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Strong
Results
for CN in 2004
The Canadian rail industry
is flourishing if CN’s accomplishments so
far in 2004 are any indication.
CN’s robust showing this year is largely due
to new acquisitions and inter-railway agreements
that position CN to be an increasingly powerful
player in North American rail transportation.
BY JOHN
LEJDERMAN |
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That
2004 has been a very good year for CN is evidenced by
its strong third quarter financial results: net income
of $346 million, 18% up from 2003, and an operating
ratio of 65.4%. Operating ratio is the percentage of
revenues required to operate and maintain the railway—a
closely watched measure of rail efficiencies. CN's operating
ratio is the best in the North American rail industry.
E. Hunter Harrison, president and
chief executive officer of CN, said: “Third-quarter
revenues grew 21 percent, reflecting core business growth
in a strong North American economy and the acquisitions
of BC Rail and the railroad and related holdings of
Great Lakes Transportation (GLT). The integration of
these carriers into our network continues in seamless
fashion, and we believe anticipated merger benefits
will outpace our original expectations.”
CN COMPLETES TWO NEW ACQUISITIONS
CN completed its $1-billion BC Rail
transaction with the British Columbia government in
July of this year. The rail combination will offer BC
Rail shippers unparalleled routes to major NAFTA and
international markets—a new network of routes
that will strengthen the competitiveness of the B.C.
economy. It will offer BC Rail’s shippers the
‘best of both worlds’: the efficiencies
and route advantages of CN’s single line-service
to key markets, and the option of routing traffic to
other railways at the Vancouver gateway at lower average
rates than those now charged by BC Rail.
CN expects the combined CNBC Rail
networks to generate revenue gains from market share
captured from trucks, and to produce cost synergies
from new operating efficiencies and greater asset utilization.
One of the advantages for CN of thus
strengthening its west coast operation is to better
support the growing trade with China. A reflection of
this burgeoning commerce is the fact that CN recently
opened offices in Shanghai and Beijing. “China’s
emergence as a global trading force also represents
a big opportunity for the Canadian west coast ports
that CN serves,” says Paul Tonsager, head of the
Beijing office. “We have a significant presence
in Vancouver, and we believe the Port of Prince Rupert
has great potential to become an important gateway for
shipments coming from, and destined for, China.”
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In
May of this year, CN completed its acquisition of the
rail and marine holdings of Great Lakes Transportation
LLC (GLT). “CN will now enjoy new efficiencies
in network performance, and become a major player in
the bulk commodities stream for the United States steel
industry," says Harrison. “Western Canadian
shippers will benefit from improved traffic flows in
our NAFTA corridor between Winnipeg and Chicago. At
the same time, the mining community in the Mesabi Range
will have access to CN, as a crucial supply chain for
the steel industry.”
INTER-RAILWAY
AGREEMENTS
RATIONALIZE TRACK USAGE
Although competition is strong among
railways, competition among different transportation
modes can also drive railroads to cooperate to rationalize
their operations. In October CN and Canadian Pacific
Railway (CPR) announced a series of co-production agreements
to make rail operations more efficient for Port of Vancouver
freight traffic.
The latest news is further inter-rail
agreement on the east coast as well. In November, CN,
Canadian Pacific Railway (CPR) and Norfolk Southern
Railway (NSR) announced an agreement to significantly
improve freight service between Eastern Canada and the
Eastern US.
The three-party arrangement will give
CN and NSR a seamless, direct north-south routing over
CPR’s lines south of Montreal, which will slice
as much as two days’ transit-time off some 20,000
annual shipments. The new agreement will cut 330 miles
off the current routing used by CN and NSR, which sees
freight traffic handled more circuitously through the
Buffalo, N.Y., gateway.
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 Canadian
Pacific
Railway: Responding
to Opportunity
This year has been one of growth
for CPR. And with the railway’s ability to respond
to developments in the marketplace, it seems poised for
continued growth.
BY JOSÉE LAFRENIÈRE |
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Canadian
Pacific Railway has been in business since 1881, when
it opened up the Canadian West for settlement. The company
has continued to thrive for 123 years due to its ability
to turn change into opportunity. Today, CPR provides
coast-to-coast rail service in North America, is a leader
in bulk and intermodal transportation services and offers
a full range of logistics solutions.
