BYLINE: Paul M Tellier
President & Chief Executive Officer
Canadian National Railway
CANADIAN NATIONAL has taken decisive steps to meet the challenges and opportunities of the next millennium. By the end of this year CN and its customers will be positioned to reap the benefits of the increasing integration of the North American economy, as manifested by double-digit increases in north-south trade. We will have boosted our productivity again to meet the competitive challenge of the ’Big Four’ US railroads, and we will have moved aggressively to meet shippers’ ever-rising expectations for more consistent, more accountable rail service.
I am determined that Canadian National will enter the new millennium as a stronger, more vibrant, North American railroad, with more than 50% of its business generated by north-south continental traffic. Indeed, my goal is to make CN the best railroad in North America.
Sold by the Canadian government in 1995, in the largest and most successful initial public share offering in Canadian history, CN has continually striven to improve its transport product since launching its turnaround strategy in 1992. Cost reduction, productivity improvement and profitable, sustainable revenue growth have preoccupied management.
And so has the charting of a sound strategic direction. Nothing manifests this more than the decision to acquire Illinois Central, announced on February 10 1998. This was driven by the fact that the arena in which CN and its customers compete today is increasingly being shaped by the North American Free Trade Agreement.
NAFTA’s effects are indisputable: Canada - US trade is growing at 11% annually. The CN/IC merger will offer new, efficient single-line services to many existing and prospective customers. Uniting CN - North America’s most improved railroad - with IC - the most efficient Class 1 rail carrier - will connect the Atlantic, Pacific and Gulf coasts with a single Y-shaped network.
We are optimistic that the US Surface Transportation Board will approve the merger in a vote scheduled to take place this month. Customers will benefit from new sources of supplies and parts, and new markets for finished products, raw materials and bulk commodities. CN/IC will benefit from extended hauls for existing traffic and the diversion of business from other modes and other railroads.
The merger will also enhance the shipper benefits of another strategic initiative - a 15-year marketing alliance which CN and IC signed with Kansas City Southern Railway in April 1998. This alliance already offers co-ordinated through-train service between Canada, the US midwest and south, and Mexico. Should the STB approve the CN/IC merger, CN/IC and KCSR will exchange trackage and haulage rights in the southern USA and pursue other new terminal investments.
The merger and marketing alliance are driving CN down the centre of the continent, with two of the ’Big Four’ US railroads on one side and two on the other. But CSX, Norfolk Southern, Burlington Northern Santa Fe and Union Pacific still dwarf CN in size and revenue. There is little doubt that these giant railroads will become more powerful competitors than they are today - highly productive, efficient railroads with extended market reach and formidable abilities to raise capital for new investments. CN, as a North American railroad, has no choice but to be as productive as its US competitors.
But our US expansion plans and productivity measures are not objectives in themselves. They must produce a service which the market wants. The glue that will meld CN’s strategic objectives into a consistently successful product is the way we run our trains. That is why we have devised plans to operate more efficiently, using fewer locomotives, cars and terminals to do more work. But this, in turn, will require fewer employees. Our objective is to offer customers a precise, competitive, consistent transport service based on a comprehensive schedule and measures to minimise the time that cars sit idle in marshalling yards.
The benefits are manifold, providing: