Keith Creel: Lessons from Life on the Railroad

0:00 in your career if you're gonna work with a lot of managers that wanna do things right. But very few that Want to lead and leaders do the right things even when they're not the comfortable thing to do. You know, often Change

0:11 Threatens people. You've got to be able to articulate why you need to change and how you need to change. And stick with it. Even if it's not comfortable. Those lessons.

0:22 you know, to me I think are universal and I think they're undeniably true. And I think they lead to success in any business, and most specifically in in our business. Welcome to the Knowledge Project, I'm your host, Shane Parrish. This podcast is about mastering the best of what other people have already figured out, so you can apply their insights to your life. If you're listening to this, you're missing it. If you'd like access to the podcast before public release, private episodes that only appear in your feed.

1:05 Hand-edited transcripts, including my personal highlights, or you just want to support the show that you love, you can join at fs.blog/slash membership. Check out the show notes for a link. My guest today is Keith Creel, the CEO of Canadian Pacific Railway. For those of you that don't know, Canadian Pacific is one of the large Class 1 rails in North America. It has over 13,000 miles of rail network, 11 ports served on both. the West and East Coasts, and over one hundred transload facilities. Keith has helped Canadian Pacific go from one of the worst operated rails to one of the best in the world.

1:42 While trains are such an important part of our supply chain, they remain misunderstood and underappreciated. I wanted to talk to Keith to learn more. We discuss common misunderstandings about rails. the symbiotic relationship between trucks and trains, self-driving technology and how it changes the landscape, high-speed rail, reshoring, and the role that rail plays. leadership and some of the lessons he's learned from legendary railroader.

2:07 Hunter Harrison. and also from investor Bill Ackman. We also discuss the$27 billion acquisition of Kansas City Southern. He walks us through step by step revealing awesome details that I don't know have appeared anywhere else. I get to talk with and learn from so many amazing people. And conversations like this one with Keith remind me of why the Knowledge Project is so important. I love sharing this stuff with you.

2:37 It's time. To listen. And learn. Everyone knows about Rails, but we misunderstand so much. I think the best place to start is with the question, what do people misunderstand about Rails? I think uh they misunderstand or or they lack an understanding that if the rails don't run the products that we all

3:00 enjoy, consume, and that establish or define our quality of life just doesn't happen. It gets Probably came more to bear. Maybe more appear to folks over the last year, year and a half with all the supply chain challenges that uh we've experienced and inflation we've experienced, but Certainly it's the backbone of the economy in so many ways.

3:19 W why are they so much more efficient than trucks, which take advantage of sort of public infrastructure? They're way less capital intensive, they're not unionized, and yet the rails still are the lowest. cost to move a ton of freight. It's all about size and and scale. Um, you know, obviously When you have trucks and highways there are limitations on

3:40 How far they could all things uh with Manpower as well as how heavy they can haul things depending upon truck weight and size, bridges, public infrastructure, you have to share the roads, obviously. On a truck, whereas on the rail it's it's a dedicated asset that you own and you could haul

3:58 Many, many more cars with the use of uh technology and efficiency and the cars Carry a lot of weight compared to to what a truck can carry. There are classes of business where trucks have an advantage over rails. Yeah, and this is part of probably why in in large terms while Rail has

4:17 diminished in importance and in in even the freight that's moved in America today and That's because of reliability. So just in time inventories Manufacturing facilities, product lines where they need to make sure that they know the transportation manager knows that the product's getting to the shelf or getting to the assembly line.

4:36 Uh, trucks have played a big role in that because they've been much more nimble. And obviously back to your point about infrastructure, you know We only run where our rails run too. trunks out the benefit of the nation's interstate systems and highway systems and road systems. Uh so they're much more

4:52 agile and flexible than a Rail network is. Um So that Agility and flexibility. coupled with historically railways have not always been the most reliable when it comes to A schedule.

5:06 But I call a truck like reliable service. Uh I think that has led to the demise of Oh, the freight that's all by rail. And that's exactly, you know, kinda the narrative that we've tried to change to try to create

5:19 the benefits of scale that a railroad brings uh with the reliability of truck that Trump brings. So it's It's kind of a hybrid model that's That's the way we operate our way to To try to make ourselves more attractive to our customers. And how do you think about driverless trucks?

