Government takes step towards stripping Northern of rail franchise
He told MPs he has issued a "request for proposals" from the firm and the Operator of Last Resort (OLR), which could lead to services being brought into direct government control and run by the OLR.
Giving evidence to the Commons' Transport Select Committee, he said the level of performance on the Northern network "cannot continue".
He went on: "I entirely believe we cannot carry on just thinking it's OK for trains not to arrive or Sunday services not being in place. That simply has to change."
It said it has the "right to terminate" Northern's existing deal if it finds it is "in default of its current contract and that default was material and not capable of remedy".
Any decision on the next steps will take consideration of the forthcoming recommendations of the Rail Review, which is due to be completed this autumn.
Mr Shapps told the committee he looked up "on time" statistics showing the percentage of scheduled stops at stations which trains are making within a minute of the timetable.
He said: "Northern's current performance sits at 57%, literally just better than a one in two chance of a train arriving on time.
"That has actually fallen in the last six months from 61% in March, while the UK average sits at 65.1%.
"Nearly two-thirds of all trains arrive on time but if you're on Northern it's not much over half. That is a big gap.
"I've started to take action."
German-based Arriva holds the franchise, which is due to run until March 2025, but the operator has been under fire in recent years due to widespread disruption.
The chaotic introduction of new timetables in May 2018 saw up to 310 trains a day cancelled.
Andy Burnham and Steve Rotheram, the mayors of Greater Manchester and the Liverpool City Region, have repeatedly called for Northern to be stripped of its franchise.
In May, the pair issued a joint statement claiming the firm had "consistently failed" to deliver its legally binding requirements.
The Department for Transport's OLR began running East Coast Main Line services in June last year under the London North Eastern Railway brand.
This followed the failure of the Virgin Trains East Coast (VTEC) franchise.