Posts Tagged ‘Canadian National’

CN Says it is Recovering From Service Issues

May 17, 2018

Canadian National said this week that its service continues to recover from various operational problems and that traffic is up 14 percent so far this month.

CN Chief Financial Officer Ghislain Houle told an investors conference this week that the carrier has been performing better than it thought it would, which has made management optimistic about the second half of this year and 2019.

Houle said average train velocity, terminal dwell, and car-miles per day are all moving in the right direction after several months of deterioration due to the effects of severe winter weather and an unexpected volume surge.

However, CN’s service metrics continue to trail where they were a year ago. Terminal dwell time is still 10 percent above last year and average train speeds are 15 percent lower. Car-order fulfillment is 70 percent, about 20 points below where it was a year ago.

To bolster its service, CN hired and qualified 400 conductors in the first quarter and expects to have another 400 qualified by the end of June.

It is leasing 130 locomotives and next month will receive the first 10 of 200 new locomotives it has ordered from General Electric Transportation.

The new units are expected to be delivered at a pace of 10 each month for the rest of the year.

Based on revenue ton miles, CN traffic volumes were up 5 percent in April and 14 percent in May after declining 4 percent in the first three months of the year.

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CSX Had Lowest 1st Quarter Operating Ratio

May 10, 2018

CSX has the lowest operating ratio among Class 1 railroads in the first quarter of 2018.

The operating ratio of 63.7 percent compared to 69.4 percent during the first quarter of 2017 and was 0.9 points ahead of second-place Union Pacific.

A year ago, CSX was second-to-last among railroad operating ratios.

Chief Financial Officer Frank Lonegro said earlier this year that CSX is seeking to hit a 60 percent operating ratio by 2020.

To be sure, there are underlying factors that enabled CSX to post the performance that it did.

Indeed, CSX’s operating-ratio ranking led by the pack due to a number of factors, including an accounting rules change that disproportionately affected longtime industry leaders Canadian National and Canadian Pacific.

Both Canadian carriers also had to contend with higher operating costs due to harsh winter weather and congestion.

Likewise, first quarter operating ratios tend to fluctuate due to the effect of winter weather.

CSX also benefited from a 96 percent increase in “other revenues,” which included such things as demurrage, a $30 million-increase in real estate sales, and a doubling of equity earnings of affiliates such as the Indiana Rail Road, Conrail, and TTX.

Even CSX CEO James M. Foote cautioned not to read too much into the first quarter operating ratio.

“The plan recently laid out at our investor conference is a three-year plan,” Foote said. “We’re only one quarter in, one out of 12, and we still have a lot of work to do to achieve our goals.

“As we demonstrated in the first quarter, we expect a solid step-down each year in the operating ratio. There remains significant work ahead in order to deliver on our 2020 target.”

Foote told investors earlier this year that the railroads is handling about the same amount of volume that it hauled a year ago with eight fewer hump yards, 1,000 fewer locomotives, 4,000 fewer employees and 20,000 fewer railcars.

CN to Buy New Cars to Carry Lumber

May 3, 2018

Canadian National Plans to purchase 350 center-beam cars to meet a growing demand from lumber-producing customers.

In a news release, CN said the 73-foot riserless centerbeams will have a maximum load capacity of 286,000 pounds and are expected to be delivered starting in September

The Montreal-based carrier is also considering an option to purchase or lease another 300 centerbeam cars. Neither the purchase price or budget for the cars was not disclosed.

National Steel Car will build the cars in Hamilton, Ontario, and hire more than 250 additional workers to complete the order.

The company has been building new freight cars for CN since 1919 and currently employs more than 1,500.

Winter Put CN 1st Quarter Revenue in Deep Freeze

April 25, 2018

Canadian National blamed harsh winter weather for depressing its first quarter financial numbers.

CN said first quarter revenue was flat at $3.2 billion while operating income fell 16 percent to $1 billion.

Net income declined by 16 percent to $741 million and operating expenses jumped 9 percent to $2.2 billion compared with the first quarter of 2017 results. All figures are in Canadian dollars.

The Montreal-based company said revenue ton-miles declined 4 percent to 57.2 million but carloads increased 3 percent to 1.4 million units. The operating ratio rose 6 points to 67.8.

By traffic segment, coal and intermodal revenue rose 10 percent to $142 million and $814 million, respectively, and metals and minerals revenue increased 7 percent to $388 million on a year-over-year basis.

However, grain and fertilizers revenue fell 11 percent to $539 million, forest products revenue dropped 6 percent to $422 million, automotive revenue declined 4 percent to $197 million, and petroleum and chemicals revenue decreased 3 percent to $564 million.

Aside from bad weather, CN also said its flat revenue resulted from a negative translation impact from the stronger Canadian dollar, which partly was offset by higher fuel surcharges and rates. The increase in operating costs was caused by weather, higher training costs for new employees and higher fuel prices.