5:34 Eventually it'd be inevitable. Uh, I think that there's obviously a big social hurdle. I know myself, I try to put myself To be a human all I can, obviously when I'm out on the streets, if I were to see a And A Two other going by me. They make me nervous as they are. Passing me on an interstate, uh

5:52 Or perhaps. when they're not paying attention, but they make a mistake. You know, they can pretty much demolish the vehicle. I can't imagine Looking up and seeing no one there. It's uh

6:02 It's something I'm not personally comfort comfortable with yet, and I would suggest that uh Society's that comfortable with, yeah. But eventually in time. change occurs, we all have to get comfortable with the uncomfortable, I think it's inevitable. Does that change sort of the equation between rails and trucks?

6:19 I think it could. You know, I look at it as how it could complement You know, for my perspective of the railroad that I run because you know we are consumers of truck capacity as well. Uh so I I look at it from that.

6:32 But it's not a The reality is the competitive advantage from a labor standpoint that you know, a driverless truck might have uh if the technology catches up and the societal issues catch up is inevitable. Uh so we're gonna have to look

6:47 And continue to look at ways in the rail industry. To innovate. But it definitely in time will require that we evolve and we change as well to be able to maintain our competitive

7:01 Advantage. Why don't we have driverless trains? It seems like that would be the place to innovate because we have a closed track, basically, that's fully controlled by a company. Well, actually in some locations of the world they actually do. Uh, but again, it's in a location where Probably not as exposed. to the societal issue, so you might have a piece of track that

7:23 Runs across. A d a terrain that's not complex. Uh flat terrain. point A to point B without road crossings in between, you know, there they're situations like this, perhaps in Australia, there are other countries in the world where

7:38 In very limited fashion it exists, but The reason it doesn't occur here locally specifically Again it's that change word. It's uh it represents Huge Technology

7:50 challenges it also represents huge societal challenges, and when I say societal In our definition, it's It's the workforce that we work with, you know, we're heavily unionized workforce. In the real industry. heavily regulated, so the regulations would have to change.

8:07 And the will for our employee base that are unionized would have to change. So again that's Eventually in time, perhaps the technology's not there or the world of change is not there at this time. W why don't trains move faster? Not only freight trains, but like why in Canada and the US don't we have high speed rail?

8:26 And why aren't the freight trains moving uh faster? Why are they limited in terms of the speed? Again, we're on a closed network. I'm just asking from an outsider looking in. What's You're mixing apples with orange, so it's it's important to start from a basic understanding. When you talk about Passenger rail.

8:44 They can move faster. And obviously there are numerous examples of locations where they do, but if we look at the Canadian example in the property serve the US example. There's Freight those faster trains are running on freight rails.

8:59 It's Not often that you have a Dedicated passenger Network. Uh so when you intermix the two

9:07 the complexities and the needs of the traffic. track infrastructure for the two creates a disconnect. So a freight train is heavy. Uh you're limited by tons in weight. So we go back to that scale question. You want to run long, big heavy trains that are safe and efficient.

9:24 Well, they're not gonna move as fast. As A pastor train which can accelerate quickly, can decelerate quickly. Just all of those

9:34 Scientific facts of passenger trains conflict with passion uh freight trains. So if you try to create an infrastructure that allows both you get into safety concerns and and I've experienced this. I A Canadian National, actually in my history. I remember several deramits that I went to.

9:52 And it was created because of the disconnect between the two. You had to super elevate curves. So for a passenger trade to go fast around a curve, which the curves are out in Than the geography. Uh you elevate

10:04 the outer rail and you drop down the inner rail and it sort of, you know, as inertia carries carries you around the curve, you use that geometry to be able to compare that speed. Safely for passenger. If you mix that with With a freight train that By nature has to move slower around that curve.

