CN CEO Says Mergers No Longer Offer Efficiency Gains

A major reason often given for railroad mergers is that they result in efficiency gains.

Jean-Jacques Ruest

But that may no longer be the case Canadian National President and CEO Jean-Jacques Ruest said this week at the winter meeting of the Midwest Association of Rail Shippers in suburban Chicago.

Lower operating ratios and the widespread adoption by Class 1 railroads of the precision scheduled railroading operating model have negated gains that mergers once promised.

But Ruest didn’t rule out mergers because another benefit to them is a larger system.

“I think all of us like to have a bigger footprint, a bigger franchise,” he said.

One way to do that, Ruest said, is by buying or buying back routes that Class 1 railroads were once eager to sell to short line railroads.

He acknowledged that CN went through a phase of lopping off marginal route because the thinking at the time was that they required too much capital to maintain. But that thinking has changed.

If buying a route from a short line is not possible, Ruest said another option is to form a partnership with one as CN did with the Indiana Rail Road.

The INRD operates on a former branch line of the Illinois Central that connects to the former Chicago-New Orleans mainline of the ICRR now owned by CN.

He said a key to making those partnerships work is ensuring that Class I railroad standards will be in place throughout the short-line operations.

On another topic, Ruest expressed optimism that railroad freight volumes will begin rising again, saying they can by cyclical.

“Commodities goes up. Commodities goes down,” he said. “We’re probably in one of the tougher times right now.”

To get out of those tough times, Reust called for focusing on the consumer economy because it is growing.

He said that includes moving freight “door to door,” and getting closer to the “real freight buyer.”

Tags: Canadian National, Class 1 railroad mergers, Illinois Central, Indiana Rail Road, Jean-Jacques Ruest, mergers, mergers and acquisitions, railroad mergers