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CN CEO Luc Jobin departs amid backlog of rail shipments

A Canadian National Railway Co. (CN) locomotive pulls a line of cars through the Macmillan Yard in Vaughan, Ont., in this file photo.

Norm Betts/Bloomberg

Amid a rail-freight backlog that has angered major customers, Luc Jobin has been ousted by Canadian National Railway Co. after less than two years as chief executive officer.

Montreal-based CN replaced Mr. Jobin with veteran marketing chief Jean-Jacques Ruest until a permanent CEO can be named, the company said on Monday.

"The board believes the company needs a leader who will energize the team, realize CN's corporate vision and take the company forward with the speed and determination CN is known for," said Robert Pace, chairman of CN's board, in a statement. "The board believes that in an increasingly competitive marketplace, CN must respond with speed and innovation to retain its leadership position."

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CN saw freight volumes surge by 11 per cent after a string of new contracts and improving economic conditions. But parts of the company's 32,000-kilometre network became congested, and an unusually cold and snowy winter has made it harder to keep trains moving and customers happy. The company responded to the bottlenecks by hiring hundreds of train crews and ordering 200 new locomotives. But any major upgrades to the company's rail lines must wait until winter ends, and the board ran out of patience, analysts said.

It was a rare stumble for one of the industry's most highly regarded companies, which operates a coveted network that touches three coasts and serves major industrial regions in Canada and the United States.

Mr. Jobin's departure signals the company is concerned about the pace of improvements, said Walter Spracklin, a stock analyst at Royal Bank of Canada.

"We attribute the surprise announcement to the service and network challenges that arose as a result of the company's rapid volume growth in 2017, the costs and challenges associated with correcting the issue, and the continuing fallout that we have seen on the customer service side – evidenced by the volume declines exhibited in the carload data year to date," Mr. Spracklin said in a note to clients.

Mr. Jobin joined as CN chief finance officer in 2009 and had no experience at a railway.

He had a limited public profile as CEO, unlike his outspoken predecessors Claude Mongeau and Hunter Harrison, and often left investor presentations to other executives, including Mr. Ruest. During his tenure, Mr. Jobin declined several Globe requests for interviews. He could not be reached on Monday for comment.

Brandon Oglenski, an analyst with Barclays Capital Inc., predicted the next CEO will have operating experience, as opposed to a background in finance. "We find railroad leadership with operational experience to be objectively beneficial to shareholders, at least historically," he said.

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CN said it will launch an international search for its next CEO. Mr. Ruest was not available for an interview, CN said.

The major grain companies, Western Canadian farmers and U.S. oil-field services company Halliburton Co. complained recently CN is not living up to its commitments and is harming their businesses.

According to Western grain-industry group Ag Transport Coalition, CN's shipping performance has deteriorated in recent weeks. CN supplied 17 per cent of hopper cars ordered in the most recent week reported by the group, whose members include grain companies and farmers.

Canadian Pacific Railway Ltd., by comparison, has performed better.

The number of grain cars CN has hauled this year is down by 16 per cent, even as numbers across all freight categories volumes are flat. Intermodal shipping containers have risen by almost 6 per cent.

Wade Sobkowich of the Western Grain Elevator Association, an industry group, said CN diverted locomotives and crews away from grain and into more competitive lines because the company knows the crop will wait. The business of moving intermodal containers is much more competitive, he said.

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"Grain demand is the same as it was last year and the crop size is the same as it was last year. We believe the reason why we're getting less capacity for grain is because they've made the decision to take capacity that was earmarked for grain and put it into other sectors where they weren't fully prepared for demand," he said by phone.

He said farmers and grain companies need to sell the grain shortly after harvest, though, to obtain the best prices.

CN's profit rose less than expected in the fourth quarter as the company's expenses climbed amid spending to add crews and locomotives to meet new demand. The surge in freight followed a handful of new contracts the company took away from CP.

CN reiterated its 2018 per-share profit guidance of 5 per cent to 8 per cent on Monday and said it will stick with its capital expenditure plan worth $3.2-billion.

But RBC's Mr. Spracklin said CN's 2018 guidance is "off the table."

"The key now for the company will be the choice of next CEO," he said.

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