10:21 You're putting a ton of weight on that low rail. And that low rail effectively will open up the gauge. And allow a train to drop in. So there's a balance between the two. And that's the reason a lot of conflict occurs. between passenger

10:35 Mixing passenger and freight. Uh, you've got to find that balance. Otherwise there are safety issues. in capacity issues because of A passenger train given its nature moving. So fast consumes a tremendous amount of

10:48 capacity because it gets from point A to point B. So much faster. I had never thought about it in the those details. Thank you for that. You mentioned long, big, heavy trains. Is that the backbone of precision railroading? Uh, that's that's part of it. When I say long, big and heavy, you know, I've I've gotta be careful in the definition because

11:06 Number one you have. you know, safety limitations, you have technology limitations. And then you gotta make sure you got the track infrastructure. Limitation. Satisfied. So

11:17 A true PSR Railroad. You run fewer trains. Which means you have to run longer trains. But you also have to have the infrastructure to be able to accommodate the size of that train. And historically non PSR railroads just traditionally in the industry.

11:33 Until PSR started to evolve. A normal railroad would be built. Every ten or eleven miles you had a six or seven thousand foot siding. And the sodings for those that don't understand railroading, that's where

11:46 Two trains meet, as opposed to having You know, a two lane road, you have a one lane road With a siding every ten or eleven miles so they can pass. Um And when you get into the terminals

11:58 The terminals receiving Or rival and departure tracks. match the siding lings. So Historically terminals would have six or seven thousand foot.

12:09 Arrival and departure tracks. Well PSR says that You run bigger trains, but you have to match that with arrival and departure tracks in their terminals that can arrive and depart those trains efficiently. As well as Instead of every ten or twelve miles.

12:25 The perfect design or at least to my thirty years of experience doing this. Is having a ten or twelve thousand foot siding every fifteen miles. That allows you the right spacing to be able to sequence strings.

12:37 uh run long trains, make train meets and and still be efficient. When you say PSR, what do you mean? Precision scheduled railroading. It's um It's an acronym that has been coined by the industry to

12:49 truly define an operating model that Hunter Harrison, uh he was a legendary railroader that I had The honor and privilege to with and for for over two decades, uh

13:02 Pioneered in the industry. In essentially it's It's it's a people in process business. Uh, and it's really is just defining a process for every Process within

13:14 The movement of freight from point A to point B, and that's the drain movement process, that's the mechanical process, that's the locomotive process. It's it's defining the process and and then applying the right number of people. And measures. To create a service that your customers want to buy. So it it it really is

13:33 I liken it to lean manufacturing. It's all about Define the process, what does good look like? What should the process look like and then managing to that outcome.

13:45 And then you end up in our industry. Which is heavily capital intensive, you have a great service product that allows People straight or customer straight to move from point eight Point B efficiently.

13:58 You move a lot of it back to the scale. Question. And you you do it in a scheduled manner, back to the truck like reliability question. That's truly what PSR is. And it sounds like that actually makes the rails less capital intensive as well. Fewer sidings, fewer maintenance.

14:14 The yard switching is is does that change at all? Uh no, you're exactly correct. At the end of the day you're able to do more with the less Uh you'd be able to you're able to run the railway more efficiently and Listen, this is a a capital intensive business.

14:28 You know, I I think about um I'll give you a great example. It it's C P where we implemented precision scheduled railroad back in two thousand twelve, two thousand thirteen Uh we were running with fifteen hundred locomotives.

14:42 And service a day. Uh today we're moving more freight. With about two thirds of that. So a thousand to eleven hundred. Well if you think about in simple terms five hundred additional locomotives.

14:55 Mm. Just in capital expense alone, they cost two to three million dollars apiece. And then you've got to have Two or three mechanics per locomotive to maintain them. You've got half repair parts. And then if you

15:06 Apply that. That thinking not just to locomotives, but To rail cars. uh to track infrastructure, to switches in track, to facilities. I mean you get into This virtuous cycle of inefficiency

15:20 If you don't really right size and optimize your asset. So it's it's um Through that process again. It's just the right way to run any business. I think you could apply it. to any manufacturing business. You could apply it to the airlines, you can apply it to the trucking lines, you can apply to the simply plant.

15:38 Again, it's all all goes back to process refinement and executing What good looks like. Through people.

15:46 Yeah, food culture. How do you think about getting the next sort of advantage out of sweating those assets? So PSR uh took CP from I believe the worst performing. Class one rail in North America to the best. How do you think about w what comes next? I call it a journey.