In the past year, CPR has expanded
its business. In CPR's third quarter, which ended Sept.
30, freight revenues grew to $949 million, from $866
million in the same period of 2003, an increase of almost
10%.
This growth is a result of CPR maximizing
the potential of its network to take advantage of a
sharp rise in demand for commodities such as coal, grain,
potash, sulphur and chemicals, and continued strong
increases in intermodal shipments.
ASIAN BOOM
Behind its success is CPR's well-placed
business strategy. It has spent the past seven years
rebuilding its locomotive fleet with high-performance
power, upgrading its track to handle heavier trains,
renewing its information technology to support improved
railway operations and faster decision-making, improving
its freight car fleet and developing the most integrated
scheduled railway in the business. Today, CPR has a
dynamic bulk franchise carrying Asian exports to the
West Coast and a fast-growing intermodal business supported
by CPR's transcontinental reach and its lines feeding
into the Chicago hub from west and east coast ports.
CPR has leveraged its franchise to
gain maximum advantage from a significant increase in
trade between North America and Asia. Much of this growing
trade is being driven by China's booming economy. China's
voracious appetite for commodities is driving exports
such as grain, coal, fertilizers and steel. At the same
time, China's fast-growing consumer products sector
has been exporting vast quantities of finished goods,
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which enter North America in intermodal
containers that move to port by ship, then inland by
train, and finally to retail stores by truck.
HANDLING GROWTH
While CPR has been handling the growing
volumes of business, capacity in some corridors is tight.
This year, the railway has removed pinch-points on its
western line through the mountains and has been concentrating
on improving operational efficiency and fluidity over
its network to maximize train capacity on existing track
infrastructure. Recently, CPR and CN announced a co-production
agreement that will see the two railways share strategic
portions of their track in the Vancouver area to improve
freight service for shippers, including those using
the Port of Vancouver — Canada’s gateway
for trade with Asia.
“By working cooperatively to
make rail service more efficient, we will also improve
network and equipment utilization and increase productivity
on existing infrastructure,” says Fred Green,
Chief Operating Officer of CPR.
CPR is considering a large-scale expansion
of its track infrastructure to accommodate continued
growth. The company says it will make a decision about
this expansion — which could involve investing
as much as $500 million — before the start of
the construction season. Rob Ritchie, CPR’s President
and Chief Executive Officer, has identified three pre-conditions
to large-scale track expansion:
• A continuing strong economy and growth that
will last;
• Freight rates that are at a level required to
support the additional investment;
• Government policy that creates a stable, progressive
regulatory environment.
The role of government policy is critical
as CPR approaches a decision about infrastructure investment.
For example, there has been talk of imposing “open
access” through government regulation on Canada’s
two major railways. This form of regulated access would
permit virtually anyone to operate a train over the
railways’ track networks. CPR has said it will
not invest large sums of capital to expand infrastructure
only to have others come along and virtually expropriate
these assets through open access after the investment
has been made.
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CANADIAN
PACIFIC LOGISTICS SOLUTIONS
Being adept
at maximizing its supply chain,Canadian Pacific
now has a logistics and supply chain division,
called Canadian Pacific Logistics Solutions, to
help other companies maximize theirs. CPLS not
only provides logistics expertise to existing
CPR customers, but also works with many non-CPR
customers, providing North American supply chain
consulting, logistics management and facility
services to small-to-mid-market companies. Some
of the non-rail industries they’ve gained
a foothold in include consumer packaged goods,
food products, and the manufactured goods sectors.
The result is an anticipated increase in revenues
of 50% in 2004 over last year. And, Vince Goegan,
assistant vice-president, CPLS, foresees another
20% increase for the coming year.
“There is also a growing
market in supply chain consulting involving smaller
engagements with midsize companies, who are looking
to reduce costs and improve service,” remarks
Goegan.“We have set up a consulting arm
in CPLS that provides that service.”
One of CPLS’s key differentiators
is that, while the division reports to CPR’s
executive and participates in its marketing plans,
it also has operational independence.That means
it’s free to pursue its unique business
model to offer its customers the best solution
that meets their needs, regardless of mode of
transportation.
