Why trucking should pay attention to CN’s activist shareholder battle

TCI Fund Management, the activist investor looking to shake up CN Rail, has issued a strategic plan that takes aim at trucking – despite operating the second largest fleet in the nation. It’s a battle that the trucking industry should take note of, as if successfully implemented, the plan could reshape Canada’s trucking landscape.

According to this year’s Today’s Trucking Top 100, CN reported operating 947 tractors and 15,942 trailers for a total of 16,889 trucking equipment assets.

And it was also one of the fastest growing. In 2019, CN grew its trucking business substantially with the purchase of TransX. The latest equipment count from TransX in 2019 was 1,455 tractors, 74 straight trucks, and 4,740 trailers.

TCI Fund created a new website Oct. 18 (www.CNBackOnTrack.com) where it outlined its strategic plan for the company. That plan takes square aim at trucking.

Among its four strategic priorities are to: “Actively campaign and publicly advertise to promote the environmental and fuel efficiency benefits of railroads versus trucks. Better educate customers and increase public awareness that moving freight from the highways to the railroads will significantly lower CO2 emissions, reduce road congestion and advance the urgent fight against climate change.”

In its six-point plan for sustainable long-term growth, the investors wish to pursue: “A low-cost, high-service network will enable the CN marketing team to use competitive pricing to win new business and take market share from trucks.”

Abbotsford, British Columbia / Canada - March 3, 2019: Canadian National potash train rolling through Abbotsford, BC.
(Photo: iStock)

In addition to targeting market share from trucking, there are other reasons TCI may want to shed its trucking business: Trucking is a lower-margin business than rail; It will be difficult for CN to meet its sustainability objectives while operating a diesel truck fleet of its current size; and it’s difficult to reconcile pitting truck vs rail when operating a fleet of CN’s size.

So, could CN’s sizeable fleet hit the market? It seems a strong possibility if TCI gets its way and puts in place the board it is looking to install. And there are signs CN may be caving to some of the activist investor’s demands. On Oct. 19, the company announced the “planned retirement” of CEO Jean Jacques Ruest, something TCI had called for.

Someone who is clearly paying attention to the situation is Murray Mullen, chairman and CEO of Mullen Group. Asked on a conference call with analysts Oct. 28 to discuss third quarter results whether Mullen Group would be interested in acquiring CN’s trucking business, Mullen was anything but dismissive.

He noted the purchase of Trans-X and H&R Transport by CN were done to protect its intermodal business, and the future is still bright for intermodal. In fact, said Mullen, that’s why his company purchased APPS Transport and Kleysen, two companies that are heavily involved in intermodal.

Under the right circumstances, would Mullen be a buyer?

“There intermodal business is a key part of our future, because we think that it’s going to be really difficult to get longhaul truck drivers and really difficult to get trucks that will not need diesel to do longhaul,” Mullen said. “We like the intermodal business; we think that’s the way freight is going to move across Canada east to west. So yes, we’d take a look at it. We have a really strong relationship with CN Group. We’ll engage with them when their time is right. We do a lot of intermodal work with them right now, so we’ll talk to them for sure.”

A less likely buyer is TFI International, due simply to its size. It failed to close an acquisition of APPS Transport due to concerns from the Competition Bureau Canada. But asked the same question by analysts, TFI International CEO Bedard wouldn’t rule it out.

“Absolutely, if something makes sense and fits TFI’s mission coming out from the rail guys, absolutely we’re going to look at it,” Bedard said. “We’ll look at it. But we’ve got to buy at the right price.”

Today’s Trucking reached out to both TCI Fund and CN Rail for comment on the future of the railway’s trucking fleet, but did not receive a response.

James Menzies is editor of Today's Trucking. He has been covering the Canadian trucking industry for more than 18 years and holds a CDL. Reach him at james@newcom.ca or follow him on Twitter at @JamesMenzies.

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  • You are so right about this . My concern is when railways sell off trucking the treatment of truck drivers will get very bad. I do mind some freight going to railways. The railways need to upgrade their power units to meet higher emmision standards. My concern is railways profits will win over everything else.

  • TCI only holds 3% of CN shares while it owns 6% of CPR shares. This all started when CN decided to start the KCS war with CP. This is simply a business fight back from CP.

    Let’s talk about CN’s Intermodal business. A big tree not only needs a trunk to stand upright, but it also needs branches and leaves to live. The bigger the tree more branches and leaves it will need for photosynthesis. That is as same as CN’s structures. The railway is the backbone of the country and economy. It connects coast to coast, Province to Province, and port to port. Trains can carry hundreds of containers at one time and travel very long distances which will lower the shipping cost and save fuel. However, Train does not reach every location of the country, and it will cost too much to make the train stop at every city to drop off a shipment. That is why it has terminals and ports.

    Intermodal comes in at this point that trailer truck is to connect city to city, town to town, warehouse to warehouse, and from terminal directly to the shop. Works just like a tree’s branches and even roots. It reaches out to every possible location to provide service to its customers without any middleman, which will also save time and money.

    CN Rail getting involved in the trucking business is actually a great idea that provides customers with a one-stop service.

    CPR is also involved in the trucking business. While TCI owns twice more of the shares of CP, why doesn’t it ask CP to go back on track?

    In fact, TCI really needs to go back to its own business to focus on making money for its investors instead of getting involved in such a business war that has already ended. By comparing both CN’s and CP’s EPS, dividends, and equity on the financial statements, it is very obvious that the KCS merge proposal will not do any good to CP. It is probably a good time for TCI to sell CPR and buy-in CNR shares.

  • Just what we need, TFI looking at buying another company! Where is the Competition Bureau in all of this? All you see is that red slash everywhere you turn. We need less consolidation of ownership! Cuts competition down when one player controls so much of the market!