CN's Tracy Robinson has her eye on growth opportunities
9/16/2022
By Julie Sneider, Senior Associate Editor
After a half year on the job, CN President and CEO Tracy Robinson on Sept. 14 told attendees of Morgan Stanley’s annual Laguna Conference she’s pleased with her company’s progress on the scheduled operating plan put in place earlier this year.
“I would say things are going well for us this year,” she said in her opening remarks. “I’m pretty pleased with how the team has leaned into the changes that we’re making and the operating plan that we’re running. ... The priorities were clear: We were going to run a scheduled plan and try to get our assets moving a little more quickly; we were going to focus on our commercial portfolio and make sure it fit the plan, and that it was a plan that we could deliver to our customers. And then we wanted to grow the bottom line.”
As a result of the plan, CN’s 2022 second quarter “showed some good momentum” with a more than 20% increase in revenue, a 30% increase in earnings per share and growth in volume and velocity.
Now into the third quarter, the CN team is ready for growth — including what will be a “big grain crop” in Canada and a “decent crop” in the United States, she said.
Moreover, the railroad’s coal, petroleum, chemicals and autos volumes have been strong.
“We will have record demand I think for the rest of the year, particularly in the western part of the network,” she added.
Robinson became CN’s top executive and a board member on Feb. 28. She succeeded Jean-Jacques Ruest, who retired. Robinson joined CN from TC Energy, where she was executive vice president, president of Canadian Natural Gas Pipelines and president of Coastal GasLink. Prior to TC Energy, Robinson spent almost three decades at Canadian Pacific.
At the Sept. 14 Morgan Stanley conference, Robinson fielded a few questions from the event’s moderator about what she sees in the near future for CN. Following is a summary of some of those questions and her responses.
Q: What are your takeaways from the job so far?
Robinson: When I came to the company after being out of the industry for a while, I was pleasantly surprised. I always knew CN had a great network and that remains true. But the pleasant surprise was that there are some unique growth opportunities that we're putting our shoulder into. There are some fundamental changes in some areas in trade flow that I think CN is really well-positioned to capture.
Q: The investor community has focused so much on operating ratio (OR) for the past several years. CN has made it clear it’s about growth and OR. How do you make sure you deliver growth and improve the OR?
Robinson: The way I think about it is, you need to run a plan. And that plan has to contemplate the commercial portfolio, how you want to deliver [for] your customers. You need to resource the plan and then you need to run it. So, that’s our mantra: Run the plan.
And as we do that, we get higher and higher velocity. You see dwell go down and velocity go up; train performance improves, your service to your customers improves and you get much more predictable. You also get a view of where your capacity is, and then you can start selling into that so it goes right to the bottom line. But you also have a line of sight to where you need to grow your capacity for the next investible opportunity.
We’re looking for those. A lot of growth opportunities are investible, and we’re going to put some money into our infrastructure where it makes sense to do that. So, for us the metric is: There’s no glory in growing if you can’t drive it to the bottom line. The way you drive it to the bottom line is you have a tight, efficient operation, you understand your network and you sell into it. If we do that, we’re going to grow the bottom line and that’s what we’re going to hold ourselves accountable to.
Q: Intermodal is such a huge opportunity for CN. How do you see your international intermodal franchise evolving over the next few years?
Robinson: We're watching trade patterns and flows very closely and we’re doing that with a number of the partners that we have in the intermodal supply chain. Now, the supply chain has been a little rocky over the past year, as you know. It’s straightening itself out and that will continue.
As we look forward, [Port Metro] Vancouver is a great anchor place. We are working very hard to make sure to get the next piece of growth out of Vancouver. It's got a big city wrapped around it. [And] I really like the flexibility and the gem that is in Prince Rupert [Port]. There’s no city around it; it has all kinds of growth potential with plans in place. ... It’s a natural with its proximity to Asia. And the importance of those trade flows — it's a natural growth point for CN.
Our job will be to make sure we have the capacity in place to make sure we keep up with that growth. And where it’s investible, we’re going to do that and it’s an important part of our franchise. ...
If you look in Mobile [Alabama], we’re growing in that southern part of the network. We've seen some of the West Coast volume move to the East Coast and the South, and we’ve picked up some volume and will see what we can do from an intermodal perspective. ...
Then we’ve got this beautiful little anchor on the East Coast in Halifax. Since PSA [International] has taken over both terminals, they’re doing some good things in efficiency and it has attracted some volume. We've got a straight shot out of there to Montreal, Toronto, Detroit, Chicago — and some of the fastest transit times. So, when you put those two together, we’re up 25% in volume year over year right now in this quarter. ...
We’re looking at what is going on in Southeast Asia and some of Europe and how that trade can get to the Mid-Continent as effectively, cost and time, to the East Coast and the West. We look at what’s happening at some of the East Coast ports, and we think Halifax is sitting in a very great place for us for some growth. So, we are pretty excited about it. …
Q: Are we talking about moving investment and resources from one side to another — bringing new resources [from the West] to the East?
Robinson: It’s not one or the other, it’s both. This company will continue to talk about the growth opportunities in the West. You saw us announce the partnership with Keyera outside of Edmonton for the new energy terminal. [CN in August announced an agreement with Keyera Corp. to evaluate the potential for a new clean energy terminal near Edmonton, Alberta.] That's a really exciting opportunity. And Prince Rupert and Vancouver [ports] are both perfectly positioned for that. There is going to be the next level of growth in the West and we will step into and invest in that.
Q: You’ve done a really good job getting service back on track. Has it been more of a challenge for your peers in the U.S. because you’re farther along with precision scheduled railroading? Has PSR helped you bring service back on track?
Robinson: It all starts with your plan. Once you have a plan in place, you can see where you need your resources. [The plan adjusts] as volumes come and go, but that is the basis of how you resource. You need power, you need cars and you need crew. … So, we have 47 new high-horse power locomotives online — we can see that we needed power.
When you think about the grain crop, which is going to be a big one, we have 500 new high-capacity hopper cars online. And we are crewed up. We didn't make any reductions [in train crews last year]. ... And we’ve been hiring like everybody else; we’ve got 500 new conductors that will be coming on at the end of the year. So, we're crewed and ready, but you need all three of those things to run your plan.
Q: The two issues of service and grain crop together: Obviously, labor has been a bottleneck for the entire industry. You were reducing headcount going into last year. What is [the plan] for having the headcount to move these [grain] volumes?
Robinson: The reductions the company made last year were in the management ranks. Fortunately, [the CN] team had the foresight not to reduce any T&E. We have had the normal attrition of folks retiring, so we are largely backfilling behind that and then we are preparing for growth. So, we will have record demand in the western part of network this year, and we’ve got the crew resources to run our plan.
We are pretty confident that we’ll be able to do it. It will spread over a period of time, but we’ll move it.
