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Canadian National Railway Company

Table of Contents
Executive Summary.................................................................................................... 2
Issues Identification.................................................................................................... 3
Environmental and Root Case Analysis.......................................................................4
Alternative and Options.............................................................................................. 5
Recommendation....................................................................................................... 6
Implementation.......................................................................................................... 7
Monitor and Control.................................................................................................... 8

Canadian National Railway Company


Executive Summary
The Canadian National Railway Company (CN) was once a Crown corporation that
was hindered by heavy regulation, rather than focus on the best business decision.
Even since November 1995 when the Canadian government privatized CN, the once
slow moving railway company has seen improvements in all financial metrics and as
a result, has seen its market value increased substantially.
While the deregulation in the railway industry benefitted CN, it was not always easy;
CN was faced with a long history of unprofitable lines and a bloated workforce. To
become competitive meant making hard decision to reduce the head count through
layoffs and selling unprofitable tracks.
At the present, CN is considering what needs to be done to ensure it remains
competitive in the market. The recommendation is for CN to continue their NAFTA
strategy as well as focus on the Latin American market.

Canadian National Railway Company


Issues Identification
With many years of being a Crown Corporation and subject to heavy regulation, CN
has a long history of inefficiencies that it needs to remove from the company.
The issues for CN include:
-

Growth in NAFTA trade slowing


CN has built a large infrastructure of rail lines in North America to take
advantage of the NAFTA trade lanes, but with that growth slowing, CN has the
risk with a lot of fixed assets that are obsolete. With CNs current
infrastructure in place and its reliance on NAFTA trade (heavy focus on EastWest and North-South movement), the railway company is a risk of losing its
competitive advantage.

Continue NAFTA Strategy or expand into Latin America


As explained above, CN is focused on NAFTA trade, which means its network
travels primarily East-West in Canada and mostly only on the east coast of
the USA. CN does not have a complete infrastructure in the west coast of the
USA and may lose an opportunity to expand. Also, in the emerging markets in
Latin American, CN does not have an infrastructure in those areas.

Possibly missing opportunities in the emerging Asian and Brazilian markets


International trade is now emerging in Asia and Brazil, but CN is focused only
in North America. CNs expertise and operational efficiency may not be
effective overseas and they cannot use the same strategy.

Canadian National Railway Company


Environmental and Root Case Analysis
The root issue is that while CN has been able to turn around the company since
privatization, their expertise is still in North America, whereas the emerging growth
is happening overseas.
After deregulation, CN focused a lot of their effort by spending a lot on capital
investments (such as buying new efficient trains) and expanding the infrastructure
(consolidating and merging with a lot of smaller railroad companies. This was to
support their main strategy to tap into the NAFTA trade. If NAFTA trade slows, CN
would have a lot of sunk costs and wasted investment; there are already signs trade
is moving to low-cost countries
An external factor outside CNs control is the fluctuating exchange rate (especially
the CAD-USD exchange rate). NAFTA importer and exporters are very sensitive to
currency fluctuation. Compared to just a few years ago, it is more expensive for
Canadian companies to purchase to goods from USA companies. As a result, the
trade might be reduced from their Canadian customers. The exchange rate
fluctuations are also unpredictable, so its difficult for CN to allocate its resources
effectively.
Another external trend is the emerging Markets in Asia and Brazil. The worldwide
trend is to source from low-cost areas such as Latin America. CN doesnt have
experience moving freight in these countries and would need to form new
partnerships and invest in infrastructure to support these emerging markets.

Canadian National Railway Company


Alternative and Options
Option 1
Continue with their NAFTA strategy this is CNs current course of action where it
has a lot of capital investments in equipment and infrastructure already.
Advantages: There is no need to create new routes or invest more capital. Its a
proven strategy that has worked for CN in the past.
Disadvantages: CN may give up opportunities to develop emerging markets.
NAFTA trade maybe declining, so that would result in lower revenue.
Option 2
Look into expanding into Latin America
Advantages: CN can generate new business in a new market. Also, especially for
Mexican freight, this will also allow CN to develop to USA business on the west
coast, since a lot of Mexican business goes through California and Arizona. A lot of
countries in Latin America already have Free Trade Agreement.
Disadvantages: It may be risky to invest heavily in another country that CN has no
experience in. It may also spread CNs resources too thin, and force them to make
too many capital purchases.
Option 3
Look into expanding in the emerging Asia and Brazilian markets

Canadian National Railway Company


Advantages: Very similar to expanding into Latin America, except there is no Free
Trade Agreements.
Disadvantages: There are a lot more government regulations in Asia. Additionally,
the distance is much further and will involve different modes of transport (ocean
containers) and require the use of agents.

Canadian National Railway Company


Recommendation
The recommendation is for CN to continue its NAFTA strategy and expand into Latin
America. It should keep the same formula of investing in technology and keeping
lean workforce.
With the Canadian dollar falling relative to the USD, it will mean Canadian
customers buy less from the USA. However, CN should start developing a customer
base in the USA with the exchange rate being favourable for USA buyers, CN can
expect to see more business from the USA.
CN should also choose to expand into Latin America. Many Latin American nations
have a Free Trade Agreement with the Canada and the USA, so CN can also leverage
these relationships.
While it may seem that economic growth in Asia is a huge opportunity, CN should
not expand into overseas market. CN is an expert in the rail market, and when they
have to go overseas, they will have to start purchasing ocean assets, or dealing with
agents. This will unnecessarily increase CNs cost, reduce reliability due to relying
on agents, and as a result, there will be reduce customer satisfaction and possibly
affect CNs reputation in their other lines of business.

Canadian National Railway Company


Implementation
In the short term, CN can alleviate any concerns by creating open lines of
communication their customers would want to know what the changes are.
Additionally, CN should communicate to the union that capital investments will
result in higher paying skilled jobs. Moving to an international market means CN
may lose some control. CN should implement a department solely for keeping track
of environmental factors that affect the emerging markets in which it is trying to
enter. This will allow them to react quickly to any changes.
Longer term, CN needs to address its current infrastructure in North America to see
if it is still feasible to maintain, given the changes in the world market. CN should do
a comprehensive review of what rail lines they have and what markets they serve.
For example, instead of owning the entire track, it may be feasible to interline with
some partner railways. CN should dedicate a manager responsible handling any
new business processes and review investment in high tech equipment/training to
ensure CN can maintain its competitive advantage.
Using the RACI model, the responsibilities are as follows:
COpera
Level

Union

Customers
tions

Suite
Explore emerging
R

markets
Review North
American market
Streamline current

Canadian National Railway Company


operations
Communicate
R

changes

Canadian National Railway Company


Monitor and Control
The KPIs that CN should measure after implementing the recommendations are:

Improvements in reliability and decrease in variable costs due to

investments in automation.
Kilometers of rail lines and percentages of customers service
Reduction in unprofitable lines.
Revenue dollars through larger networks that service more customers.

When CN moves into new markets, a complete operations control should have 3
months after entry into the market. The CN audit manager is tasked with reviewing
whether moving into the new emerging markets was a good idea, and to also review
whether the efficiencies that CN incompletes are creating a leaner company that is
capable to react to changes.
In addition, the CN sales managers should arrange regular status meetings with
each customer to identify any issues or concerns in CN service. Once the sales
managers get this feedback, they should relay it to the CN operations team so they
can make any adjustments as necessary.

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