Harrison takes the throttle at CN - Rail Update - Hunter Harrison

Railway Age, Jan, 2003

Canadian National Executive Vice President and Chief Operating Officer E. Hunter Harrison became president and CEO of CN on Jan. 1. He replaced Paul M. Tellier, who left CN after 10 years to become president and CEO of Bombardier, Inc.

"I am deeply honored to have the opportunity to head the best railroad on the continent," said Harrison. "As president and CEO of CN, my priorities will remain a passion for service, efficiency, and innovation to drive market share gains, sustained profitable growth, and greater shareholder value." Harrison will be based at CN headquarters in Montreal.

"CN's board of directors is delighted to announce Hunter Harrison's appointment," said CN Chairman David G. A. McLean. "Hunter is the best operating executive in the rail business, the man who designed and implemented the scheduled railroad at CN. The industry recognizes Hunter's leadership and innovation--Railway Age magazine in January named him 2002 Railroader of The Year." In the magazine's January 2002 issue, Editor William C. Vantuono dubbed Harrison "the master of scheduled railroading."

Harrison, 58, began his railroad career in 1964 as a carman/oiler with the Sr. Louis-San Francisco Railroad while attending school in Memphis, Tenn. Following the merger of the Frisco and Burlington Northern, Harrison held a number of executive positions in transportation/operations. He joined the Illinois Central in 1989 as vice president and COO, and was named senior vice president-transportation in 1991 and senior vice president-operations in July 1992. He implemented scheduled railroading on the IC, a practice that enabled the railroad to consistently post the industry's lowest operating ratio through the mid-1990s.

Harrison was named IC's president and CEO in 1993. In 1998, when CN acquired IC, he was asked by Paul Tellier to become executive vice president and COO of the combined company.

During a press conference announcing his appointment, Harrison said that he had no immediate plans to bring in a new chief operating officer. "It was a new position in 1998," he said. "I want to play on my strengths of running the railroad on a day-to-day basis. I'll stay actively involved in operations while taking on other areas. We have a strong management team, and I'm comfortable with it." He said that CN will sell off its offshore holdings (English, Welsh & Scottish and New Zealand's Tranzrail) over time. He also said he expected further Class I mergers to occur over the next three to five years, though he did not speculate on what railroads would be involved.

Harrison will be presiding over a 2003 capital plan of approximately CS1 billion. New freight cars are part of that program. Last month, CN, the largest carrier of forest products in North America, said it will acquire 350 new boxcars and 200 new center-beam flat cars this year. The high-cube, 50-foot boxcars will be used for newsprint and fine papers. CN will build 100 of the boxcars at its Transcona Shops in Winnipeg, the first such construction program in decades. The remaining 250 will be built by Trinity. The 73-foot, 286,000-pound GRL centerbeam cars, which will be used for lumber, will be built by Greenbrier at its TrentonWorks plant in Nova Scotia.

Prior to Harrison's appointment, CN said it would reduce its work force by 1,146 permanent positions "in a renewed drive to improve productivity." Roughly 30% of the reductions will be achieved through normal attrition and retirement, 45% by way of early retirement, and 25% through severance packages. The reductions "will occur in every corporate and operating function," about two-thirds in Canada, with the remainder in the U.S. In connection with this initiative, CN said it expected to take a fourth-quarter 2002 after-tax work force adjustment charge of approximately $79 million for severance and other payments to affected employees.

CN also said it is adopting an actuarial-based methodology to determine its provision for U.S. personal injury and other' claims, including those for hearing loss, carpal tunnel syndrome, and asbestos-related disease. Under an actuarial-based approach, the cost of employee injuries and other claims will be charged to expenses based on an actuarial estimate of the ultimate cost and number of incidents in each year. Where unasserted claims "can be estimated and considered probable," CN will also record a liability. As a result, CN expected to take an after-tax charge of approximately $173 million in the fourth quarter, approximately two-thirds of that for asbestos-related claims.

"The new methodology for determining our provision for Federal Employers' Liability Act (FELA) and other claims is consistent with current U.S. rail industry practice," said CN. "The change reflects CN's growing presence in the U.S., where the rail industry is uniquely susceptible to litigation involving employee work-related injuries and occupational claims because of FELA, an outmoded law passed in 1908 that applies to railroads. CN is faced with a rising number of personal injury claims in the U.S., and we want to reflect our expected liability in a consistent and forthright manner."