CEO Viewpoints podcast | Season 3

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CN CEO Tracy Robinson: Harnessing growth opportunities from shifting supply chains

Joining us for the first episode of the third season of CEO Viewpoints is Tracy Robinson, who talks to PwC Canada’s Sébastien Doyon about the drivers of growth in the rail industry and how the Canadian National Railway Co. is harnessing emerging opportunities. They explore the growing need for rail carriers to partner with both each other and other modes of transport like trucking companies to serve evolving supply chains. They also discuss key industry challenges like climate change as well as the leadership attributes required to steer organizations through complex and uncertain times.

Sébastien Doyon: Hello and welcome to CEO Viewpoints, a PwC Canada podcast, diving deeper into key themes and Canadian insights from the Annual Global CEO Survey. My name is Sébastien Doyon. I'm a partner at PwC, and I'll be your host for this episode. This year's CEO Survey focused on the global megatrends reshaping business and society. Joining me to discuss her perspective on the economy and the issues playing out in one of the most critical industries in global supply chains is Tracy Robinson, CEO of CN Rail. Tracy took the helm of CN in 2022, and ever since then has been leading the company through a period of intense change. She's here to discuss what she's seeing on the economic front, the growth opportunities for rail and the rising imperative for different players in the supply chain to work together to grow the industry's market share. Tracy, thanks for joining me today.

Tracy Robinson: Oh, it's my pleasure.

Sébastien Doyon: So before we get into the trends of the rail industry, let's talk a bit about what's happening in the economy right now. PwC is doing an annual study called our CEO Survey. And our recent results are showing that 25% of Canadian CEOs expect growth to improve. However, many are more pessimistic than the global CEOs in our study. CN is so well integrated into the North American economy and connected globally. So Tracy, I'm sure you do have a viewpoint on the economy and what's happening.

Tracy Robinson: We do indeed have a viewpoint. Like many of your other survey respondents, we are more optimistic this year, without a doubt. CN, as you know, our tracks span from the West Coast of Canada to the East Coast and then down through the US into the Gulf Coast. And we serve pretty much every industry across the continent. It's been a mixed bag where the real weaknesses from our perspective have been in two areas. One is in forest products, in lumber. We've seen that demand fall, and I think it's connected largely to some of what's happened to interest rates. Now, we know that there's still a fundamental shortage of housing in North America. So that demand is out there and it's going to come.
The second area of particular weakness has been in those consumer goods, largely the ones that come into the continent on containers. There's a glut of inventory last year that the retailers have been working through, and that's now gone. We're back down to normal inventory levels. So we are optimistic, without a doubt. Where we're still watching is the impact of some of what's going on around the world more from a geopolitical perspective. And more and more those kinds of things are affecting trade and how commodities and products move around the world. And we look at what's going on in the Red Sea, that has changed the way the vessels and containers will move around the world, and therefore ask different things of the North American supply chains and infrastructure. The water volume issues in the Panama Canal—that affects global shipping. It's a very dynamic environment, positive, with some cautionary notes on the geopolitics.

Sébastien Doyon: So now let's look at the future of rail. When I take a step back, I am forced to admit that there must be some good trends in your favour. If you look at, for example, the need to reduce carbon emissions, that must be helping you from a long-term perspective. In order to take advantage of these trends, it is inevitable that your industry improve interconnectivity and fluidity of your networks, to manage the movement of goods throughout their end-to-end journey. I'd like to understand how you see these future trends play out for you.

Tracy Robinson: I must say that I like our space when it comes to the very important file on climate and on emissions. If you look at North America, transportation accounts for between 25 and 27% of North American emissions. And that includes your airlines and trucks and rail, ships and cars and those types of things. Rail would be about 2 to 3% of that. Truck is about 25% of it. Right now, we move most long-haul commodities because that's where we are. The challenge is in the short hauls, the shorter distance hauls where right now truck is dominant. Overall, we would have about 25% market share of moving goods around, and truck would have about 45%. So the opportunity, given how emissions friendly we are, you can reduce emissions by about 75% if you transfer from truck to rail. So the opportunity but also the responsibility then is to figure out how we can lift more of that truck traffic off the roads.
To do that means that we have to think about our business very differently. We have to compete with trucks. People hire trucks for a reason. They want fast and consistent. And so we need to be able to create services like that. If you've been a customer of a railroad over time, and you want to go from Edmonton to the southeast part of the United States, you may be talking to a number of different railroads. So what we need to do is be more truck-like. So right now, we are getting together as a full supply chain. And it can involve ports and terminals, and it can involve warehouses. It can involve multiple railroads, and it can involve trucks. But we need to come up with one service package that is not only easy to use and easy to approach and understand, but also operates fast and consistently. You know it’s something you've seen every railroad in North America lean into. And what's really important is when we lean into it together, because that's where the magic happens. We've got some great examples of that where the service is coming, and now we've got to get the volume on these kinds of services. If we can do that effectively, I think you'll see a very positive impact.

