Canadian National Railway is wasting no time transforming itself into a leaner and more profitable railway company, following its failed bid to acquire American rail carrier Kansas City Southern.
According to sources, CN has initiated a process aimed at downsizing or terminating freight forwarding services offered by CN Worldwide, the company’s international freight management division.
CN Worldwide offers logistical co-ordination and freight management services to exporters and container shippers in Europe, Asia, North America and South America.
Here at home, the move will affect an unknown number of western Canadian companies that ship raw or value-added agricultural commodities to overseas buyers.
Sources who spoke with The Western Producer said existing containers that have already been packed with agricultural products will be handled and loaded onto outbound ocean vessels.
But new service will not be offered and unfilled container orders already on the books will be cancelled, forcing shippers to find new service providers with little or no notice.
CN declined to comment on the service changes when contacted Sept. 24.
Affected shippers in Saskatchewan said they were surprised at the decision and disappointed that no explanation or advance notice was given.
“CN has shut down their freight forwarding business and given no notice to customers,” said one shipper contacted by email.
“They have cancelled container bookings for next week and beyond and left customers in the lurch so that they (CN) can save money. (This is) a company that is profitable to the tune of $4 billion per year.”
Garnet Ferguson, general manager at Can Pro Ingredients Ltd., (CPIL) in northeastern Saskatchewan, said CN’s decision came out of the blue.
“What I’ve been told is that anything that happened inside CN Worldwide, which was the international freight forwarding side, is done,” Ferguson said.
“What they said is they will … make sure loaded cans get put on vessels … but any existing booking with a steamship line that (hasn’t been) loaded yet, they outright cancelled without telling me.
“As of today, I don’t know where I’m going to load containers.”
Can Pro, based at Arborfield, Sask., about three hours northeast of Saskatoon, produces and ships high-quality feed products including alfalfa pellets and oat pellets to overseas customers, primarily in Japan.
The company packs and ships about 600 containers per year and has been using CN’s freight forwarding services for three years.
Before 2018, Can Pro shipped pellets in bulk railcars and paid to have them packed into containers on the West Coast.
But poor rail service prompted Can Pro to start packing its own containers in Arborfield and paying CN Worldwide to manage the shipments.
Now that option has been pulled off the table.
Ferguson said the railway’s sudden decision to wipe existing container orders off the books will put his operation in a difficult position.
There are other companies that could provide freight forwarding services but the companies that Ferguson has spoken with so far say they are booking spots on ocean vessels three months in advance.
Customer service representatives at CN Worldwide are no longer available and calls to the company’s toll-free North American customer service line cannot be completed.
“We average about 600 cans a year,” Ferguson said.
“This is going to create some extreme short-term pain until we can find another freight forwarder that’s got space for us.”
Aside from creating unexpected logistical headaches, the move could also damage the reputation of Can Pro and other small ag shippers, Ferguson said.
Can Pro must now contact its overseas customers and explain why the product they were promised will not be delivered on time.
“CN is making economic decisions that are affecting communities across the country, and their only concern is their bottom line,” Ferguson said.
On Sept.17 CN unveiled a new strategic plan in the wake of its failed bid to acquire American railway company Kansas City Southern.
The plan was viewed by many as an effort to fend off activist investors that are calling for the removal of CN’s chief executive officer JJ Ruest and four board members.
TCI Fund Management Ltd., one of CN’s largest shareholders, has suggested that CN’s failure to successfully execute the proposed KCS takeover was the result of poor leadership and flawed decision making.
In response, CN’s new strategic plan calls for a reduction in capital expenditures, lower operating costs, earnings-per-share growth of 20 percent by 2022, $700 million in new operating income and an improved operating ratio of 57 percent, down from 61 percent currently.
The plan also calls for a six-month review of non-core operations and the possible divestiture of assets or operations that don’t meet the company’s financial expectations.
In a recent interview with BNN Bloomberg, Ruest said CN’s new plan is aimed at creating value for shareholders while continuing to meet the needs of CN customers.
“The plan that we rolled out … does create lots of value for shareholders,” Ruest said.
CN’s non-rail operations will be reviewed, he added.
“We have at CN a couple of non-rail businesses that are profitable but don’t generate the same type of operating ratio (as bulk). We’re going to do a strategic review of those in six months and we’re going to make them better or we might divest some of them.
“We are going to be working very hard on our costs … and pushing price a little harder …,” he added.
“We intend to enter 2022 in a very fit shape for the next few years out.”