Canadian National outlines plans to remain industry's growth leader

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TORONTO — Canadian National outlined its plans to remain the railroad industry’s growth leader during an investor conference today.

CN pioneered scheduled railroading 15 years ago, CEO J.J. Ruest noted, and has led the big systems in growth for more than a decade.

“How do we evolve the model that we have that’s produced such great results for CN and now for the whole industry?” he asked.

The answer, Ruest says, includes fully embracing technology, making small acquisitions, and hiring executives from outside the rail industry to bring new expertise and fresh perspectives to the company.

“We’re still continuing to evolve, but scheduled railroading will always be our base,” says outgoing Chief Operating Officer Mike Cory, who is retiring at the end of the month. “It gives us the ability to grow and expand our service offering but at the same time keep our costs in check.”

CN is taking a two-pronged approach to growth.

First, it aims to gain additional business from existing intermodal, merchandise, and bulk customers.

Executives say they have a clear line of sight to increasing volumes of intermodal and automotive traffic, as well as energy-related commodities such as coal, propane, and crude oil. Non-energy carload business — from grain and forest products to chemicals and plastics — should grow faster than the broader economy, CN says.

Second, CN is seeking acquisitions and partnerships that will help “feed the beast” by bringing new traffic to the railroad, particularly east and south of Chicago where it has ample track capacity.

The first such acquisition, of Canadian trucking firm TransX, is a good example of the concept at work, says Janet Drysdale, vice president of financial planning, acquisitions, and integration. TransX has brought new intermodal volume to CN, increased its expertise in temperature-controlled shipments, and helped extend the reach of the railroad.

CN also aims to replicate the success of the Port of Prince Rupert, British Columbia — the fastest-growing container port in North America — on the Canadian East Coast through port partnerships.

Last week CN announced a deal to help develop a new container port in the Saint Lawrence River at Quebec City. CN also wants an expanded container port at Halifax, Nova Scotia, to be “big ship, big train ready” so the railway can handle international double-stack traffic to Toronto as well as destinations in the U.S. Midwest.

CN lowered its volume expectations for the year to mid-single-digit revenue ton-mile growth compared to 2018. The railway previously was projecting high single-digit volume growth.

But CN’s earnings outlook remained unchanged, with projections for low double-digit growth in earnings per share this year. CN projects the same earnings per share growth will continue through 2022, assuming key economic trends continue.

CN projects revenue growth of between $1.3 billion and $2.4 billion through 2022, which does not include the potential for growth through acquisitions.

CN is aiming for an operating ratio in the high 50-percent range through 2022, down from 61.6% in 2018. “We believe that’s our sweet spot,” Chief Financial Officer Ghislain Houle says, noting that the railway is not enamored with the operating ratio as the ultimate metric.

CN aims to reduce capital expenses to more normal levels next year. For the past two years, as it caught up with capacity needs in western Canada, CN spent about 25% of revenue on capital expenses. The expectation is a return to a capital budget that would be equal to roughly 21% of revenue beginning next year.

CN says it’s developing a “digital twin” of its network that will be able to simulate various growth scenarios, enabling the railway to better address pinch points before capacity becomes constrained as it did in western Canada in 2017. The Smart Network system also will provide forecasts for locomotive and crew levels.

Key technology initiatives include autonomous track inspection, automated train inspection portals, handheld devices for mechanical forces and train crews, and automating manual and time-consuming tasks.

Also a focus: Improving locomotive reliability through predictive analytics and an emphasis on scheduled maintenance, as well as improving the productivity of track maintenance forces.

NEWSWIRETrains News Wire

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