JJ Ruest: Mergers less effective in post-PSR world

Railroad looks at smaller acquisitions, technology to realize growth
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LOMBARD, Ill. – Class I railroad mergers are not the sure path to efficiency gains that they once were within the industry. So says Canadian National President and CEO JJ Ruest at the winter meeting of the Midwest Association of Rail Shippers in Lombard on Thursday.
 
Ruest notes that as the entire industry has lowered its operating ratio, realizing gains from mergers becomes difficult. He gives the example that merger savings could be realized by acquiring a railroad with higher operating costs, and then realizing gains by rolling out the cheaper operating structure across the larger property. Now that most railroads have adopted some form of PSR, the returns of mergers have lessened.
 
But expansion is still on the mind of the industry. “I think all of us like to have a bigger footprint, a bigger franchise,” he says.
 
One route to that is through acquiring (or re-acquiring) short lines, transactions that are often viewed differently by regulators. He says that CN went through a phase of pruning marginal lines that require too much capital at the time but have since become ideal for operation in-house again, including some lines in southern Ontario recently.
 
When acquisition is not an opportunity, like with the Indiana Rail Road, CN will look to develop long-term partnerships. “We would love to make more deals like we did with the INRD,” he says. Ruest compares such deals to a fast food franchise, noting that the deals need to ensure the Class I railroad’s standards will be in place throughout the shortline operations.
 
And Ruest is optimistic about the future, noting that much of what railroads haul is cyclical. “Commodities goes up. Commodities goes down,” he says. “We’re probably in one of the tougher times right now.”
 
He’s looking forward to more traffic from international trade, too. He calls the pending United States–Mexico–Canada Agreement trade deal “a slam dunk,” but notes that there’s a “long, long road to go” to normalize trade with China.
 
The way forward, he says, is to focus on the consumer economy, which is growing. That includes moving freight “door to door,” and getting “closer to the real freight buyer.”
 
Technology is still a large part of CN’s growth strategy. That includes finding new technology to increase capacity on existing infrastructure, such as roving automated boxcars instead of human track inspectors. He also hinted at the use of more automated dispatching or computer-assisted decision-making for human dispatchers. “There’s more than one way to add capacity,” he says.
 
There could be more customer-facing technology, too. “The experience of the individual customer is what allows you to grow – or not,” he says, noting that customers are more concerned about the movement of their individual cars than company or industry averages.
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