Sébastien Doyon: There's then the notion of cooperation with even some people that are really your competitors. I know that you have made some announcements, like the Falcon Premium agreement with Union Pacific and Grupo Mexico. What does that tell us about the future of CN?

Tracy Robinson: Railroads have long histories of being fierce competitors, as you say, and we know how to do that. But if you watched what went on over COVID, there were a lot of shocks to the supply chain, and I think every single one of us understood suddenly how important it was that supply chains work effectively. What's going to be important is that we demonstrate that we can work together where it's important to work together. It doesn't mean we don't compete, but that we can come together and create supply chains that perform, that are reliable and resilient to shocks, and that can grow because our economy isn't going to grow unless the supply chain capacity continues to expand with it, where it needs to accommodate the trade flows, whether it's international or domestic. And so as we think about this, there’s a great case in all of the nearshoring that’s going into Mexico.
To move those flows, we need to think about coming together very differently. And so, as you said, the Falcon Premium service is our first and primary example of it. And we are now running trains from Mexico, from Monterrey on the Grupo Mexico, all the way through the UP system and onto ours in the United States and into Toronto. And we're doing that in five days, which is as good or better than a truck can do it. And we're doing it consistently in five days. This is the kind of thing that can happen if you decide you’re going to come together. And this is what we did with UP and Grupo Mexico as one company. We challenge ourselves around the table. We met this week around if we were truly one company, how would we think about this? And so that's when the competitive spirit comes down and the collaborative spirit comes up. And it's amazing what you can make happen when you get into that kind of head space. And so now it's a matter where we've proven it can be done and we can do it consistently. Now it's a matter of demonstrating it to the extent that we start to attract that truck traffic onto the trains. And it will do the same support of those trade corridors, only it's going to do it a lot more economically, a lot more emissions friendly.

Sébastien Doyon: Falcon premium is a good example of collaboration and cooperation in coming together. When you look at the industry overall, how far do you think companies are willing to go in working together?

Tracy Robinson: It's a very complex world, but I would tell you that it's an imperative that we're all taking on. Because if we can't figure it out, the economy is not going to grow. So it's not just railroad to railroad and figuring out how to work together differently. That's an important piece of it. But it's the full supply chain. So when a container leaves, say China, and it's going to, say, Chicago, it shouldn't be a surprise when it shows up at a terminal and a port. We can take down the barriers and share data between customers, between ocean-going vessel companies, between ports and terminals, between railroads, warehouses and trucks.
If we were to do the same thing we're doing with the UP right now and imagine we were one company, how would it work? How would data and information flow? How would we optimize? You're going to get better performance. It's going to be more resilient to shocks because you can recover much more quickly. And it's going to become obvious where we need to invest in order to grow the capacity, where the pinch points are. Right now, we're optimizing to our own operation, as opposed to the total throughput of the supply chain. It's a big leap of faith. But if we can't figure it out, we're going to be constraints on the growth of the economy. None of us wants that. We're all here to help the economy grow.

Sébastien Doyon: Tracy, I want to focus on trucking a bit more. Taking trucks off the road, putting business on rail is a threat for trucking companies. But you still need to collaborate. And I know different railroads have approached this in different ways recently. In CN's case, a few years ago, you acquired TransX as part of your intermodal strategy, and we've seen announcements of other companies also announcing partnerships recently. What's your view on how to successfully collaborate with trucking in that type of competitive environment?

