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Is Canadian National (CN) rolling out of its winter of discontent?
Jean-Jacques Ruest, who has taken over the controls at the Canadian rail giant until a new president and CEO is appointed, claims the company has turned a corner and will improve further in the coming months, thanks to fresh investment in equipment, staff and infrastructure.
The first half of March saw more freight in CN’s system and train speeds picking up, Mr Ruest said at the JP Morgan Aviation, Transportation & Industrials Conference in New York.
While the improvements are not enough to make up for the troubles of the first two months of the year, CN is now heading in the right direction, he added.
Mr Ruest, a 22-year CN veteran and former chief marketing officer, was handed the reins after the abrupt departure of president and CEO Luc Jobin on 5 March amid reports of mounting woes for the rail company.
CN was struggling with delays, especially on its corridors to and from the ports in British Columbia, and parts of its network were afflicted by severe congestion.
Mr Ruest described February as one of the worst months in the company’s history, citing falling volumes and escalating costs amid the operational problems choking the network.
Grain shippers on the prairies were particularly hard hit. It did not help that CN’s rival, Canadian Pacific Railway (CP), was also affected by severe weather conditions. According to the Ag Transport Coalition, which represents several grain associations, car order fulfillments from the two rail giants sank to a paltry 38% in early February. CP mustered 66% of the rail cars ordered, while CN fell to a woeful 17%.
Executives in the oil & gas industry also voiced heavy criticism of CN service.
Early this month, shippers were reporting delays of six to eight days for rail cargo moving through the port of Vancouver, with on-dock dwell times of rail cars averaging five to seven days. At the port of St Rupert, dwell times before the Chinese new year were four to six days for both rail operators. Both ports experienced delays in the wake of rail expansion work that dragged on beyond the completion of infrastructure work on the marine side.
The biggest factor impacting rail performance between December and late February was heavy snow and frigid temperatures. This forced the rail operators to reduce the length of trains by as much as 50%.
However, Mr Ruest acknowledged that CN’s troubles were not down purely to a tough winter. After 14% revenue ton-mile growth in the first nine months of 2017, the company entered the fourth quarter “without really any gasoline left in the tank”, he said, resulting in flat performance since.
CN was not well prepared for the rise in volume in the fourth quarter and in the opening months of 2018, and Mr Ruest does not expect demand to wane in the months ahead. He is bracing for capacity pressure from increased volume growth, he added.
To shore up its performance, CN is spending an extra C$500m (US$387.7m) this year. Half will go to upgrade its network and improve transits between Chicago and the west coast. Work to add sidings and upgrade stretches to double-track will start next month and is expected to be completed by November.
The company has ordered new locomotives and signed leases for 130 units to tackle urgent problems, such as the backlogs of grain shipments, which have drawn heavy criticism from political leaders. CN is also beefing up its workforce with 2,000 new employees.
Mr Ruest is aware that he has to move fast to avert the spectre of clients dropping CN for CP. The smaller rival is working to beef up its services between the west coast and the mid-west and has already claimed one major success: last month, it announced that the ONE grouping of NYK, K Line and MOL was shifting the bulk of its volume from CN. Previously CP had only handled K Line traffic.
However, Mr Ruest and the CN board are upbeat. They have not changed the guidance for this year, despite the tough start and, according to Mr Ruest, there is still time to catch up.