CN expanding infrastructure in the West to deal with capacity woes

Canadian National Railway Co.’s interim chief executive Jean-Jacques Ruest said Tuesday the company is tackling its capacity challenges “with a great sense of urgency,” focusing on building rail infrastructure in Western Canada to alleviate a backlog that infuriated many customers.

The company’s record $3.4 billion capital spending plan to deal with increased demand and strained capacity is “progressing well” and includes a specific focus on expanding rail infrastructure in Manitoba, Saskatchewan, Alberta and British Columbia, Ruest said.

“The major capital investment that will help us most is the (installation) of a double-track out West,” Ruest said in an interview following the company’s annual meeting in Toronto. “We’re also building more sidings so we can have more trains on the grid at the same time. In sections where there’s too many trains, we’re going to have sections of double tracks ... If you can put more trains on the grid, you can move more of everything — grain, intermodal, coal, crude by rail, and forest product.”

Ruest also told investors the capital plan, which was implemented on March, has produced “sequential improvements” in operating metrics such as network speeds, as well as reduced wait times in the West Coast ports and increased movement of exported grain.

Capacity constraints have put pressure on CN since late last year, leading to significant service disruptions, strained customer relations and government scrutiny. The challenges forced it to adjust its end-of-year targets on Monday after its net profit fell 16 per cent in a quarter that was also marred by the surprise resignation of its former chief executive Luc Jobin.

In hindsight, Ruest said this was an issue that should have been addressed one year ago. While he said that the railway ’s models that forecast demand and capacity did not provide the company with a view that would have prompted “a call to action”, Ruest did say that investments should made when earnings per share forecasts were bumped due to increased demand.

“Really, we should have made the call to action and the capital that goes along with it at the same time that we changed our guidance in April (2017),” Ruest said.

“If we had done this in April, a good six months ahead of time, we could have deployed some of that capital before the winter set in and we would have been in much better shape to meet demand in the last six months.”

In addition to the $400-million investment in Western Canada, CN said it will lease 130 locomotives to increase capacity in Western Canada, acquire 350 box cars to meet demand from industrial customers, and hire hundreds of new conductors.