Tracy Robinson: There's a way to be a partner with a truck company. So in the case of TransX, we made an acquisition and we use them as an extension of our system to serve our customers. Our customers can have us deliver directly to their door as opposed to contracting that last-mile delivery themselves. There's other models, and we do it differently in the United States, where you use IMCs (intermodal marketing companies) and you partner with trucking organizations in different ways. The question is: how do we use them in the right way and use the benefits of rail as a partner to make sure that we get the right service offerings and we do it at the right cost and, as I said, the right emissions profile? There's no single solution. And we think that without a doubt, rail is the answer on the long haul, truck will be the answer to a certain extent in the last mile when it comes to containers. It's how we work together and the path in between in order to continue to improve the efficiency and effectiveness, and some of the announcements that you're seeing are examples of that.

Sébastien Doyon: A lot of what you're talking about is also bringing me to question of transforming your business and freeing up and allocating resources. What's your approach to think about how do I deliver on my existing business commitments and at the same time build the future? Do you have any examples to share?

Tracy Robinson: In your survey, you spoke about the large percentage of companies that are focusing on the need for reinvention in order to build a sustainable type of a model. I don't think there's anyone that isn't in that situation. For us, we implemented a scheduled railroad operating model two years ago, and the reason we did that is it's our imperative. What we need to do first before everything else is make sure we deliver to our customers. And through a scheduled operation, it's driven us to be faster. We are far more consistent. But then you lift your head and say: where's the next way that we're going to do business? We’re sitting beside our customer and we're managing their base business, but they want to get into a different market, or they need to think about alternatives or different outlets given the way global trade flows are moving now.
There's a level of nimbleness that is required in thinking about our business these days. And so you take care of your base business. And there's a good portion of our organization that's focused on that every day. But what we understand very well is where we have capacity and capability to either take shocks or to respond to opportunities as the trade flows shift. And we're getting really good at recognizing that, sitting next to our customers and being able to communicate that and translate through the scheduled operating plan into the new way of delivering that business. And so it's proven through a pretty bad season of forest fires in the north here and some wind events in the south. Over the last year, it's proving to be a really resistant model. It can take a shock and it can recover very, very quickly. It can take a change in traffic flows and adjust very, very quickly. The benefit of a really structured, disciplined operating model is it allows us to lift our head and contemplate what is next needed out there.

Sébastien Doyon: A lot of what's happening in the world, including when we talk about collaboration, really comes down to the core idea of trust. Many organizations are dealing with declining trust at a time when they need to build stronger relationships in the communities they operate in. You've dealt with the issues yourself at CN. We saw recently, for example, the resignation of CN’s Indigenous Advisory Council. How are you dealing with this?

Tracy Robinson: Thank you for the question. This trust concept is an important one. And for me personally, it's important. I believe that really what it is every day is the way you show up, and you do what you say you're going to do. You need to be predictable. We move through hundreds of communities across the continent and hundreds of Indigenous communities, and our employees live and work in those communities. Their children go to school in those communities. And if they're going to grow, then we need to grow with them. Our first priority every day is to do no harm. Safety is our primary focus. And so once you do that, you work at making your customers in the industries in those communities successful. And then we lift our head and say, we would like to leave these communities better off than where we started. And every community, whether Indigenous or otherwise, has different needs and some different thoughts about what that may look like.
So we engage with the communities on a face-to-face, one-on-one basis. And whether it results in something like an arena in Prince George or a Sun Youth Centre here in Montreal, or the America in Bloom effort in the United States, we try to be very bespoke around how we drive benefit in communities. When it comes to Indigenous communities, the Indigenous Advisory Council at CN did a tremendous job of reconnecting our company to the role that the railways played in implementing some of the colonial policies and the impact of those policies on the health of the communities, whether it be economic health, the societal health of communities over generations. And that's an important part. I am very grateful to the members of the Indigenous Advisory Council in helping us establish that foundation. It wasn't always easy to hear and to reconnect with. We have issued an acknowledgment, and this is an acknowledgment of the role that railways played in the past, particularly in Canada, and the impact that it had on the Indigenous communities. And using that as a foundation, we are now committed to the building of a reconciliation action plan, and we don't want that to be superficial. So we're engaged in that right now in consultations with Indigenous communities, particularly across Canada, on what that needs to look like.
This is a long journey, and we want this journey to be one where we acknowledge the past but contemplate a future that looks very different in how we come together. It's going to focus on where we think we can move the needle. It's going to be around principles of awareness. We want to have an impact on people and employment opportunities for Indigenous communities. Almost 6% of our workforce is Indigenous right now, and we're very proud of that. We want that to grow and we want them to have a growing impact. We are a strong believer in economic reconciliation, and we're working very hard on how we procure. And there will be an environmental framework as well. So this is where we're starting. It's going to be a long journey. We need to take it step by step and very seriously. And I'm grateful to the Indigenous Advisory Council in helping us to get there. It's up to us to take it to the next level.