16:03 You've never really arrived. And again if I stick to the process definition. There's so many processes. in running a railway. And I would suggest to running any business. Uh and they're

16:15 Executed by people. So you really never get to that perfect state where you perfected every process. Or you've perfected every human, which is impossible. As a side note, but

16:29 Were you You have people that are training giving their best effort because In a in a world like we live in. And I think about C P terms, they're thirteen thousand employees. Well

16:41 ten, eleven thousand of those thirteen thousand are the men and women that actually do the work day in and day out that are that are executing those processes. Well naturally They're gonna trip out. They're gonna Retire. Uh they're gonna

16:54 Lead of the industry, so you're you're always having to retrain. Um So when you retrain you have to make sure the training and people development is a four fundamental of being able to sustain your success. I think that's key. And then the process piece. I mean I I look at it

17:10 Something like track capacity. Uh we have a very robust Five year plan, three year plan, one year plan, monthly plan. We look at our capacity, our line capacity and our total capacity. And we have a a menu of

17:26 What I call a shopping list of capital projects. allow us to create more capacity and every year You know, based on And I've give it as simple as train delays and impact to our

17:38 train velocity and our asset turns. You know. These are the top ten that cause us the most pain. Well, once you fix those top ten. Well guess what? There's ten below it to move up.

17:49 Uh so Yeah, it's it's a virtuous cycle of continually Define what good looks like. Through the process. Measure it.

17:59 Because it's Yeah. If it matters you gotta measure it and understand how you're doing reference what good looks like. And constantly tweaking and refining Through processing people to

18:10 Create a better product. Um Create more capacity to create a tighter cost control to create a better service for the customer. Uh so again.

18:19 It it's a process that never never ends. It's a journey you never really get there. It's just this constant pursuit of operational Excellence that allows us to produce what we produce. There's a couple of rabbit holes I want to go down there. One is w how do you think about the trade off between efficient and resilient? I think there has to be a balance.

18:38 you know, you can create so much resiliency or redundancy. Uh, that you go out of business. I think about the church and Hunter said this to me one day twenty something years ago and it resonated with me.

18:51 He said you can't build a church for Easter Sunday. If you do, you go out of business the other fifty one weeks out of the year because you can't You can't pay to sustain it. So you can over I guess to over engineer something. Um

19:03 spend more money than is necessary and and the business won't allow you to sustain your existence in a long term. So I think it's important. that in your pursuit of efficiency you understand There's some redundancy built in. You've got to have some What I call guardrails.

19:21 You don't want to Cut to the bone. Uh there's a tension. And I speak to this as well. That's Yeah, there's a constructive tension where if you get beyond it

19:30 Then you're gonna be damaging your ability to produce the product. And and that's again, I liken it to the way we manage our capacity on our network. I I get extremely Down to the brass tacks involved in large contract negotiations because of scale. It's not because of money.

19:47 mudding matters, obviously, but most importantly it's because of what the demand to serve the customer Will or won't do to my network. I don't want to oversubs my network. Because I understand there's only so much redundancy in the pursuit of efficiency. And end up

20:03 causing the entire network to melt down. aspirations or eagerness To grow revenue to Exceed my ability to be able to produce a product. I don't only I not only destroy trust with that

20:16 Particular customer. I destroyed my business model. And there are many, many cases I I could suggest where people lose sight of that. Uh and you End up.

20:27 not satisfying anyone or being able to execute for anyone and you fail everyone and that's Not what we're in the business to do. So there's a balance there that has to be pursued and Has to be respected. Are there any examples that come to mind that you can share? Um yeah, contract examples. Yeah, we just recently went through a contract negotiation with a customer.

20:47 That uh because their current service provider is not providing them an ability to grow in their markets and satisfy their existing customers' needs. They came to us with a big opportunity and they would have loved for us to take all their business. That said.

21:03 I know my network can't handle all their business and still Satisfy all the commitments that we've made. to all of our other customers. So we sat down with the customer and said, Listen, number one And I was involved in these discussions. Uh I can't

21:16 Service all your business. I'm just gonna set you up to fail and set myself up to fail. Uh however If there's business slangs that I can

21:26 help you and you could help me and we have capacity in it existing train starts. uh then I'm more than happy to entertain those lanes. Uh so we literally went through With a fine tooth comb every O D pair. So every origin destination. So if it's coming into Vancouver

21:43 And it needs to go to Chicago. If it's coming into Vancouver, it needs to go to Montreal. We pick and selectively worked with the customer. Two customized the lanes that we served, and that's the business that we bit on, and that's the business that we won. So I've not jeopardized My ability to meet any existing commitment.

