CN Railway to push for further efficiency gains

Wed Dec 11, 2013 5:03pm EST

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* CN targets operating ratio in "low 60s" over next 3 years

* Will use longer trains, fuel efficiency to boost productivity

* Sees mid-single digit percentage growth in carloads in 2014

By Susan Taylor

TORONTO, Dec 11 (Reuters) - Canadian National Railway Co , the country's largest rail operator, said on Wednesday that it aims to improve its industry-leading operating efficiency over the next three years, even as it carries more goods.

The Montreal-based railway estimates its 2013 operating ratio at about 63 percent, nearing last year's 62.9 percent, and targets a rate in the "low 60s" over the next three years.

Operating ratio measures productivity by tallying how much revenue is used to maintain operations. The lower the number, the better.

"For me, low 60s is 60.001," Chief Financial Officer Luc Jobin said at the company's investor update in Toronto.

"Anybody that can move on a big ship like this, that can move the operating ratio from 63 down to 60.001, is actually doing quite a bit of travel, and that's a lot more difficult to do ... while growing the franchise at a very good clip."

Improvements are also more challenging because CN operations are already relatively efficient, he said.

The railway will work to boost productivity by a range of measures, such as running longer trains and using more fuel-efficient equipment.

Booming demand in CN's energy business, which includes crude-by-rail and sand used for hydraulic fracturing, along with a record Canadian grain crop will help power revenue growth in 2014, Chief Marketing Officer Jean-Jacques Ruest said.

CN, which aims for mid-single digit percentage growth in carloads in 2014, said it also sees volume growth from its intermodal container shipping business, along with the rebounding auto and U.S. housing markets.

CN's smaller Canadian rival, Canadian Pacific Railway Ltd , has said it will reach its mid-60 percent operating ratio target in 2015, some 12 to 18 months ahead of plan.

CN said after markets closed on Tuesday that it expects double-digit percentage growth in earnings per share in 2014 and plans to boost capital spending by about 5 percent to C$2.1 billion ($1.98 billion).

Shares of CN, up more than 30 percent this year, declined 3.2 percent to close at C$57.65 on the Toronto Stock Exchange on Wednesday, falling in tandem with stocks of North America's biggest railways.

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