By Theo van de Kletersteeg
In an interview with Jean-Jacques Ruest, CN’s Executive Vice-President and Chief Marketing Officer, on the subject of CN’s marketing strategy, the first subject we broached was the railway’s remarkable ability to outperform Canadian GDP numbers year after year during the past five years. JJ (as Mr. Ruest likes to be referred to) responded that “it is very much the stated objective at CN to grow volumes, defined in carloads or revenue tonne miles, at a faster pace than the economy, and a faster pace than the rail industry in North America.” CN tracks its relative volume performance by comparing its performance with industry statistics published by the Association of American Railroads, and by comparisons with published GDP numbers. In addition, CN measures its market share by comparing its volume growth with that of other railways, and with the performance of highway carriers. JJ attributed CN’s performance during the past five years as “capitalizing on what the economy offers you, and gaining market share from others, resulting from offering a more attractive value proposition.” He further explained that CN’s low operating ratio helps it to compete “when price becomes an issue.”
Next, JJ explained how CN had evolved through different cycles of corporate development in recent times. The first initiative after going public twenty years ago occurred with President Paul Tellier at the helm. “In those days, CN’s costs were too high, and had too many people on its payroll. We needed to do better financially, and Tellier started the process of efficiency improvement.” Under the leadership of Tellier’s successor, former President Hunter Harrison achieved significant operational improvements by pioneering the concept of Precision Railroading” under which the railway examined and revamped its internal practices to ensure that productivity and efficiency were raised to the highest possible levels, ensuring an industry-leading cost structure, which would be the foundation of a strong competitive position and superior profitability. While these objectives were met, and continue to be a pillar of corporate strategy, CN realized that it had focused too much on the business of running a railroad, without paying due attention to the needs of its customers. Harrison’s successor, Claude Mongeau, recognized this shortcoming and under the slogan “supply chain collaboration” CN began to restore lost confidence with shippers by entering into service level agreements with ports, terminals and major shippers. The customer service concept has presently been moved up another notch through the recognition that CN’s distinctive competence should not just be focused on being an excellent railway in the technical sense, but should view the railway as an essential and highly-valued service provider that is part of its customers’ cost-effective and service-effective supply chain. “A competitive edge”, JJ explains, is “a supply chain service where CN is part of that chain, where we integrate ourselves with the other vendor to make sure that the transit time from ship discharge to container arrival at the customer’s site meets or exceeds the customer’s expectations.”
So how do we do this on a daily basis? JJ explained this by way of an example of a Canadian coal mine booking a sale to a Japanese steel mill. Whereas in the past, the client would book trains on specific dates for specific volumes to be carried to the terminal at the port, today the client would specify the volume to be shipped to the port, and the estimated time of arrival of the vessel carrying the cargo to the Japanese mill. Once CN has this information, CN will work with the client on a daily basis, constantly reviewing vessel ETA data and other factors that may influence the schedule, to make sure the required volume of coal will be on the dock, ready for loading when the vessel arrives, avoiding demurrage charges, and making sure the transportation-related obligations of the mine are met. CN would even assume responsibility for managing coal delivery obligations of multiple mine suppliers dealing with the same port and terminal, with the objective of meeting clients’ obligations at the lowest possible cost, and alleviating unnecessary logistics headaches. JJ reported that this system has now been in place with the port and terminal in Prince Rupert for about three years, with excellent results. “We’re no longer selling our customer the speed of the train – we’re selling him our guarantee that the cargo will be ready for loading when the vessel arrives.” He explained that these services are supplemented by a more active engagement with the overseas customers. “For example,” he said, “whereas in the past, we used to visit the shipping lines during our overseas visits, now we will also visit steel mills and automobile manufacturers during our visits to the Far East, and we’ll explain to them how we work together with the coal producers, and how this collaboration benefits the clients in Asia. This helps create credibility, and helps our clients being successful.” JJ explained that a similar model helps fertilizer companies to have product available when farmers need it. “These days, we are spending a lot more time in our customers’ offices, mostly in their supply chain departments, but also in their marketing departments because we need to understand what the customers are trying to accomplish, and where we fit in. We are a supply chain enabler, we enable and integrate the other parts of the supply chain equation, better than other railway carriers, and that becomes our competitive edge. We need a service that resonates with customers – rail service alone does not resonate sufficiently with customers to give us a competitive edge –that’s how the focus on the supply chain arose.”
On the subject of the speech that JJ had made at Halifax Port Days during which he highlighted the need for all partners in the international supply chain, namely shipper, carrier, port, terminal, and railway, to work together to exploit the potential new market that he refers to as the “hinterland”, he defines “hinterland” as any market that is already served by a particular port, and is generally satisfied with the service. In Eastern Canada, local populations are generally too small to enable ports and terminals to serve them well at a profit – ports need access to “hinterland” markets to make their operations relevant and profitable. Specifically, if Halifax and Montreal want to handle greater volumes, they will need to capture greater market share in the U.S. Midwest. Traditionally, vessels reaching North America via the Suez Canal call on ports along the Eastern Seaboard before they reach Halifax. However, CMA-CGM has recently reversed the calling order along Eastern ports for vessels originating from China, and vessels comprising its Columbus loop now call on Halifax first, followed by New York two days later, Norfolk five days later and, finally, Savannah eight days later. For that reason, if all supply chain partners give it their best, total transit time from Halifax to Chicago would be less than total transit time from New York to Chicago, providing Port of Halifax with a new growth opportunity. Needless to say, the new services would need to meet or exceed quality of service standards that U.S. customers have become accustomed to. Also, the various parties would need to sharpen their pencils to ensure that overall transit costs from Halifax to Chicago would be lower than current costs. “Halifax is twice as far from Chicago than New York is, so you have a major disadvantage to overcome,” he commented. “Either we play and win as a team, or we all lose as individuals. If only CN improves its service, it will not result in volume increases, if only CMA maximizes its stowing efficiency for Halifax containers, it will not increase volumes, or if only the terminal improves terminal dwell time, it will not increase volumes. But, if the three of us work together, there is a high likelihood that more customers in the Midwest will choose Halifax as the port of entry for their cargo.” In response to the suggestion of varying the level of service by any one of those in the supply chain, he said that “when you provide a new service, you need to provide the service as if you had critical mass, and cannot vary the service level to day to day, to maintain profitability when volumes are down. You need to be consistent in your service offering, if you wish to retain and grow the customers you have.”
JJ also discussed the subject of “glowing boxes” or “reputation killers”, the one container that somehow gets left behind at the terminal, and causes the client extreme anxiety. CN started a new process some years ago to embed “CN Port Managers” with the ports that it serves, to engage on a continuous basis with terminal operators, to ensure that containers are moved within predetermined performance standards. Daily reports are generated for the benefit of various levels of CN personnel, as well as supply chain partners and customers. As a result, the incidence of containers left behind has fallen dramatically.
JJ considers it a true innovation that in a traditional industry such as a railway, “CN defines itself as a service provider, rather than a railroad. Rather than focusing on the trains, CN wants to focus on its role in the supply chain. It’s not about the speed of the train, but having the goods on the dock when the ship arrives. It’s about the overall transit time from ship, terminal and rail to the customer’s warehouse.”
Lastly, JJ mentioned that CN is engaged in a multi-year IT development known internally as “The case for Change”, which is a business-driven initiative that aims to build on CN’s existing rail-centric IT systems to integrate partner information that would enable CN and its partners to manage the supply chain as efficiently as they can, turning data into creating strategic advantage.