22:01 And I've created a superior product that allows this customer sort of de risk their total business mix not having all of their Great with one. provider they have

22:13 They're with us. And the way I see that Not only is it good for us, it's great for them, it's good for long term relationship because at some point if I want and spend additional money to handle more of their business. In partnership with that customer, I've established trust.

22:29 And I can say okay, if you want us to handle these additional lanes. We need commitment. own assets. We need you to build this, we need you to commit that, and in turn we'll We're willing to match. And that allows us to bespoke our network.

22:42 to grow with our customers in a very unique way that's not replicable. By our competition. At what point do you walk away from customers? And and there are probably classes of customers you can't walk away from, even if it was unprofitable business. And I'm thinking like sort of grains and sort of uh chemical transportation things that are just necessary to run over rails from a scale perspective. Yeah, I I think we start with a common legal understanding in the rail industry. There's we have a common carrier obligation.

23:12 uh to provide real service to any customer that comes to us. Um It's you know, the the negotiations, the terms and the service expectations, it really sort of Determines

23:24 Those customer relationships. So I would suggest that You know. If there are no barriers then Cost doesn't matter, service doesn't matter, capacity doesn't matter.

23:34 We can never walk away. However you know, there were customers as well that In normal business. that quite frankly

23:43 I don't want to say they're bad customers, they're just a bad fit. You know, They care more about price than they do service. And that's a a value proposition that we pride ourselves on at our railway.

23:55 Uh, we provide a different outcome. We provide a better service. Um Not because I say it, but because we have in in a world where Capacity has been constrained.

24:06 Customers They've not been able to get their products from point A to point B because of the way we were on our railroad we We've not been perfect. You're never gonna be perfect. But our service experience for our customers is uniquely different than our competitors. Uh and that's

24:20 That's kinda the The magic recipe. If I go in and tell you I'm gonna do it, I'm gonna do it. But there's some customers again, that's called service. That's really what service is. It's Not always getting something from point A to point B.

24:34 Faster than your competitor or faster than a truck. It's about doing what you're say you're gonna do and being a reliable service provider. So if I go in and tell the customer that That's our service offering. They'll choose me.

24:48 And it often pay more for our reliable service than they would a service provider that's not. And again I'm using an analogy. This is the way I Try to communicate this vision with our team. A Canadian Pacific.

25:02 Um I compare the service of US postal versus UPS. And if it's my product. And it's my letter or it's my package or my gift that I wanna make sure it gets there.

25:15 tomorrow the next day for my family member for my Business commitment. I'll pay a premium D U P S to get it there versus Putting a post his stamp on it and Hoping it gets there in six or seven days.

25:27 Uh so I liken to try to create that kind of service experience. Some customers aren't willing to pay for that. Some customers Only care about price. They think that They're doing their job by getting the lowest rate rate.

25:40 They don't understand that. Six months from now, they might have had the lowest rate. But if their product can't get from point A to point B because You've engaged with the railroad that Oversales their ability.

25:51 To produce Because they've oversold their Real network, then I would suggest after a whole lot of pain and suffering and maybe If you're a transportation manager, you might have even lost your

26:01 Job over that decision. Uh people understand that You don't You don't have a business if you can't get your product from point A to point B and the railroad's dependent upon to get it there. Uh so service does matter.

26:13 How do you think about volume variants? Like I I'm thinking, you know, an auto company that knows how many cars they're gonna sell every month, that works for PSR really well. But something like green Where the variants might be. you know, twenty, thirty percent on any given year and you're expected to carry all of that capacity. How does that work? Well, number you get two key points. Number one, any customer that can

26:35 Can give us Accurate forecasting. Um, as much as they can, the more information we have, the better we can plan the way where our models work. Uh but some things Like grain, and that's a great example and especially relevant in Canada.

26:50 Uh, there are ebbs and flows, there are peaks and valleys. You know, there's There's droughts and there's peak harvest. Um so what we have to do is size our network You know, we look at Five year averages, three year averages.

27:03 Um You know, the the big swings They their quantum swing sometimes But historically and generally they're not. They're within a A range.

