Posts Tagged ‘Canadian National’

CN Service Issues Led to CEO Ouster

March 15, 2018

Like CSX, Canadian National encountered service issues last year. Unlike at CSX, the Montreal-based CN decided that it needed more capital spending and to hire additional employees to resolve the problems. It also decided it needed a new CEO.

Speaking on Wednesday at the J.P. Morgan Aviation, Transportation & Industrials Conference, CN’s interim president and CEO said the railroad’s board of directors had been considering for several months replacing CEO Luc Jobin before ousting him last week.

“The board has been thinking long and hard about the leadership at CN,” said Jean-Jacques Ruest, who replaced Jobin. “They decided it was a time to make a change in leadership,” in order to bring more energy and a sense of urgency to fixing the railroad’s service problems, Ruest said.

In fairness, the services issues that CN faced had different roots than those at CSX.

Nonetheless, in commenting about CN’s dismissal of Jobin, Trains magazine noted that it is uncommon for a railroad to get rid of its CEO when the carrier faces a severe service crisis.

The magazine noted that in the past 25 years railroads have stood by their CEOs amid such situations as Union Pacific’s meltdown after acquiring Southern Pacific, the problems that persisted after CSX and Norfolk Southern divided Conrail, and BNSF’s congestion issues in 2013 and 2014.

CN’s woes began last fall when traffic surged by more than 20 percent in western Canada. The result was congestion on main lines and yards that left CN short of operating crews and motive power.

Further aggravating the situation was hard winter weather, derailments, and related line shutdowns that prompted CN to shorten, delay and detour trains.

That increased costs, lowered average train speeds and increased the time that cars spent in yards.

Ruest said the worst of the cold weather has ended and CN has begun to lengthen its trains.

CN management also decided to acquire additional locomotives, hire additional crews and increase track capacity in western Canada.

The added motive power will include 130 leased units and 200 new engines. The latter will be built between 2018 and 2020 and include GE Transportation ET44AC and ES44AC models.

Ruest said it’s likely that CN will see how the network is performing later this year before determining how to proceed as new motive power arrives.

He also said CN is seeking to perfect its traffic volume forecasting and capital planning process so as to avoid service problems again.

Ruest said CN still expects 2018 volume traffic growth of 3 to 5 percent and will continue its long-term strategy to collaborate with customers and grow faster than the overall North American economy.

“We have not changed strategy even though we have changed the CEO of the company,” Ruest said.

In the meantime the CN board is seeking a permanent CEO and many financial analysts expect Ruest to get the nod.


Reading Between the Lines of How CSX Management Projects Itself to the World

March 7, 2018

CSX executives revealed last week at long last their vision for their company. They were supposed to have done it last fall, but three top-ranking vice presidents left during a management shakeup. Then CEO E. Hunter Harrison died.

But things have now stabilized. CEO James M. Foote and his management team put forth the most optimistic and rosy scenarios that they dared to spin.

Hovering over those presentations in New York City, though was Harrison.

A year ago Harrison and the hedge fund Mantle Ridge were closing in on their takeover of CSX, a feat they pulled off with a relatively small amount of money and in a short amount of time.

Harrison had great plans for the hidebound CSX. He brought the precision scheduled railroading model that he had implemented on the Illinois Central and then at Canadian National and Canadian Pacific.

Foote and his team went to great lengths to show that Harrison’s vision is their vision, too. Harrison received the reverence normally reserved for a company founder or elder statesman of much longer tenure.

Harrison had a lot of work to do. Independent railroad industry analyst Tony Hatch and Trains magazine columnist Fred Frailey have described CSX as long hindered by adherence to the practices of its  predecessor railroads, meaning it was  averse to change and rather bureaucratic.

Frailey said ormer CEO John Snow as uninspiring and his successor, Michael Ward, sought to move CSX forward but was bewildered as to how to get it out of its rut.

