Ruest: Canadian National’s board had been contemplating leadership change

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Interim Canadian National CEO Jean-Jacques Ruest
Canadian National
NEW YORK CITY — Canadian National’s board was considering a leadership change at the railway for several months before CEO Luc Jobin was dismissed last week, interim President and CEO Jean-Jacques Ruest told an investor conference today.

“The board has been thinking long and hard about the leadership at CN,” Ruest says. The board takes a long-term, analytical view, he adds.

“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 says.

CN was unprepared last fall when traffic surged by 20 percent or more across western Canada, gumming up yards, clogging main lines, and leaving CN short of both crews and power.

Harsh winter weather, derailments, and related line shutdowns forced CN to shorten, delay, and detour trains at various times over the past few months, further raising costs as train speeds dropped and cars spent more time in yards.

The end of extreme cold weather has helped CN begin to recover as it no longer has to curtail train length due to low temperatures, Ruest says.

The CN team is focused on one thing, he says: “How do we get back to be CN?”

The answer, he says, is operating better with the resources it has until it can bring on more new crews and locomotives and add track capacity on its western corridor. CN this year will add sidings and sections of double track on its main line linking Edmonton, Alberta, and Winnipeg, Manitoba, as well as on its line to the Port of Prince Rupert, British Columbia.

All but 10 of the 130 locomotives CN has leased are now on the property, with the remaining locomotives due to arrive this month. In July, CN will take delivery of the first of 60 new General Electric AC-traction locomotives due to arrive this year. An additional 140 new units, both ET44AC and ES44AC models, will follow from GE’s Fort Worth, Texas, factory in 2019 and 2020.

The one- to two-year leases give CN the flexibility to return the units early or extend the leases. Ruest says it’s likely CN will see how the network is performing later this year before determining how to proceed as new power arrives.

CN continues to qualify new conductors, as well.

By the fourth quarter, when CN will have all of its planned track improvements in place, the railroad will be able to handle its current traffic as well as anticipated traffic growth in 2019, Ruest says.

CN is taking steps to improve its traffic volume forecasting and its capital planning process, Ruest says, to ensure that it doesn’t get caught behind again.

Despite its challenges to start the year, Ruest says CN stands by its projections for full-year volume growth of 3 to 5 percent. It’s also sticking with 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 says.

CN’s board has no timeline for naming a permanent chief executive as it conducts a search both inside and outside the company, Ruest says.

Last week Ruest apologized to Canadian grain shippers.

“We apologize for not meeting the expectations of our grain customers, nor our own high standards,” Ruest said. “The entire CN team has a sense of urgency and is fully focused on getting it right for farmers and our grain customers, regaining the confidence of Canadian businesses, and protecting Canada’s reputation as a stable trade partner in world markets.”

CN has taken additional steps to move more grain, including offering incentives for key operating employees to delay retirement and postpone vacations, and for recently retired operating employees to return to work. It also is using qualified management employees to operate extra trains.

Some analysts had surmised that Jobin’s departure was related to CN’s service problems and the railway’s failure to accurately project and prepare for robust traffic growth.

"We attribute the surprise announcement to the service and network challenges that arose as a result of the company's rapid volume growth in 2017, the costs and challenges associated with correcting the issue, and the continuing fallout that we have seen on the customer service side — evidenced by the volume declines exhibited in the carload data year to date," Royal Bank of Canada analyst Walter Spracklin wrote in a note to clients last week.

CN’s traffic is up 1.7 percent year-to-date, while smaller rival Canadian Pacific is up 3 percent, according to the latest weekly carload data reported to the Association of American Railroads.

But the disparity is wider based on revenue ton-miles, the preferred metric of the Canadian railways: CP is up 6 percent through the first 10 weeks of the year, while CN is down 4.5 percent.

If CN’s board saw the congestion problems as a reason to dismiss Jobin, it would be a highly unusual move in the railroad industry.

Over the past 25 years railroads, have stood by their CEOs amid service crises, including Union Pacific’s meltdown after it acquired Southern Pacific, the problems that persisted after CSX Transportation and Norfolk Southern split Conrail, BNSF Railway’s congestion issues in 2013 and 2014, and CSX’s self-inflicted service problems under CEO E. Hunter Harrison last year.

Several Wall Street analysts expect CN will ultimately name Ruest permanent CEO.

Ruest spoke at the J.P. Morgan Aviation, Transportation & Industrials Conference today.

NEWSWIRETrains News Wire

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