CN Rail ousts CEO Luc Jobin, says it needs energetic leader to move forward

MONTREAL – The chief executive of Canadian National Railway Co. abruptly stepped down Monday as the railway struggles through operational and customer service challenges.

The Montreal-based company said it has started a search for a more suitable leader to guide the company through an increasingly competitive market.

“The board believes the company needs a leader who will energize the team, realize CN’s corporate vision and take the company forward,” board chairman Robert Pace said in a statement.

The company appointed CN chief marketing officer Jean-Jacques Ruest, a 22-year veteran of the company, as an interim replacement for Luc Jobin while it conducts a search for a new permanent CEO.

The shuffling of leadership comes as the company has struggled through rapid growth and the operational issues that have come with it, said RBC Capital Markets analyst Walter Spracklin.

“We attribute the surprise announcement to the service and network challenges that arose as a result of the company’s rapid volume growth in 2017, the costs and challenges associated with correcting the issue, and the continuing fall-out that we have seen on the customer service side.”

Spracklin said in mid-February that CN Rail showed a 17 per cent velocity decline year over year compared with a nine per cent drop for the group average, and a “staggering” 43 per cent increase in dwell time compared with a nine per cent increase for the group average.

The performance meant it was doing irreparable damage to shipper relationships and could lose business to Canadian Pacific Railway Ltd., he said.

Jobin became chief executive in 2016 after serving as the railway’s chief financial officer.

Prior to that, he had been a senior executive at the related companies Imasco, Imperial Tobacco and British American Tobacco, and at Power Corp.

CN said Monday it recognizes the operational and customer service issues it has been facing since last fall from high demand and “insufficient network resiliency,” compounded by a severe winter.

The railway’s performance has led to complaints from grain farmers, who recently saw CN Rail deliver 17 per cent cars ordered, as well as from the oil and gas industry where Halliburton has complained about slow frac sand deliveries.

In October, the company said it was on a hiring spree because it didn’t have enough crews to handle increased demand prompted by a stronger North American economy.

At the time, CN chief operating officer Mike Cory told analysts that the company was “catching up” in some areas where it was surprised after reducing its workforce in early 2016.

Edward Jones analyst Dan Sherman said the company’s statements on Jobin’s departure implies the service level on its network has negatively affected customer relationships but that looking for a replacement could slow a recovery.

“We anticipate that management will catch capacity up to demand as we move through 2018, but the move to a new chief executive officer will likely prolong the time necessary to catch up.”

The company reaffirmed its guidance on Monday despite its difficulties, but Spracklin said he has doubts about CN Rail’s 2018 and long-term guidance.

Companies in this story: (TSX:CNR)