No wonder the CSX board of directors gave Harrison a chance even if, to quote his successor Foote, Harrison engaged in “carpet bombing” the railroad with fast-paced changes that led to widespread service failures that drew the ire of shippers and the attention of the U.S. Surface Transportation Board.

But all of that is behind CSX now, or so management wanted those attending or watching the presentations in New York to believe.

Some have bought it. Writing in Progressive Railroading, Hatch quoted an  investor as saying this was the best CSX meeting he had seen in a decade of watching the railroad.

The current management team laid out  goal of a 60 percent operating ratio by 2020, described a new intermodal business strategy, and pointed to the huge buckets of money it will fill from sales of unneeded real estate and rail lines.

Having a plan and making it work are not always, though, the same thing. Truth is every railroad company talks about growing traffic and all of them are facing challenges finding it.

Hatch said that if CSX is to increase its carload and intermodal business it will have to provide consistent and improving service.

Frailey didn’t comment directly on the New York conference, instead referring readers to articles written by the magazine’s writer covering the story, Bill Stephens.

Those articles, Frailey correctly observed, did well in showing how CSX seeks to project itself to the world.

Yet Frailey said some industry observers with whom he regularly corresponds have been debating the endgame that CSX management is seeking and it isn’t necessarily to grow traffic and become North America’s best railroad.

Those observers think CSX plans to eventually liquidate the company.

Frailey said the case for liquidation goes as follows: “The railroad borrows money to buy back an astounding $5 billion of stock, making every dollar of profit worth more to shareholders who stick around because the same amount of earnings is spread among many fewer shares . . . Freight rates are being jacked up to cover fully allocated costs, a direction I’m told only Union Pacific has gone up to now—milk the cow until it collapses, the saying goes. Its carload business has been steadily eroding since the turn of the century.”

The veteran journalist who has written about railroads since the 1960s said  he understands that CSX has reduced its marketing staff to a hard core operation.

That hardly sounds like a railroad that will be able to aggressively go to find new business. Perhaps CSX expects that by offering a superior product that shippers will come to it begging to do business.

The word “liquidate” that some of Frailey’s contacts used to describe CSX’s endgame is unfortunate because it conjures up selling assets and going away.

Perhaps a better description might have been to break up the railroad much as Illinois Central Gulf slimmed down in the 1970s and 1980s until it emerged as largely a Chicago-New Orleans core with a few arteries connecting to it.

Yes, some rail lines were abandoned, but most wound up in the hands of short line and regional railroads.

It was that railroad on which Harrison first implemented his precision scheduled railroading model.

Frailey isn’t sure what to make of what CSX is doing, but doesn’t believe Foote isn’t prepared to do the job thrust upon him following Harrison’s death.

Foote was in the right place at the right time and for now CSX and its shareholders will let him sit at the throttle and take the EHH train a little further down the line. But it is Harrison’s train orders that Foote is following and not those Foote wrote himself.

Shareholders can be a fickle lot. Just this week Canadian National, a railroad described in most circles as highly successful, pushed out CEO Luc Jobin after the company hit a rough patch.

What I see happening at CSX is that management is trying to walk a fine line between pleasing investors and shippers and keeping at bay a few interested bystanders who have the ability to make life easy or miserable for a company.

Cost cutting and asset sales will only take a company so far in that endeavor. Of course growing traffic makes everyone happy, but is CSX prepared to spend the time and money needed to make that happen. It is so much easier to sell property and lightly used rail routes.

In theory, a company exists to serve its customers because without them you don’t have a company. But theory also says that a company exists to make money for its shareholders.

The two objectives are not necessarily in opposition. Arguably, you can’t make money for shareholders unless you provide a product or service that someone is willing to buy.

But you can’t improve your product or seek to sell more of it without spending money on that, too.

Management has always existed to reconcile those sometimes opposing forces.

The history of the railroad industry is filled with tales of financiers milking companies and leaving them behind. There is reason to believe that CSX is tilting toward enabling the financiers to make a financial killing before moving on to something else.

