As we enter the New Year... (Tony Hatch, ABH Consulting)

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Happy New Year!


The Holiday season is normally a slow season for “news”, rail and otherwise – made slower by the onset of Omicron in all likelihood. But there was news from up North (Canada, not the Pole), so that’s the update (below) as we enter the new year. And the New Year will start off with a busy bang, with two conferences, the NRC (rail construction & contractors, this week and the Midwest Association of Railroad Shippers (MARS – next. The latter will be coincident with the important STB hearings in DC/zoom-land on the fate of the CSX Pan AM deal. And, of course, we have the all-important fourth quarter earnings/2022 Outlook calls beginning with UP and CSX on January 20th, an otherwise also Very Important Day in the abh household (note CP hasn’t announced its date and KSU likely will report as part of CP).


CN (not TCI) states Vena withdrew his CEO candidacy (the very essence of the TCI “challenge”), leaving more questions (Who is still in the running? What will TCI do? etc) than answers. Vena was rumored to re-set his sights across the border to the US. See the local paper’s coverage: Jim Vena withdraws, investors react - La Presse+.

  • So what’s all about, Jimmy? Is Mr. Vena receiving pushback (perhaps on length of contract?) from CN? Concerned about not knowing the identity of his potential boss, the un-named incoming Chairman? Or is this, as some have posited, game strategy from Vena/TCI to show his value; after all, the man I once called the “$8B man” after his appointment at UP (to be COO) caused CNI shares to drop 6% after this (CN) press release. But if that was the case – where were comments from Vena/TCI?  Perhaps he has set his sights on the Ponte Vedra Country Club?  And where is Elliot in all (any) of this?


Then TCI ended its long, long, long silence to slag CN's board for "failing to attract" Vena to be CEO (is that what happened?), and asking it to delay the CEO pick until after the shareholder vote 3/22 – but with “wins” in getting new (as yet un-named) CEO and new (ditto) Chairman -  what's TCI now remaining goal? It certainly upped the anger-quotient, noting the CN Board’s “history of failed CEO appointments” (presumably excluding the appointments of Tellier, Mongeau – and, yikes to investors, Harrison. And yet TCI still seeks four board seats - for 5%? Naming a CEO now must be priority number one.  Yes, the CEO needs the backing of the Board – but who is to say that the Rebel (Gang of) Four will prevail, or that even so, they would object, since their stated number choice (JV) has, supposedly, withdrawn?


More from Canada, busy what with the NHL on Xmas suspension:

  • Canadians are seemingly waking up to the fact that TCI owns a major block of CN and is the largest shareholder in CP – see this Opinion Piece from their paper of record, The Globe & Mail: Opinion: A clear and present danger for the continued efficiency of rail transportation in Canada - The Globe and Mail. But who’s to decide? TCI is from the UK (and has a fiduciary duty to its portfolio). Both carriers have “Canadian” in their title, but each has a huge/growing US presence (soon, Mexico for the CP) and current or historic US leadership, and each has global customers and truly international shareholders….This represents a quandary, if not necessarily an unprecedented one (see Gould, Jay). In this case, what really constitutes “foreign”? And how does one parse between passive, (who often own large share blocks of all of the railways, for example) active, and activist shareholders? Does the Canadian Competition Act rule over a fight to buy a US/Mexican railway? There are merits on Denton's arguments, which boil down to urging growth on one carrier and margin focus on the other, the existential issue at play here….
  • CN Luck, continued: The Canadian Transportation Agency (CTA) ruled that, due to its success in hauling 9% more grain tonnage in the 2020-21 crop year, CN was above their Maximum Revenue Entitlement while CP was below theirs – which requires CN to repay C$2.5mm – another sign of the insanity of Canadian grain regulation and a lesson for all rail regulation (hello, Marty?) and makes us further nervous in the USA when we read “As prices rise, Biden deploys Antitrust team”, in the NY Times - all OK (I think) when discussing “Big Meat” (love it) but worrisome nonetheless – including this completely illogical sentence: “Administration officials say the biggest successes so far include blocking the merger of a large American railroad, Kansas City Southern, with a Canadian counterpart….” Oh, really?
  • CN (and the rail industry also got good news when, at long last, the STB approved their sale of ~800mi of short line properties in Wisconsin and Ontario (formerly WC lines) to Watco. Some have viewed this as an inflection on the STB’s part, what with holdups so far on other line sales (Pan Am, Massena) and that may be true, but I have heard the delays in Wisconsin were due to agitated shippers as opposed to stubborn regulators, still mad at the original sale of the WC to CN at the turn of the century!
  • CN did announce a 7-year partnership with Google Cloud as part of their planned transition from PSR to (what I call) PSR 2.0 to DSR>
  • CP, meanwhile, held serve, by extending in advance of the deadline, their contracts with two mega-major customers, Canpotex and Canadian Tire (though gosh I wish it was “Tyre”)


Anthony B. Hatch 
abh consulting 
[email protected]
Twitter @ABHatch18

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