CN officials said the harsh winter affected train lengths and caused operational performance to further slip after eroding since fall because of an unexpected double-digit traffic gain last year.

“We had lower resiliency in some high-volume areas going into winter, [which] made maintaining fluidity very challenging. Fluidity is the most important thing,” said Executive Vice President and Chief Operating Officer Mike Cory. “This lower resiliency, coupled with the extreme harsh winter conditions in those same areas, resulted in a decline in the service levels and an increase in [operational] costs.”

CN officials said they expect to spend $400 million — compared with a previously announced $250 million — to complete 29 major infrastructure capacity projects, mainly in western Canada. This includes new double track, more and longer sidings, and yard capacity expansions.

The railroad is also acquiring additional locomotives and box cars, along with hiring more train crew members.

“Our metrics are showing sustained, sequential improvement, and that momentum will build as we continue to expand track capacity, add crews and bring on new locomotives,” said interim CN President and Chief Executive Officer Jean-Jacques Ruest. “With the people, equipment and infrastructure in place, and with a solid pipeline of growth opportunities ahead of us, we are confident in our ability to bring long-term value creation to our customers and shareholders.”

CN to Acquire 350 Boxcars

April 20, 2018

Canadian National announced this week that it will acquire 350 boxcars for use by its industrial customers in North America.

Each of the 50-foot, high-capacity plate F boxcars will have 12-foot plug doors. Delivery will begin in late summer with all the cars in service by the end of the year.

“These additional boxcars, combined with our new locomotives, hundreds of new train crew members, and track expansion investments, will help give us the capacity and network resiliency we need for pulp, paper and metals customers,” said Doug MacDonald, vice president of bulk at CN, in a news release.

CN said that the boxcar addition is part of the railroad’s capital program for the year that includes adding additional track and increasing yard capacity, particularly in the Chicago-West Coast corridor.

Another Shipper Group Unhappy With Railroads

March 27, 2018

A shipper group representing fertilizer producers has joined a growing chorus of customers that is giving the U.S. Surface Transportation Board an earful about service issues.

“Rail service challenges have been ongoing and increasingly pervasive,” wrote Chris Jahn, president of The Fertilizer Institute, in a letter posted on the STB website.

Although Jahn mentioned CSX, he went on to say the carrier, which underwent major operational changes in 2017, is not the only problem spot for his members.

If anything, Jahn said, CSX service has improved recently. But fertilizer produces continue to experience “serious service disruptions” when shipping on Canadian National, Canadian Pacific, Norfolk Southern and Union Pacific.

“Unfortunately, these service challenges are becoming increasingly pervasive,” Jahn wrote.

Some railroad industry analysts say service problems are a missed opportunity for railroad companies during a time when truck capacity is limited. Instead, carload freight volumes have been falling this year.

“This isn’t a crisis — but could lead to a gigantic missed market share opportunity,” Anthony B. Hatch of ABH Consulting said in an interview with Trains magazine.

Over and Under in Conneaut

March 26, 2018

The Canadian National line to Conneaut has but two trains a day under normal circumstances. Traffic on Norfolk Southern’s Lake Erie District is higher, but modest.

That makes getting on over-under image of locomotives of both railroads on the east side of town a major challenge. A lot of things have to happen just right to get it.

I almost won the over-under jackpot last September. The CN train was being assembled in its yard and doing back and forth moves beneath the NS bridge over the former Bessemer & Lake Erie.

The bad news was that by the time the NS train came out on the trestle over Conneaut Creek and the CN tracks, the motive power for the CN train was gone.

The good news is that I was able to get the cars of the respective trains on the over-under. So,  you could say I got somewhat lucky.

I like the contrast between the shipments. On top on NS are a pair of high-priority UPS trailers while below on CN are hoppers filled with iron ore pellets.

Now I wonder which freight has the highest profit margin. It might not be the UPS trailer.

CN Details Service Improvement Plans

March 26, 2018

In response to a U.S. Surface Transportation Board request for information from North American Class 1 railroads about their service plans for the remainder of the year, Canadian National has said that it is adding crews and motive power. That along with capacity expansion projects should help it improve service.

CN was the first railroad to respond to the STB’s call for information.

The Montreal-based carrier is leasing 130 locomotives and has 60 new GE locomotives scheduled for delivery this year

It also plans to hire 2,000 people this year, including 400 new conductors who are already on the job.

“We have taken immediate action across our network to relieve our congestion, particularly in our busy Chicago to Winnipeg corridor,” said interim CEO Jean-Jacques Ruest in a letter to the Board.

Ruest said CN was caught off guard when traffic surged by 20 percent in western Canada, leading to congestion and crew shortages.

CN said its primary challenge in moving automobile traffic is receiving empties back from other railroads through the industry pool,

Ruest said CN has taken steps to improve cycle times in Michigan and to more quickly return bad-order cars to service.

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.