who had previously worked as president and CEO of RailAmerica Inc. and Great Lakes Transportation LLC, said Fortress Investment Group believes that reviving the Central Maine & Quebec will create a “platform” that will allow the company to expand to other railroads, although not necessarily in the same geographical area.
The railroad employs 110 people in Canada and Maine, and serves 60 to 70 customers. He said the railroad will be profitable next year. Success, he said, will come from focusing on details.
On Tuesday, walking outside the company’s headquarters in Hermon, he pointed to the discarded metal hidden in the weeds along the tracks.
The rusted pieces of rail and old train parts look like trash, but Giles says the iron is worth money as scrap. In fact, he said, there’s valuable junk strewn all along the railroad’s tracks.
“There’s $3 million just lying around,” he said with a laugh.
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