'We are only as good as the weakest link in the chain,' says new CN chief executive officer Claude Mongeau.Christinne Muschi/The Globe and Mail
Canadian National Railway Co.'s chief executive officer plans to diversify his company through partnerships in the trucking, shipping and freight-forwarding sectors, seeking alliances to help clear bottlenecks in North America's sprawling transport system.
"We are only as good as the weakest link in the chain," Claude Mongeau said in an interview in his Montreal office last week, on the eve of the railway's release Monday of its first-quarter results and Tuesday's annual meeting.
"I see our role as becoming true supply-chain experts. When you look at coal or grain or containers, there are a lot of players that are involved. There are shipping lines that arrive at terminals with containers, and you have other players involved in unloading the goods," said Mr. Mongeau, who became CN's CEO on Jan. 1, after Hunter Harrison retired.
Under Mr. Harrison's leadership for seven years, Montreal-based CN became one of the continent's most efficient railways. Its operating ratio - a key indicator of productivity that measures operating costs as a percentage of revenue - was the best in North America last year at 67.3 per cent. A lower figure is better, and by contrast, rival Canadian Pacific Railway Ltd.'s operating ratio last year was 79.1 per cent.
Mr. Mongeau, 48, said he is committed to continuing Mr. Harrison's strategy of ensuring CN runs a "precision" railway that no longer waits for enough cargo to show up before the trains roll out. CN has become a trend setter by setting detailed schedules, leaving at specified times.
In putting his own stamp on CN, Mr. Mongeau is devoting his energy to taking a broader view of the transportation system as the rail sector rebounds from last year's recession.
"The trucking industry is our competition, but we can also be partners because we have a lot of business that starts in a truck and finds its way onto the railroad between cities, and finishes at a destination with a trucking firm," he said.
Mr. Mongeau believes that greater co-ordination will go a long way toward reducing traffic congestion, but cautions that CN isn't concentrating on equity investments in trucking or other transport firms.
"How we all come together from a supply-chain standpoint is the key to improving deliveries for our customers," he said, calling for more "transparency in the flow of information and balanced accountability" whenever problems arise, whether it's at a rail yard or truck terminal or West Coast port.
Steven Hansen, an analyst with Raymond James Ltd., said both CN and CP have seen their carloads increase sharply, with their share prices rallying since early February on expectations of improved financial results.
In the first 15 weeks of this year, carload traffic at Canada's two largest railways rose an average of 17.3 per cent over the same period in 2009.
The "Hunter camps" - retreats where Mr. Harrison could easily speak for two hours without any text about the importance of railroading - have served their role, Mr. Mongeau said, and won't be revived on his watch.
Instead, the new CEO said he prefers the "rugby scrum," where there will be impromptu gatherings to brainstorm. In his office, he even has a rugby ball on display, a reminder that, in the railway industry, as in rugby, victories often come only after making incremental gains during a gruelling game.
CN is getting the word out that fuel-efficient locomotives offer an attractive way for retailers to move their goods, said Mr. Mongeau, who noted Wal-Mart Canada has been a good customer that values innovations such as CN's insulated, temperature-controlled containers to protect merchandise through Canada's cold winters and hot summers.
Mr. Mongeau said he appreciates both the huge strides that have been made since Ottawa privatized the former Crown corporation in 1995 and the big challenges ahead, with the economy still on the mend.
Born in St-Hyacinthe, Que., about 50 kilometres east of Montreal, Mr. Mongeau said taking over CN's throttle has been an honour as a Quebecker and a Canadian. "I want to keep up the intensity. I feel humbled because I have a great legacy to protect."
Brent Jang