27:15 Uh, so again back to my principle, we can never build the railroad for Easter Sunday. I could never build a railroad that says I can handle a forty percent peak. In one year because The next ten years I've gone out of business. Uh so what we have to do is keep

27:29 Some surge capacity. And we do. uh by nature our railroad because we operate In Canada. uh winter requires search capacity as well. You just can't run

27:41 trains as long and as large as you In the wintertime as you can in the summertime because of mechanical limitations. Air going through a train. It just

27:53 Physically can't do it. So by nature We have some Laden capacity or surplus that we design. Uh back to your point about that trade off between efficiency

28:03 Uh, we have to make sure that we protect that. But again, there is a limitation. Um Yeah, we can't do something that's so unhealthy for the company. to satisfy one customer's you know, ten year or hundred year

28:16 Harvest. That puts us out of business so we're not there three or four years from now. I don't know I don't want to oversimplify, but in this business that's kind of what it is. Um

28:28 We do our best. We work closely with our customers. We have some search capacity, but there is a limitation to it. Seems like over the past uh forty to fifty years. the network has evolved in such a way that it's designed to take things from ports. inland. So I'm thinking Los Angeles, Vancouver, going to Toronto, Chicago. Um

28:49 How do you think about how the rail network evolves? with onshoring or reshoring of certain capacity, which might be the trend of the next twenty years, and how that changes the the network. Well, I definitely think it's um It's not an opportunity. I think it's occurring and I think it will accelerate when it comes to Near showing or

29:11 Yeah, the last Six months since Russia invaded. Ukraine that you know, the topic of ally shorting uh is is just as prominent and is and impactful. So I think in I think over the

29:22 Future. Uh, that's going to occur. I think that supply chains have never been more important than they are today. I think that Partnership between government Uh as well as um

29:35 Our customers and industry. And w even with each other to invest in to work out best practices, um You know I'll I'll go to our our transaction that's

29:46 That's very uh That's very real in these moments. You know, what we're gonna create with this extended network that takes out Eliminates handoffs and takes away interchanges and unnecessary work events for cars.

30:01 All of that in and of itself is gonna create a lot of capacity. Uh but in turn that has to be matched to really optimize it with investment. that works requires coordination between governments. As well as with customers and I'll give you A great one that we're working on now.

30:18 Uh that that is being developed as a result of our transaction that's gonna be enabled as soon as we get this thing approved. Um and that's that involves uh Mexico. And it evolves US. In it about Canada.

30:32 Uh we look at ports. You know, ports have been a very topical. Topic of uh probably pain and suffering for a lot given the supply chain challenges is West Coast sports. have a lot of product that we consume as Americans and as Canadians and as Mexicans. uh that comes into the port of LA Long Beach.

30:51 I'll t I'll back up a moment for the question you asked me about. You know, how do you plan for these These The grey harvest. Well It's not just the railroad.

31:01 You know, we're in partnership. With the ports. That tide of water that load that grain in Canada's example. Uh To export to feed the world.

31:11 You know, it does no good to create a whole lot of capacity in the middle if the bookhands can't handle it. So partnership with ports, which often are owned by governments. to make sure that they're matching your investment so that your capacity you create matches the capacity that they have at the fork to get it on the ship or get it off the ship.

31:31 And then going back to investment inland. where you create the product, and in this case I'm gonna talk about potash. Um you know, Canada, which is you know Canada's the world's largest producer of potash.

31:45 We've got um Camp attacks. which is the worldwide exporter of potash. They they export potash for nutrient As well as mosaic. You've got Capeless S.

31:57 Uh, which is a German producer of potash. And soon you have gonna have BHP. Um twenty twenty five, twenty twenty six. It's common knowledge that they're building a

32:09 A potash mine or And Jansen. So with all that said All that capacity and all that investment. You need more tide water to export too.

32:19 So with our network With This combination Creating a seamless single line move that goes from a potash mine in Saskatchewan

32:29 All the way to a new terminal that Will be developed. In this case, Port Arthur, Texas. Requires investment, requires The combination to have the economics.

