CN Rail is forging new alliances to reimagine supply chains

This interview is part of the Inside the Mind of the CEO series, which explores a wide range of critical decisions faced by chief executives around the world.

When veteran railway executive Tracy Robinson became president and CEO of the Canadian National Railway Company (CN Rail) in 2022, after an eight-year stint in the energy sector, she was returning to an industry undergoing a significant transition.

Pressure to decarbonize global mobility infrastructure—which creates roughly one-fifth of global emissions—was creating opportunities for less carbon-intensive transport to play a bigger role in overland systems largely dominated by the trucking industry. Rail freight operators, which have historically been strong rivals, had begun to transform their business models by shifting from having a single-operator perspective to embracing a role in a broader transportation ecosystem, in pursuit of both increased market share and a more sustainable method of moving goods globally.

Robinson’s priorities at CN, one of North America’s “big six” rail operators, focus on transforming the company’s core relationships and supply lines. CN is one of the companies driving the growth of intermodal networks, in which disparate players in the transportation system, such as railroads, trucks, ships, ports, terminals, and warehouses, collaborate more closely to take goods from the first to the last mile.

Robinson spoke to strategy+business from her offices in Montreal about CN’s role in the transformation of the industry.

S+B: PwC’s Annual Global CEO Survey found chief executives were somewhat more optimistic about the economy this year than they were last year, but the overall level of pessimism remains relatively high. How do our findings compare to what you’re seeing?
ROBINSON:
Without a doubt, this year will be better than last year. But we’re still watching the impact of what’s going on around the world more from a geopolitical perspective. Coming out of covid, different trade flows emerged, and then when recent geopolitical conflict emerged, there was a dramatic change in certain commodities. And now, when we look at what’s going on in the Middle East and the Red Sea, those events have changed the way that vessels and containers move around the world, which then impacts North American supply chains and infrastructure. There are also water volume issues in the Panama Canal, which affect how global shipping is routed. So overall, the environment we’re seeing is generally positive, with some cautionary notes [related to] geopolitics.

S+B: You touched on a key point, which is the rising importance of companies and CEOs being able to sense and prepare for emerging threats and risks in this volatile environment. What are your strategies for predicting and staying ahead of key risks on the horizon?
ROBINSON:
We’ve been in business for more than 100 years, so we start with what we know based on the likely patterns. But nowadays, that is insufficient for predicting what’s going to happen.

Today, we consider more forward-looking indicators that tell us what might happen across a variety of industries. There are a lot of innovations coming, and these generate new sources of data, which we all would be well advised to take advantage of as we think about building resiliency into our business. It is inherent upon all of us to make sure that we mitigate and minimize these impacts.

Two years ago, we implemented a scheduled railroad operating model [in which freight trains operate on fixed schedules, similar to passenger trains]. The scheduled model has driven us to be faster and far more consistent. We’re sitting beside our customer and we’re managing their base business, but they want to get into a different market or they need to think about alternatives or different outlets, given the way global trades are moving now. There is a level of nimbleness that is required in thinking about our business these days. We understand very well that we have the capacity and capability to take shocks or to respond to opportunities as things shift, and we’re getting really good at that.

S+B: The need to reduce greenhouse gas emissions [GHGs] bodes well for rail carriers looking to grow their role in global supply chains. But reducing GHGs requires companies throughout the supply chain to work together to improve the interconnectivity and the fluidity of their networks to create an end-to-end journey for moving goods. How are you approaching this at CN?
ROBINSON:
I like our industry when it comes to the very important issue of climate and emissions. If you look at North America, the numbers show that transportation, including airlines, trucks, rail, ships, and cars, accounts for 25 to 27% of North American emissions. Rail would account for about 2 to 3% of that, with trucks at about 25%.

Right now, [trucks] move most long-haul commodities [in North America]. You can reduce emissions by about 75% if you shift from truck to rail. The opportunity, but also the responsibility, is to figure out how we can move more of that truck traffic off the roads and onto this lower-emissions path. Doing that requires us to think about our business very differently because we know that people hire trucks for a reason: they want fast, and they want consistent.