Sébastien Doyon: Under your leadership, there was a significant amount of changes that were introduced at CN. We often see a crucial ability is to mobilize people and help them embrace change. As many of us know, you don't become a leader overnight. It takes a lot of experience and mileage. Your career path, how does that help you prepare? What have you learned on the way that also helps you better connect, better engage, have better relationships with your people at CN?

Tracy Robinson: That's a really big question. As you know, I grew up at CP and I joined CP right out of university. I learned the business from the ground up at CP. I spent 27 years there, and I touched a lot of different areas: sales and then marketing and asset management, operations and finance, customer service. And each one of those areas gave me a perspective that the last one hadn't. I remember saying to myself on a number of occasions that if I'd known this, I would have done the last job differently. So that breadth of perspective around what moves the whole organization forward is something that I think is really important. I also, as part of that, ended up leading functions or organizations that I didn't have the technical expertise. That forced me to step back and think about what is important for this function or this department in helping the company move forward. So it forced me to think more broadly. You have to lead through the people because you don't have the technical knowledge.
There's a lot of companies, and railroads are one of them, that are deep in functional technical knowledge, and we're very siloed that way. And so the leadership comes up on the basis of the depth of their technical knowledge. What I learned along the way was how to lead more broadly, what I call the enterprise. Leading the enterprise means you're not an expert in anything, but you do understand how the pieces and the parts come together. And if you can understand how the pieces and the parts come together, it means you can be more nimble because you can anticipate the impact of things happening, shocks to the system. You can anticipate that, and you're more resilient and you're more nimble. As I worked with people in those jobs, I was always so impressed by what any one of those teams or areas was capable of once you lifted them to help them understand what you needed to do and why it was important. And once you get people connected to that, you discover and they discover what they're capable of. There's magic in it and there's magic in that momentum. It gets to be contagious. And once you get that going, that's what organizational effectiveness looks like. And I think it's what leadership looks like.
I know what this company was capable of because I competed against it for 27 years when I was at CP. And so it was a matter of us gathering around: What are we trying to do here? What's our reason for being here? How are we going to do it? And then who plays what role? We're not optimizing engineering. We're not an engineering firm and we're not an accounting firm. We are a railway, which means we need to decide what our role in the bigger piece of it is. And we need leaders who can guide us through that. So when my leaders come into my office, I might ask them to leave their function at the door and to come in as a broader enterprise leader, and then they pick their function up again when they leave. But we need to teach that broader level of thinking and then leadership through lifting into that. I'm very proud of this team for how they've leaned into that. And you've seen some of the impacts of that, I think, as we go forward.

Sébastien Doyon: So now that you created the momentum, how are you ensuring succession?

Tracy Robinson: Our business is very complex, lots of moving parts. It's 24/7, it's an outdoor sport, and all of our customers across all industries rely on us to show up and get it done every day. So that technical experience is there for a reason. But as we grow leadership, we're looking to give leaders coming up in the organization a broader experience. So if you aspire to be a leader of bigger parts of the organization, you will get experiences now in this company that's going to expose you to more than just the function you started in. And I think that that's an important part of development. It can be difficult to do if in your past you’ve relied on your technical competence, but it teaches you how to figure out, just as I went through, where you fit, what your organization needs to do and how to manage that and lead that through people.
So we're going to give more and more of those types of experiences to that portion of our talent and as you come up through the organization. And we're focusing now on our front line leaders. People need help in growing themselves into good leaders, and we need to give our people that help. And so we're leaning in on that, too. I want succession to fall from these types of developmental activities. We're also inviting more people in from outside the organization. New eyes from different backgrounds, different perspectives really helps us. And we need to be an organization that is interested in that and that welcomes it.

