Canadian grain shippers are worried CN Rail’s plan to boost profits and avoid a shakeup in the executive suite could result in poorer service.
“Even though (grain shipping) demand is a bit down (due to a smaller crop) they (CN) started rationing last week and their order fulfilment, especially out of Alberta is dropping,” Greg Northey, Pulse Canada’s vice-president of corporate affairs said in an interview Oct. 5. “The signs may already be there that they can’t keep up with what’s being demanded of them.”
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CN management suddenly began laying off staff recently, which Northey and other observers believe is part of CN’s plan to earn more money for shareholders and counter efforts by London-based investment firm TCI Funds to replace four CN directors and install a new cost-cutting CEO at a special shareholders’ meeting March 22.
“Ideally they’ll (CN) pull together but it’s tough when they really start to cut staff and do it in the style they did — basically overnight. It’s a bit concerning for sure because that’s not oriented towards the customer, that’s oriented more towards — and they are being quite clear about it — it’s more towards the board and the shareholders.”
Why it matters: CN moves around half of Western Canada’s grain to export markets.
TCI, which owns about five per cent of CN’s stocks, has criticized CN’s failed bid to buy the Kansas City Southern railway.
CN has announced it’s laying off 1,050, employees, including 650 managers, as it works to boost profits. The cuts began last week.
In keeping with its plan to focus on its core business CN confirmed in an Oct. 7 email it is getting out of the freight forwarding business.
“CN Worldwide Freight Forwarding has been in direct contact with our customers to ensure they are aware of other options to participate in the containerized grain export market, including working directly with steamship lines and working with other freight forwarding companies providing the same type of service previously offered by CN Worldwide Freight Forwarding,” CN spokesperson Mathieu Gaudreault wrote. “CN has seen significant growth in its Western Canada containerized grain program, and CN remains committed to its intermodal transport services for Canadian farmers.”
The Western Producer recently reported CN’s decision caused chaos for at least one Saskatchewan pulse company that uses CN Worldwide Freight Forwarding.
According to sources in that report, existing containers stuffed with agricultural products would be loaded on ships for export, but now new orders would be taken and unfilled orders would be cancelled.
CN’s seemingly capricious decision will hurt its Canadian customers, including pulse exporters, “but I don’t think they had a huge book of business in the ag sector,” Northey said.
“My understanding is that (CN) was really focused on inbound so it was really dealing with loaded containers coming in as imports as opposed to a lot of the export side.
“But clearly anybody that had them will be in a miserable, miserable situation, but there’s likely not a lot. I think the bigger concern is how it’s going to impact rail movement (of crops) if they are doing all this laying off of people.”
CN is committed to moving the 2021 crop.
“We will continue to work with Canadian grain producers, agri-organizations and customers to move their products to market for the communities we proudly serve,” Gaudreault wrote in his email. “CN remains focused on delivering high-quality service to customers and maintaining best-in-class safety.”
The Western Grain Elevator Association, which represents Canada’s biggest grain companies, is monitoring CN closely, executive director Wade Sobkowich said in an interview Oct. 6.
“There has been a marginal drop in CN service over the last week or so,” he said.
“It’s not where we are panicking or raising alarm bells. It definitely makes a person want to watch the situation given the happenings at CN and see how they could be reorienting themselves to try to improve their operating ratios to hold their returns because of course Wall Street measures CN’s share value based on operating ratio. Given the whole Kansas City Southern merger saga we can see how it might be more motivated to improve their operating ratios and that usually means worse service. So it’s something we’re watching very closely to see how CN car order fulfilment on a week-to-week basis performs here over the fall period.”
Operating ratio shows the efficiency of a company’s management by comparing the total operating expense to net sales.
Last crop year CN and CP shattered grain shipping records thanks to a big crop and increased capacity as the COVID pandemic reduced other rail traffic, Canada’s grain monitor has said.