32:39 and to create the scale, when you start to do that as the world evolves. And as we near shore we all lie shore. Those kind of things move the needle. Uh so again Our combination uniquely provides

32:52 the landscape to create the infrastructure that in partnership we can't do it alone. We don't own the terminals to load it. We typically will not own the terminal. To offload it at tie water and to load it onto the ships. Uh so it requires a combination and coordination between

33:09 The rail, the customer And government. uh to be able to make all this happen for our nations. Why don't the Rails own the terminals? Seems like a logical vertical integration for you guys. It is, um

33:21 You know, sometimes It's a government. own entity. Sometimes it's a private entity. And there's no willingness to to sell it. I can

33:32 Give you a couple of cases of warning. Canadian solders A couple of terminals that if I had control to your point about vertical integration. of the port I could control throughput. Uh I would argue that

33:45 We could probably be a bit more efficient. Uh because There's so many complexities in those handoffs even with the port operator, the terminal operator doing their very best and the railroad doing

33:56 Their very best. when there's not one voice in command and control and coordination. uh complexities introduce Inefficiencies. Um

34:05 So I would suggest it's either the government owns it, they don't wanna sell it because it's An asset to be used. By all modes of transportation. Not just Canadian Pacific, but Canadian National or the other railroads On the US standpoint and or

34:21 It's individually or privately owned and they understand The importance said that. piece of the supply chain and it's a revenue stream for them and they just it's not for sale. You mentioned earlier having five year plans, three year plans, one year plans, and monthly plans. What's your system of execution internally at CP?

34:39 Uh well we have a a very unique Um position that was created to actually When I took over as the CEO uh because I'm so sensitive about matching capacity

34:51 and not over subscribing our network. So we have a individual The team uh that sets between literally myself and markety. Uh so when it comes to Pursuing business

35:04 Securing business There's a very methodical approach to it, so that we're matching track capacity, yard capacity, people capacity. Locomotive peg capacity and car capacity. So this one particular group.

35:18 I call them Uh They they maintain the tension in organization. They're not about harmony. They're about doing the right thing. So they have to assess the marketing opportunities and in turn

35:31 they sign off on we have the capacity whether it's track people physical assets, terminal assets. Uh before we sell the product. So it's it's it's truly a triangle. Where you have the marketing

35:44 You have This capacity or asset utilization piece in the middle. And then you have operations, and we all together Collectively make decisions. And to me that's been

35:55 a recipe for success, limiting the salos that most organizations have where you have marketing, going out and selling a product and then operations. They're told to deliver it. Well Marketing does it even understand if operations can or can't really deliver it.

36:11 So they're overcommitting the company. operations. They're doing their best to try to deliver, but because they've overcommitted they've exceeded capacity or they've complicated the delivery of the product, you know, trying to

36:24 Liken it to Basket Robbins. You can't have fifty two flavors. You know, pick the few that you're good at and have really be really good at them. Uh, that's kinda the simple approach to business and that That recipe has allowed us to

36:39 sustain to grow, outgrow the industry. To do it efficiently because we're turning assets that naturally controls your cost. That produces a good margin. It's an outcome. It's not the focus. And at the same time it's a great service because again

36:54 It's schedule. It's more truck like and reliable. And our customers can depend on not only just the service But also the capacity so that Not only can we do what we've told them we're gonna do When they commit

37:07 To their customers to grow. there's a clear path to what that growth looks like, whether it's investment Whether it's we tweak our service. It's not done. Yeah, it's not guesswork, I guess. There there's a science to it.

37:19 And a very structured approach to it. You you mentioned working with a legend Hunter Harrison. I'm curious, what are the top two or three things that you learned from working with him over the years? Accountability. Um Leadership, the importance of leadership, picking the right people.

37:36 Creating the right culture. delivering results. I mean he he's always he told me from the very beginning is a leader Your number one job is to produce results. And you're only gonna do it if you have the right people on your team and you create the right culture. And give them

37:53 The right motivation Um To succeed. And as a leader to me, that's what leadership's about. You You have to create a vision.

38:03 You gotta tell people what support it and why support it. You gotta hold'em accountable. And you gotta motivate him. Uh and if you do that Most people I think God made us in a way that we all wanna be part of something successful.

38:17 Uh when we Allow people to contribute to something that's bigger than themselves. They feel a sense of accomplishment. And a sense of pride, and a sense of satisfaction. And it creates success and it breeds success. Once you once you experience it.

38:34 And we all have experienced in our lives, whether it's on a sports team or whether it's in a A local organization or the company you work for Once you've done that once I find that people Enjoy that.

