CN Rail CEO Vows Loyalty to Grain Farmers as Oil Shipments Climb

(Bloomberg) -- Crude oil demand may be on the rise again, but Canadian National Railway Co.’s new leader insists energy shipments won’t displace longtime railroad staples such as grain and lumber.

Grain farmers in the western Prairie provinces saw exports slow to a crawl when Canadian National proved unable to cope with a surge in demand starting in the second half of last year. In March, with bottlenecks and customer complaints mounting, Canada’s biggest railroad ousted then-Chief Executive Officer Luc Jobin -- prompting his successor, Jean-Jacques Ruest, to boost capital spending to a record C$3.5 billion ($2.7 billion) to start fixing the logjams.

“We do not want to kick out, or restrain, business that will be long-lasting to replace it by crude,” Ruest said in a telephone interview from Montreal. “To the extent we have some spare capacity, which is what we are building here, to onboard crude without hurting grain, lumber and mining, then we will do that.”

Petroleum and chemicals was Canadian National’s second-largest line of business in the second quarter, climbing 12 percent to C$616 million. That compares with revenue of C$591 million for grain and fertilizers, and C$490 million for forest products. Canadian National had total sales of C$3.63 billion in the period, led by container-car shipments.

Volatile Crude

Crude oil demand’s volatile nature means Ruest is hesitant to build dedicated infrastructure for energy shipments without multi-year commitments from energy producers.

“CN has been in business for 99 years, and we’ve been in business for 99 years moving grain, lumber or mining products,” he said. “Crude was not part of what we moved in 1919. This was not a product that we moved a couple of years ago, and a couple of years from now, we may not move it again.”

To handle additional volumes, Canadian National is adding staff, tracks, sidings and locomotives. The company is focusing investments on the western section of its network -- from the British Columbia ports of Prince Rupert and Vancouver and the oil-rich province of Alberta to Chicago -- where growth is strongest.

“In the second half you will see an increase in our carloads for crude, on a sequential and year-over-year basis,” Ruest said. “That will start to show up in the fall -- tying into our construction program that will create capacity to move more trains” from Alberta to the eastern part of the country, he said.

In addition to being CEO, Ruest also holds the title of chief commercial officer. That dual role is drawing to a close.

“In time, definitely by the next quarter’s results, I will have a structure in place that will relieve me of having to get involved directly” in sales campaigns, Ruest said. “So give it a couple of months.”

Ruest’s successor as sales chief will likely come from within the company. “We have the internal bench strength to do this in-house,” he said.

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