To quote a line from the John Mellencamp song Peaceful World, “These are just words and words are OK. It’s what you do and not what you say, if you’re not part of the future then get out of the way.”

We will know in time what the future of CSX is but take with some healthy skepticism how CSX projects that to the world.

Jobin Abruptly Leaves as CN CEO

March 6, 2018

Canadian National CEO Luc Jobin has been ousted after two years in the position.

The Montreal-based Class 1 railroad did not give a specific reason why Jobin left other than to issue a statement that its board of directors “believes the company needs a leader who will energize the team, realize CN’s corporate vision and take the company forward with the speed and determination CN is known for.”

The board named Executive Vice President and Chief Marketing Officer Jean-Jacques Ruest as interim president and CEO “until a permanent replacement is in place.”

Railway Age magazine quoted Cowen & Company Managing Director Jason Seidl as saying that Jobin’s abrupt departure “will no doubt leave investors with more questions than answers in the short term.”

Seidl said CN has what he termed “a deep management bench.” He expects Ruest to be respected by investors and customers alike and to likely become CN’s permanent CEO. Ruest has been at CN for 22 years.

“Investors have already had to endure a nearly 9 percent drop in CN’s shares this year, making it the worst performing Class I railroad year to date,” Seidl said. “Today’s news is likely to exacerbate this gap somewhat. However, we remain confident in the company’s ability to recover and deliver value to its shareholders over the long term. Indeed, CN has a long history of being one of the best performing railroads in North America with a laser focus on its customers. We do not believe this will change, but this may be little solace for those with shorter investment time horizons.”

CP Contract to Affect Ohio Valley Market

February 27, 2018

Canadian Pacific doesn’t own a foot of track in Ohio and the Port of Vancouver, British Columbia, is thousands of miles away, but the Buckeye State looks to benefit from a recent contract that CP reached that will increase its share of intermodal traffic in Vancouver.

CP will begin hauling starting April 1, about 85 percent of the Ocean Network Express traffic passing through the Port of Vancouver.

How does that affect Ohio? It will boost traffic in the Ohio Valley intermodal partnership that CP has with the Chicago, Fort Wayne & Eastern and Indiana & Ohio.

Ocean Network Express is a consortium of shipping companies K-Line, MOL, and NYK.

Canadian National has 70 percent of the container traffic moving through the Port of Vancouver, but CN officials say they will have to turn away some business due to capacity constraints.

International intermodal traffic moving on CN has experienced faster-than-expected growth and increases in traffic in frac sand, grain, and other commodities have left CN congested, particularly in Western Canada.

CP said the agreement with Ocean Network Express is worth $80 million annually over the three-year contract.

Interestingly, CP is gaining back traffic it walked away from when E. Hunter Harrison was CEO of CP because he thought domestic intermodal traffic was more profitable.

But now CP says its costs are similar to those of CN, which puts it in a position to vie for lower-margin international intermodal traffic.

In the February ARRC eBulletin

February 21, 2018

The cover story in the February issue of the Akron Railroad Club eBulletin is a look at operations of Canadian National in Conneaut.

Many don’t think of CN as being a Northeast Ohio railroad, but it is, albeit with limited operations.

As was the case when the ancestor of the former Bessemer & Lake Erie was founded in the late 19th century, the CN’s Bessemer Subdivision makes its living hauling iron ore mined in Minnesota and used to make steel in the Pittsburgh area.

The Bessemer Sub is an orphan operation that does not connect directly with the rest of the CN network. Yet it is an interesting one for those willing to take the time to get to know it.

The March issue of the eBulletin will be distributed the week of March 25 and feature an article titled Searching for the Erie Lackawanna.

Class 1 Capital Budgets Are Mixed Bag

February 15, 2018

North America’s Class 1 Railroads have varying plans for capital spending in 2018.

