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.”
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.
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