For more information, visit
the CPLS Website at www.cpls.ca.
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RMI:
Technological
Solutions for Small Rail
Carriers
As in many other industries, the
railways are emerging from a downsizing trend in the 1980s
and 90s that left a few large players and many smaller
players: the regional and shortline railways.
BY JOSÉE LAFRENIÈRE |
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There
are only seven Class-1 railways in North America, but
there are approximately 540 regional and shortline railways.
As all railways strive to improve their bottom line,
they focus on improving the efficiency of operations
while ensuring the quality of the customer’s experience.
However, many of the smaller railways
do not have the technological infrastructure or the
financial resources to develop proprietary solutions
to help them manage their businesses. And in the rail
industry, this means managing huge equipment, large
quantities and varieties of goods, complex schedules,
safety considerations, and sizeable budgets.
EFFICIENCY
That’s where RMI comes in. It’s
the largest independent provider of rail information
services to the transportation industry in Canada, the
US and Mexico. Currently, approximately 400 North American
carriers use at least one RMI service to increase their
labour savings, improve cash flow, and provide their
customers with a higher level of service than would
otherwise be possible. Additionally, there is a growing
trend in the shortline industry to operate multiple
railroads from regionally-located customer service centers
in order to manage costs and staff. RMI’s technological
solutions make it possible to centralize operational
and accounting control.
“Efficiency is the focus,”
says Paul Pascutti, Vice-President (marketing) for RMI.
“We help railways maximize the level of customer
service and we offer the technology they need to improve
their profitability.”
The four main areas in which RMI helps
companies improve their efficiency levels are transportation
management (train movement, work orders), revenue (inter-line
freight agreements, waybills), equipment (car hire),
and freight management (monitoring movement of shippers
and fleet).
TECHNOLOGICAL SOLUTIONS
RMI’s focus is on the development
of technological solutions:
Paperless Railroad solutions have
been and will continue to be an important aspect of
RMI’s offering. It includes technology for onboard
computing, automatic equipment identification (AEI),
reader integration, and a Web-based shipper interface.
These services are accessed via the Internet or with
frame relay connections through RailConnect(R), a Web-based
portal to the company's integrated suite of proprietary
information services.
In addition, RMI has developed M-Crew,
mobile computing for train crews. It allows the crews
to receive real-time information and to provide updated
train information to the transportation management system.
Still in the developmental stage,
GeoFencing provides locomotives with GPSreporting capability.
It is a complementary tool to AEI or RFID, and will
use GPS to map tracks and to update car movement.
Both M-Crew and GeoFencing solutions
are especially interesting for smaller carriers because
they offer an alternative to the more expensive AEI
or RFID technologies, which capture information when
railcars move past readers set up along the tracks. |
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The
readers then transmit the location of the car and the
direction in which it is moving. However, a GPS antenna
mounted in the locomotive is a less costly investment
than installing a series of RFID readers.
RMI’s automatic manifest system
(AMS) facilitates the clearance of freight crossing
the US, Canadian, and Mexican borders using the AMS
EDI standards established by the US Customs and Border
Protection. Since 9/11, border clearance has been increasingly
stringent. “AMS has pretty much been implemented
for the US-Canada and the US-Mexico border crossings,”
says Pascutti. “It transmits custom manifests
in advance, which greatly improves the speed of train
border-crossings.”
AN EYE ON THE FUTURE
And what’s in store for RMI
in the near future? According to Pascutti, it will continue
to expand, focusing on two main areas: “Developing
more services for rail shippers to help them better
manage their freight while it’s in the rail pipeline,
and expanding our offering to large, Class-1 railroads,
including certain types of back-office accounting functions,
equipment management services, and car accounting, areas
that are more easily outsourced.”
ABOUT RMI
Currently, RMI processes approximately
five million carloads annually for railroads, rail shippers
and railcar owners. Its services include transportation,
revenue, equipment, shipper freight and fleet management
services and related executive information systems.
RMI is an independent, privately owned company based
in Atlanta. For more information about RMI, visit www.railcarmgt.com.
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