At one extreme, Canadian National plans spend a record $C3.2 billion for capital spending, which includes laying new track and buying new locomotives.

That is an increase of C$500 million over what CN spent last year.

On the other extreme are CSX and Kansas City Southern, both of which have cut their capital spending budget.

Compared with its peers, CSX is taking a meat axe to its capital budget, slashing it by $400 million to $1.6 billion for the year.

KCS is reducing its capital budget by $30 million and will spend between $530 million and $550 million.

Union Pacific and Norfolk Southern are planning to increase their capital spending while BNSF and Canadian Pacific have announced flat capital budget.

NS will spend an additional $100 million on a $1.8 billion capital budget while UP is increasing capital spending by $200 million to $3.3 billion.

The BNSF 2018 capital budget is $3.3 billion while CP will spend between C$1.45 billion and C$1.5 billion.

CN plans to spend C$1.6 billion on track and other infrastructure, including replacing 2.1 million ties and more than 600 miles of rail.

It also plans to plunk down C$400 million on equipment acquisitions, including 60 high-horsepower locomotives as part of a three-year, 200-unit order from GE.

At NS, track maintenance projects are budgeted at $930 million this year while it will spend $345 million for locomotives and $50 million for cars.

“Locomotive capital will be focused on the rebuild and conversion of locomotives from DC to AC power,” said NS Executive Vice President and Chief Operating Officer Cynthia Earhart.

With CSX mothballing numerous locomotives and freight cars, it sees no need to acquire new equipment.

KCS said its capital budget is down largely because it won’t be buying any locomotives.

CN Makes Environmental A List

January 31, 2018

A nonprofit organization has recognized Canadian National as a global leader on environmental issues.

CDP named CN to the Supplier A List of 100 companies that meet disclosure criteria for their actions to address climate change.

More than 4,800 companies submitted annual supply chain disclosures to CDP in 2017 for independent assessment against its scoring methodology. CN is among the 2 percent of organizations participating in CDP’s supply chain program to be awarded a position on the list, CN said in a news release.

“We are pleased to be recognized by the CDP for CN’s leadership on climate action in our customers’ supply chain,” said CN President and Chief Executive Officer Luc Jobin in a statement. “CN works with our customers to offer the environmental benefits of rail, providing solutions to reduce their transportation supply chain emissions, while playing our role as a backbone of the economy.”

South Shore Leases Track from CN in Gary

January 30, 2018

The Chicago South Shore & South Bend has leased five miles of track from Canadian National to enhance its interchange of traffic with the Class 1 carrier.

The track is located in Gary, Indiana, and will enable the South Shore to provide a higher frequency of service said the railroad’s owner, Anacostia Rail Holdings, in a news release.

“We see this as part of our longstanding commitment to customers by ensuring efficient interchange with all our Chicago-area connections,” said Eric Jakubowski, vice president and chief commercial officer for Anacostia Rail in a statement. “Gary has long been a great place for us to do business and this lease will make it possible for us to do an even better job.”

The South Shore has 127 routes miles between Chicago and South Bend, Indiana, and is one of six railroads operated by Anacostia.

CN Net Income Falls 6% in 4th Quarter 2017

January 25, 2018

Canadian National said on Wednesday that its fourth quarter adjusted net income fell 6 percent to CA$897 million and adjusted diluted earnings per share fell by 2 percent to CA$1.20.

The financial figures include the effect of the Tax Cuts and Jobs Act approved in the United States in December.

Including the tax benefit, CN reported that quarterly net income rose 156 percent to CA$2.6 billion and diluted EPS jumped 164 percent to CA$3.48 compared with the fourth quarter of 2016.

Operating income for the quarter fell 7 percent to CA$1.3 billion, but revenue climbed 2 percent to CA$3.3 billion compared with a year ago.

Quarterly operating expenses increased 9 percent to CA$1.98 billion compared with 2016. The operating ratio was 60.4 percent, an increase of 3.8 points over 2016.

