CN Rail is making a very public apology to the grain industry.
The company admits it didn’t move as much grain as it agreed to earlier this crop year, and is apologizing profusely for it and pledging to do better. And to show it’s serious dismissed its chief executive officer and appointed its chief marketing officer as interim president and CEO.
And just to be sure everyone gets the message, Sean Finn, CN Rail’s executive vice-president of corporate services and chief legal officer, was in Manitoba and Saskatchewan last week talking to farmers and reporters.
“We are sincere about our apology,” Finn said in an interview April 4. “It was not taken lightly. You don’t change a CEO lightly.”
CN Rail issued a news release March 5 announcing CEO Luc Jobin “… is leaving CN effective immediately,” and replaced by Jean-Jacques Ruest, CN’s executive vice-president and chief marketing officer for the last eight years.
“The board felt that we weren’t performing at the level that we normally perform at with our customers,” Finn said. “Putting JJ in charge, the voice of the customer is being heard loud and clear at the highest levels of the company and throughout the company.”
Ruest, who has been with CN Rail for 22 years, often attends grain industry conferences and is well known in the sector.
Ruest saw the grain backlog coming early in the fall, Finn said.
“JJ knew customers weren’t being served,” Finn said. “He was getting the calls directly so… the next day one of the things he did (after being appointed CEO) was publicly apologize to our customers in Western Canada and grain customers for not performing at the level that meets our expectations. We weren’t even meeting our own standards.
“The reason I’m here is I am repeating the apology. I am making it real for people in Saskatchewan and Manitoba.
“This is not a one-shot PR (public relations) exercise.
“We have to meet with people. The reception has been very cordial, and a frank discussion, very quickly turning out what do we do going forward. I found that very constructive and very positive.”
Meanwhile, CN is focused on clearing the backlog, Finn said. CN Rail has ordered 200 new locomotives and expects to get 60 this year and leased 130 locomotives in the interim.
The company is also hiring more than 1,000 new employees, but they need eight months of training.
CN Rail will also spend $3.2 billion — $500 million more than last year — on improving its network, including $250 million to beef up the Winnipeg-to-Edmonton corridor, including adding more double track.
CN Rail will likely buy 1,000 new grain hoppers to replace the aging government-owned fleet, although CN’s board must first approve it, Finn said. The board wants to be certain the company will be operating in a “stable regulatory environment,” he added.
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Meanwhile, after months of failing to meet grain company car orders, CN Rail is catching up on the backlog, Finn said.
“The last four weeks we have exceeded our target of 5,000 cars a week,” he said.
“Last week (March 31) there were 5,744.
“Sometime in the first week of May we’re going to have grain cars parked because there will be reasons not to move the grain that given week… but… we won’t take the pedal off the gas until we’re comfortable we have no unfilled orders.”
Last fall CN Rail told grain companies it would move 5,500 cars a week, dropping to 4,000 weekly in the winter. But it seldom met those commitments some weeks failing to deliver even 50 per cent of cars on time.
CP Rail’s performance was better, but often subpar, adding to the backlog.
CN Rail’s poor performance was in sharp contrast to a stellar 2017-18 when it often delivered 90 per cent of grain car orders on time.
The Western Grain Elevator Association says a drop in CN Rail’s non-grain traffic, freed capacity for grain.
Before 2017 CN Rail saw 18 months of reduced traffic, Finn said. As a result it cut crews and locomotives. Early in the new crop year there was a double-digit jump in CN traffic, but the company had cut resources too deeply and couldn’t gear up fast enough, he said. Besides grain there were more containers, frac sand and potash to move.
CN Rail encountered other problems, including a major derailment and a cold winter. When temperatures fall below -25 C air brakes are harder to keep pressurized resulting in shorter trains that run slower.
But Finn stressed CN can’t use winter as an excuse.
“You need to make sure there is some surge capacity, or some capability of acquiring it very quickly,” he said. “Leasing locomotives is a good example.
“We can’t decide in September we need new crews by December.
“Employees aren’t (a capital) asset, but they are the most important component of our business…
“If you cut back too tight every couple of years you are going to run into this problem and ultimately what will happen is people will decide that Canada is not a viable solution for a long-term supply of our products in markets around the world and that’s a risky business.”
The Western Grain Elevator Association (WGEA), which represents Canada’s major grain firms, claims the railways have no incentive to invest in surge capacity because grain can only be moved by rail to port because trucking is too expensive.
The WGEA is counting on Bill C-49, the Transportation Modernization Act, still before Parliament, to provide market discipline proxies to encourage rail surge capacity.
But Finn said CN and its shareholders want to meet customer needs.
“We want to grow our business and do so with existing customers,” he said.
“I think ultimately shareholders… want to return on their equity, but they also want to make sure that we’re investing in the business for the long term.
“Farmers need to move their goods to the elevator so they can get paid. In our case when we don’t deliver it impacts our reputation, but it also impacts the reputation of Canada as a trading nation and that is something that is very important for all of us.
“We’re a trading country and if you can’t move goods to market we have a serious problem as a country and we as a company will not be successful in Canada.”