Canadian National pledges to stay ahead of traffic growth

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CNCapacityMap
Canadian National
NEW YORK CITY — Canadian National will continue to add capacity so that it can stay ahead of traffic growth, interim CEO Jean-Jacques Ruest told an investor conference last week.

The $400 million in capacity projects currently underway include 60 miles of double track, 11 new or extended sidings, and expansions at eight yards, primarily in western Canada and on the Edmonton, Alberta, to Chicago corridor.

Ruest’s presentation was the first time CN released a map depicting the locations of the capacity projects.

The work is designed to catch up to stronger-than-anticipated traffic growth CN experienced last year, as well as to handle current and projected growth through spring 2019.

In 2019, CN will continue to add capacity to position the railway for 2020, Ruest says.

The Port of Prince Rupert, B.C., is expected to continue to grow over the next couple of years. This year the expanded containerport is expected to hit maximum capacity, at least two years ahead of schedule. Coal exports are on the rise. And a pair of new terminals for propane exports will come online in 2019 and 2020.

“Rupert has become a nice business for CN,” Ruest says.

A contributing factor to CN’s capacity crunch last year was trying to keep capital expenses to roughly 20 percent of revenue, Ruest says. By the time CN realized traffic was growing much faster than expected across western Canada, it was too late. The railroad was caught short of crews, locomotives, and track capacity.

And when winter weather set in, CN’s key corridor from Edmonton to Winnipeg, Manitoba, and Chicago was overwhelmed. Of particular concern: Trouble shipping grain.

One reason the CN board made a CEO change in March was the potential for increased regulation stemming from the railway’s inability to meet demand for grain traffic, Ruest says. Former CEO Luc Jobin’s chemistry with the board also was not the best, Ruest says.

Two days after being named interim CEO, Ruest released a mobilization plan to get Canadian grain moving.

For more than a month CN has been current with grain shipments and has fulfilled all empty grain hopper orders in recent weeks.

“We moved every order this week that there is to move,” Ruest says.

Work on capacity projects began in April, with CN expecting to see benefits beginning this month and continuing through the summer. The last projects should be completed in November.

Although CN’s key performance metrics are not back to normal, they are consistently improving. Daily tonnage is up, dwell is down, and car-order fulfillment is rising.

But average train speeds remain well below normal due to lack of siding capacity. Train velocity will get a big boost once all of the double track and siding projects are completed, Ruest says.

Container dwell at ports is back to a normal range of two days.

“We have a premium service to offer,” Ruest says of international intermodal business in and out of the ports of Vancouver and Prince Rupert.

The railroad continues to work off backlogs of lumber, lumber panels, and automobiles, however.

Ruest spoke at the 34th Annual Bernstein Strategic Decisions Conference on May 31.
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