For all of 2017, CN’s adjusted net income increased 6 percent to CA$3.78 million and adjusted diluted EPS rose 9 percent to CA$4.99. Operating income increased 5 percent to CA$5.6 billion compared with the previous year.

CN’s revenue rose 8 percent year over year to CA$13 billion. Operating expenses for 2017 jumped 11 percent to CA$7.5 billion.

The operating ratio in 2017 was 57.4 percent, an increase of 1.5 points over 2016.

“Our growth continues to outpace the strengthening economy and I am pleased with the results our dedicated team generated in 2017,” said CN CEO Luc Jobin in a statement.

“Throughout the year we faced rapidly changing market demands and in the fourth quarter dealt with challenging operating conditions, including harsh early winter weather across the network, impacting our performance.”

Jobin said CN will add this year additional train crews and increase capital spending to a record CA$3.2 billion, which includes the acquisition of 60 new locomotives, expanding track capacity and improving intermodal terminals.

Capital spending will include CA$1.6 billion for track infrastructure maintenance and CA$400 million for installation of positive train control in the United States.

January Treat in Conneaut

January 23, 2018

A southbound taconite pellets train slowly makes it way out of Conneaut. The view is from the U.S. 20 bridge over the valley of Conneaut Creek.

I’ve photographed the former Bessemer & Lake Erie in Conneaut in every season except winter. Now I can cross that off my to do list.

On a cold but mostly sunny mid-January day, fellow Akron Railroad Club member Peter Bowler and I trekked to Conneaut with little time to spare to catch a southbound Canadian National train finishing its work in the yard and heading out of town.

I was driving and Peter was monitoring my scanner as we neared Conneaut on Interstate 90. He reported hearing a lot of chatter on the B&LE radio frequency.

That was good news because it meant the crew was either disassembling or assembling its train.

It turned out to be the latter. As we arrived at the CN grade crossing on Old Main Street, the train was coming out of the yard in its final move before stopping to wait for the conductor.

Peter jumped out and bolted for the bridge over Conneaut Creek, having in mind getting an image of the train along the ice-covered river.

I wanted to get that, too, but couldn’t get into position as fast as he could because I had to park and then gather up my camera.

I also wasted time getting an image from the west side of the tracks of the train coming out of the yard. By the time I got onto the bridge, the lead unit was past the open area and obscured by brush.

I was hoping that the crew had more work to do that would require a back-up move and I’d have a second chance at the shot I had missed.

But they were done with working in the yard. We made some images of the train sitting there and the engineer got out to fix something on the third unit as we waited to see what was next.

Down Main Street came a CN block truck and it was time to get into position for our next series of images.

Those would come from atop the U.S. 20 bridge and we got into position there just as the train began moving.

The ditch lights of the lead unit were already flashing as we scrambled into position. Days of snow plowing had left heavy snow on the bridge’s sidewalks. Even with boots on, walking through that snow and slush was like walking through heavy sand.

This vantage point yielded my favorite image of the series. Illinois Central SD70 No. 1038 is about to pass into the shadow of the bridge as the train slowly ambles into the horseshoe-shaped curve it goes around leaving town while grinding upgrade.

Although I didn’t recognize it at the time, my second favorite image was made from the other side of the bridge. It is not often that a going-away shot captures my imagination as this one did.

I’ve photographed trains from this vantage point before, but not during winter. The snow makes the bare trees and hillsides come alive in a way they don’t during the other seasons.

There is a sense of the train going somewhere as it motors its way through a river valley, even if it is a modest one.

The remainder of my images are pleasant winter photographs. IC black contrasts well with that white snow. Of course, so does CN red and, no doubt, would Bessemer orange.

This was my second favorite image of the CN train leaving Conneaut.

I missed the along the river image I wanted to get because I stopped to make this image. Maybe there will be another opportunity later this winter to get the one that got away.