Sébastien Doyon: I want to talk about energy transition and climate change. In your case, at CN, I know you're looking at a variety of solutions to reduce emissions. I'd like to understand what role do partnerships play into your approach?

Tracy Robinson: We talked a little bit about how important railroads are in the economy by moving goods and moving them at a lower emissions rate. As we look at our own emissions, 85% come from locomotives. We're doing work on the non-locomotive emissions. But it focuses very hard on the locomotives. We made some commitments externally around reducing emissions intensity. And we're tracking well to those commitments. And the way that we've done that, two things out of the gate. One is the technology on locomotives that gives you data and information. It’s how we handle locomotives. The second thing is we've introduced biofuels or renewable fuels into our diesel, and we're working to increase that. We are the most fuel-efficient railroad in North America to the tune of about 15% on average.
Ultimately, it gets to propulsion. The industry is working on this. But right now, we're all kind of doing some testing on different alternatives. In Pennsylvania, we are working with Wabtec on a fully electric locomotive. We announced this past week in British Columbia with the help of the British Columbia government, we're working with Progress Rail on a hybrid diesel electric locomotive. Other railroads are working on other options as well. When it comes to the rail industry, we don't produce locomotives, so we're working with the original equipment manufacturers.

Sébastien Doyon: With those experiments that you're doing right now, are you seeing any specific challenges in terms of adapting your fleet?

Tracy Robinson: There's two kinds of pieces of that. One is the actual locomotive itself. And to the extent that we can use the same locomotive body to modify the locomotive in order to accommodate the next level of propulsion, that's something that will be the most effective path forward. The other is exactly what that fuel is going to be and how you get that fuel to the locomotive. So we have very well-established across the industry the diesel distribution system and how we all power locomotives. Whatever the next fuel is, we will have to also think about how we will deliver that fuel to the locomotive. So those are two areas that we're working on concurrently.

Sébastien Doyon: Now turning a bit to extreme weather events, we've seen some of these issues happening across your network. I know you're analyzing those long-term impacts of climate change, other extreme events. Given your experiences, what would you advise leaders at organizations that are at earlier stages than you are? How should they think about physical risk?

Tracy Robinson: First, they need to acknowledge that it's real and it seems to be increasing. So we pay a lot of attention to the data and to the information that's out there. I would advise others to do the same. There are lots of innovations coming. When you think about physical infrastructure on how to predict where these climate emergencies will take place, there's some really cool new innovations around how to predict where you may get fires or floods. There are things that you can do to harden your infrastructure in advance. For us, there's new kinds of materials that are more fire resistant, and we look at where the culverts are for the purposes of water. We have new sprinkler systems on some of our infrastructure and bridges.
So there's things that you can do to reduce the likelihood of impact, once you understand where these things are more likely to happen. And then once they are happening, of course, it's inherent upon all of us to make sure that we mitigate the impacts, we make them as small as possible. And we work very hard on our own infrastructure with our customers as well as communities to do that. But the level of innovation that's coming, and the predictability from a data perspective of what could happen, that is something that we all would be well advised to take advantage of as we think about building resiliency into our business.

Sébastien Doyon: That's very wise advice. Thank you so much for sharing your thoughts.

Tracy Robinson: Well, thank you and thank you for the survey. It was a fascinating read.

Sébastien Doyon: That concludes our first episode of Season 3 of CEO Viewpoints. Stay tuned for more insights from Canadian CEOs. If you've enjoyed this episode, you can subscribe to our series on Spotify or Apple podcasting platforms. And please feel free to leave us a rating or review on Apple Podcasts. This podcast has been prepared by PricewaterhouseCoopers LLP, an Ontario limited liability partnership for general guidance on matters of interest only and does not constitute professional advice. Thanks for listening.

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About CEO Viewpoints

CEO Viewpoints is part of our Shift podcast series, with a specific focus on diving deeper into the issues raised in our annual Global CEO Survey. In each episode, we explore how Canadian chief executive officers are navigating the growing reinvention imperative revealed in our survey and what they’re doing to stay ahead of key megatrends like climate change and other important disruptors. Listen as they offer their insights on the issues reshaping society and how they’re leading their organizations through the profound forces of change fuelling business reinvention globally.

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