2 July 2010

City of Sioux Falls to Lose 100 Rail Jobs Due to DM&E Merger

It snows along the DM&E in winter sometimes.

Sioux Falls South Dakota USA - Sioux Falls, which was the headquarters of the largest regional railroad in the country only three years ago, will lose almost 100 railroad-related jobs in the next nine months.
 
The Canadian Pacific Railway purchased Cedar American Rail Holdings for $1.48 billion in 2007 amid optimistic assertions that merging the Dakota, Minnesota & Eastern Railroad with other railroads would accelerate a decade of booming growth among the regional freight carriers.
 
This week, however, CP officials announced to the Sioux Falls work force of about 125 that almost 100 of the jobs here would leave town.
 
About 65 employees will be offered an opportunity to relocate within the CP system. About 30 positions will be eliminated.
 
That will leave a presence in Sioux Falls of about 25 mostly sales and marketing jobs.
 
"Along with other facilities throughout our network, we have made the difficult decision to reduce and relocate our office staff," CP spokesman Mike LoVecchio said.
 
"This is not a reflection on the DM&E. It remains a critical component of CP. It is not a reflection on Sioux Falls and South Dakota. It is an office relocation."
 
The workers affected in Sioux Falls did a range of management, financial, and technical work associated with being a rail headquarters, according to LoVecchio. Overall, CP has 368 employees in South Dakota. Those not affiliated with the headquarters work on railroad crews and in operations centers in Huron and Rapid City.
 
The Sioux Falls reductions "will not impact operations or employees outside of the city of Sioux Falls whatsoever," LoVecchio said.
 
"In fact, we are hiring operations employees as our business grows outside of Sioux Falls."
 
While the sales and marketing role is a shadow of what CP now does in Sioux Falls, no further reductions are planned, according to LoVecchio. "Every indication I have is that function will continue in Sioux Falls," he said.
 
CP also has no plans to sell its large headquarters building at 140 N. Phillips Ave., LoVecchio said.
 
Mayor Mike Huether called the dramatic scaling back of CP's presence in Sioux Falls "incredibly disappointing."
 
"We work our tails off to try to find companies that employ people with good jobs and good benefits," he said. "To lose that is not good."
 
The mayor, however, was sympathetic to CP's rationale for the cuts.
 
"We are losing a level of expertise within the railroad industry you just don't want to lose. But I am also a business person. As hard as it is for me to have these people lose their jobs, I do understand the business side of it. Companies like this are doing it all over the country right now to try to become more efficient and productive."
 
LoVecchio says the loss of jobs in Sioux Falls is related less to the struggling economy than to the need to achieve structural efficiencies within CP.
 
Indeed, hiring rail crew members in South Dakota "is reflecting some growth in our traffic," he said.
 
Sen. John Thune, R-S.D., was South Dakota railroad director from 1991 to 1993. He also was an influential promoter of the DM&E and Cedar American. He echoed Huether on CP's plans to slash operations in Sioux Falls.
 
"This news was incredibly disappointing to the workers and families involved," Thune said in a news release.
 
Kevin Schieffer, former Cedar American CEO, moved the DM&E headquarters from Brookings to Sioux Falls and the former IBM Building on Phillips Avenue in 2002.
 
He arranged the sale of the DM&E and the Iowa, Chicago & Eastern Railroad to CP five years later. Seeing the reductions now "is very difficult to watch. More important, I know the people affected here. It hurts a lot. They are very good people," he said.
 
The DM&E was created in the mid-1980s from aged, decrepit lines across Minnesota and South Dakota that the Chicago & North Western Railway wanted to abandon. As a staffer for Sen. Larry Pressler at the time, Schieffer helped put the new railroad together. In 1993, he opened a law practice in Sioux Falls with the DM&E as a major client, and in 1996, he was named the railroad's second CEO.
 
From the beginning, Schieffer had a sweeping vision. He repeatedly made the point the DM&E would never generate enough revenue from existing traffic to replace worn out rail more than 100 years old in some cases. Without reconstructing its rail, the DM&E eventually would cease to exist.
 
To increase its financial reach, in 1997, the DM&E announced plans for a $1.2 billion expansion into Wyoming's Powder River Basin. It would be the largest rail-building project in the U.S. in more than a century. The DM&E, which hauled lumber and bentonite from the Black Hills, and grain and freight across South Dakota and Minnesota, would join the Burlington Northern Santa Fe and Union Pacific railroads in hauling coal from Wyoming to power plants in the East and Midwest.
 
The plan was opposed by ranchers whose land the new track would cross, by environmentalists, and by the Mayo Clinic and its home city of Rochester, Minn. Mayo and Rochester officials feared the effect of high-speed coal trains running near Mayo buildings. The DM&E fought bitterly with those entities for years while it secured federal approval for the project, but ultimately a loan application with the federal government was denied in 2007.
 
During that fight, the DM&E made incremental progress in rebuilding its facilities and increasing its traffic. In 2002, it purchased the much larger I&M Rail Link operating in Iowa, Missouri, Minnesota, Illinois, and Wisconsin. It renamed the railroad the IC&E and joined operations with the DM&E as Cedar American Rail Holdings in Sioux Falls.
 
Schieffer began to look for a buyer for Cedar American after the loan denial, and during discussions with CP, "there was a very strong commitment to emphasis to the Powder River Basin project," said Schieffer, who is in mediation with CP over compensation on a severance package.
 
The DM&E had managed to turn itself into the largest regional line in the U.S. with annual revenues of $340 million, and as CP considered buying Cedar American, "the expectation was it was going to continue to grow," Schieffer said. But in 2009, CP suspended plans to build new track to Wyoming, and now comes the lost Sioux Falls jobs.
 
If the growth he had envisioned had happened, Schieffer said, "there could easily be 600 to 700 people in Sioux Falls and another 1,500 spread around the state. That was certainly still the hope when we did this deal," he said.
 
"The difference between what we see today and what could have been is really heart-wrenching."
 
Peter Harriman.