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Railway Restructuring: The Canadian Experience

Railway Restructuring: The Canadian Experience. Allan Pozniak Canadian National: 1956-1997 Lecturer, McGill University: 1978-1990 Consultant to The World Bank: !997-2002 *Note: Slides Courtesy of Canadian National and Other Sources. The Canadian Railway Environment.

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Railway Restructuring: The Canadian Experience

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  1. Railway Restructuring:The Canadian Experience • Allan Pozniak • Canadian National: 1956-1997 • Lecturer, McGill University: 1978-1990 • Consultant to The World Bank: !997-2002 • *Note: Slides Courtesy of Canadian National and Other Sources

  2. The Canadian Railway Environment • Vertically Integrated Private Freight Railways: • Canadian National • Canadian Pacific • Short Lines • U.S. Railways • Freight Railways own the Infrastructure • High Degree of Competition 2

  3. The Canadian Railway Environment • State Owned Passenger and Commuter Services • VIA Rail • Toronto GO Transit • Montreal Commuter Service • Vancouver West Coast Express • Passenger and Commuter Railways pay the Access Fee to Freight Railways • Passenger Services Subsidized by Federal and Provincial Governments • Some Private Operators 3

  4. Canadian Railways - Last 10 Years 1991 2000 % Change Track Kilometres 56,281 46,491-17.4 Employees 62,455 41,118-34.2 Freight Cars (000) 116 104-10.3 Locomotives 3354 3245-7.1 RTKM (Billions) 246 32230.8 Revenue per Tonne 35.52 24.29-20.4 Revenue per TKM C$ .0244 .0224-8.2 RTKM/Employee (000) 3,940 8,581217.8 Operating Income (Million) 475 1,576331.8 Consumer Price Index 15.2

  5. The Restructuring of the Canadian National Railway • A State Railway 1929-1978 • A Commercial Railway: 1978-1995 • An Investor Owned Railway: 1996….. 5

  6. CN- A State Railway • Monolithic Organization • Deficits Financed by Government • Mix of Commercial and Social Services • Many Departments and Services: • Hotels • Express • Trucking • Marine Services • Passenger • Real Estate • Oil and Exploration • Communications 6

  7. CN - Transition to a Commercial Railway- Stage 1 • Mandate: Commercial Business, Self Financing, Freedom to Manage • Creation of Via Rail and Public Service Obligations • Creation of 8 Subsidiaries with P/L discipline • Creation of internal Cost centers and Charge back systems • Focus on Bottom line 5

  8. CN - Transition to a Commercial Railway- Stage 2 • Focus on Core Business • Sell Subsidiaries • Close Branch lines • Customer Driven • Change Culture • Lower Cost Base 8

  9. Customer Driven • External and Internal Customers • Build World Class Marketing Organization • “Everyone Works for Marketing” • Extending Market Reach • Global Business • Strategic Alliances

  10. Culture Change • Extensive Training Programs • Leadership Program • Top 200 • Union Leaders • “Managing Our Business” • Top 1000 • Supervisory Training • Technical Training

  11. Lower the Cost Base • Investments in Technology • Network Rationalization • Right Sizing the Work Force

  12. Investments in Technology • Information Systems- Enabling Technology • Communication Network Upgrades • Intermodal Terminals • Track Maintenance Automation • Wagon and Locomotive Control Systems

  13. Results of Investments • ONE: • Customer Service Center • Operations Management Center • Locomotive Control Center • Wagon Management Center • Accounting Center • Main Shop • Streamline Infrastructure Maintenance

  14. Restructuring Results • Business Volume Increased • Significant Reduction in Resources • Fewer Employees • Fewer Wagons • Fewer Locomotives • Less Infrastructure

  15. Getting Ready to Privatize: • Benchmarking CN - US Railroads • Adopt World’s Best Practices • Massive increase in Productivity: 1992-1994 • Eliminate Regional Structure • Sale of Remaining Subsidiaries • Key Executives from the Private Sector 15

  16. The Final Step: The IPO • Agreement with Government • Hiring of Banking and Investment Advisors • Evaluation of Assets • Government Legislation • Making the Case: The Road Show • Initial Public Offering • New Board of Directors 16

  17. The Results: • Continued increase in Productivity • Sale of Low Density Lines=Growth of Short Lines • Acquired Illinois Central and Wisconsin Central to strengthen North-South Routes • Increased Shareholder Value: 13.50 > 83.00 C$ 17

  18. Questions - ? ?

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