You can reduce emissions by about 75% if you shift from truck to rail…[but] doing that requires us to think about our business very differently.”

What [railroads] need to do is be more like trucks by getting together as a full supply chain. It can involve ports, terminals, warehouses, multiple railroads, and trucks. But we need to come up with one service package that not only is easy to use and understand but also operates fast and consistently. If we can do that, I think you’ll see a very positive impact, not only on the economy but also on emissions.

S+B: You’ve pursued intermodal arrangements at CN, including through the Falcon Premium partnership, which connects points over 3,000 kilometers, from Canada and Detroit, to terminals in Mexico. Can you talk about how these types of partnerships work in practice?
ROBINSON:
Railroads have long histories of being fierce competitors. But having faced all of the shocks to the supply chains in recent years, I think every single one of us understood how important it was that railroads work effectively by working together.

The Falcon Premium service is our first and primary example of how we’re coming together with other railroads. We are now running trains from Monterrey, Mexico, all the way through the Union Pacific system and on to our system in the United States and into Toronto. We’re doing that [route] in five days, which is as good as or better than a truck can do it. This is the result when [companies decide] to come together, and this is what we did with Union Pacific and Grupo México-Ferromex as one company.

We challenge ourselves around that partnership table. We ask ourselves, “If we were one company, how would we think about this issue?” That’s when the competitive spirit comes down and the collaborative spirit comes up. It’s amazing what you can make happen when you can get to that level of collaboration. Now that we’ve proven we can move goods faster and we can do it consistently, it’s a matter of demonstrating it to the extent that we start to attract that truck traffic onto the trains.

S+B: We’ve also seen examples of partnerships with trucking companies as part of the growth of intermodal networks. What’s your view on how rail carriers can best collaborate with trucking companies when those rail carriers are also competing with them to take traffic off the roads?
ROBINSON:
There are different approaches to an intermodal strategy. In our case, we acquired a company based in Canada called TransX, which we use as an extension of our network to deliver directly to our customers’ door, as opposed to [them] contracting that last-mile delivery themselves. We approach it differently in the United States, where we use intermodal marketing companies that buy capacity from different players.

There’s no single solution. We think that rail is the answer on the long haul. Trucking will be the answer to a certain extent on the last mile when it comes to moving containers. The big question is how we work together and [what’s] the path in between, [aiming] to improve the efficiency and effectiveness of the overall supply chain.

There are also broader issues when we talk about intermodal collaboration. Take data sharing, for example. When a container leaves, say, China, and it’s going to Chicago, somebody already knows exactly where it’s going. The more we can take down the barriers and share data between our customers, oceangoing vessel companies, ports, terminals, railroads, warehouses, and trucks, the stronger our supply chains will be. It’s going to become obvious where we need to invest in order to grow our capacity to address the pinch points in the supply chain.

This is important because right now, we’re optimizing too much for our own operation as opposed to the total throughput of the supply chain. Changing that, through actions like sharing more data, is a big leap of faith. But if we can’t figure it out, there are going to be constraints on the growth of the economy. None of us wants that.

S+B: What are the next big challenges for CN and the future of the rail industry?
ROBINSON:
Looking at our own emissions, 85% come from locomotives, and we’re focusing very hard on locomotives in two key areas. The first is through the technology that gives you data and information to improve how you handle locomotives. The second is working to increase the amount of biofuels or renewable fuels in the diesel used to run them.

It’s a question of what the next generation of propulsion is going to be. In Pennsylvania, we are working with Wabtec on a fully electric locomotive and will be testing to see how it performs. In British Columbia, we’re working with Progress Rail on a hybrid diesel–electric locomotive. But ultimately, the industry will need to come together to decide on the best path forward.

This is an excerpt of an interview for strategy+business and was first broadcast on PwC Canada’s CEO Viewpoints podcast.

Author profiles:

  • Sébastien Doyon is the Canadian markets leader for consulting services. Based in Montreal, he is a partner with PwC Canada.
  • Glenn Kauth is a content and editorial manager at PwC Canada.
Comments

Leave a Reply

Skip to toolbar