38:48 Yeah. It's more than the money, it's an emotional connection. that creates this virtual cycle of success and the He fundamentally taught me All those things. I know working for him

38:59 Probably the Most challenging individual I've ever worked for in my life. But at the same time the most rewarding. because we achieve so much for so many people, not just ourselves, we are serving a bigger cause. Not serving ourselves.

39:14 Seeing the success we created for customers. you know, at an individual level seeing Families that were positively impacted, seeing employees, seeing jobs grow. uh seeing people enjoy A better quality of life.

39:28 Uh the I know in my experience I never would have dreamed possible. That means a lot to me. Yeah. To be able to accomplish

39:38 more with people than I could ever do myself. Yeah, it really gets my gears going and that's really What drives me day in and day out, and he was wired the same way. He love, love serving people. In serving a bigger cause more than himself.

39:52 Seems like one of the common themes from studying great leaders Ведер б спорт у бізнес. is that they set a bar that is higher than other people think is possible. And then they challenge people to reach that. I'm wondering Are there any stories that stick out in your mind of when Hunter did that with you?

40:11 Uh,'cause you mentioned he was the most challenging person you worked for. There's probably moments where you wanted to quit or give up. Yeah, I've I've got so many of'em. I'll I'll tell you though. He was a master at doing that. He would raise the bar so high, uh that even If you didn't make it all the way. You were accomplished a whole lot more than anybody else was.

40:29 Um Because he caused you he he created a world where you had to stretch. You had to really Understand your business in every detail. And drill.

40:40 issues to the root cause and defy what good looks like. in a way that um you don't know what you don't know and you don't think it's possible. And I'll I'll tell you this one situation Back when I first really was learning the way He thought.

40:55 My mind I I worked at another railroad for four years before I joined The Illinois Central was where I first met Hunter. And uh my first job. I work my way up. from a frontline operating position.

41:07 I'm I pride myself in being an operating officer. And I thought I knew a little bit about running trains from a previous four years of experience. I went to Memphis, Tennessee. I was in a tower. in in in our terms.

41:22 The Tower Train Master is sort of like an air traffic control You gotta A yardmaster that's directing trade movements and You're in the background overseeing The priority is in the coordination.

41:34 Connecting all the dots, building the train plans. So I I remember We had it. train design, which was kinda new to me. Um, but it prescribed all the blocks. Yeah, persistent scheduled railroading means you run

41:48 The same train every day at the same time. And there's a sequence to everything, so There was a particular train. It was called uh M E and O.

41:57 Memphis to New Orleans. was the train and it left at three o'clock in the afternoy. Well, you sequence your day knowing you know, there's a train that leaves at one PM This train leaves at three PM. You had to make connections, you're switching your cars to make these blocks that make up this train.

42:15 And that particular day It was a big train, I think Hundred and forty. hundred thirty five cars. It was, you know, full pin train. optimizes a hundred and fifty cars for the I C model. And again, that goes back to

42:27 Image. Size of the drain, link the drain to size of sidings, all those things that I described earlier. Uh, so you know, we're at one hundred and thirty five, hundred forty cars. I think we did a great job. two o'clock in the morning my phone rings. As you can imagine, the phone's ringing all the time. You're hitting speakerphone all the time, you're on the phone with the dispatcher, you're talking to the Armaster, you're talking to Cruz.

42:48 It's managed chaos. You've got radios in the background. And I hit the speakerphone. Yeah, Keith Creel. I see Tower. And you hear this deep

42:59 Bear to voice. And it's not Hey, this is Hunter Harrison. How are you doing? It's Why did you leave ten cars off M E and O? And I said, Excuse me?

43:08 He said, This is Otter Harrison. And I hit mute, then I'm My armter's there and I'm like This somebody's playing a game. This isn't hunter. It's two o'clock in the morning. And he immediately turned his eyes and looked at me. He said, Keith, that's Mr Harrison.

43:21 His voice is undeniable. You better pick the phone up. So I did. And I went through thirty minutes of an understanding because in my mind I left ten cars. But it is mine, as he explained to me.

43:34 It's not the ten cars. Yes. Those ten customers will get their traffic a day later. But it's all the unintended consequences. So think about The ten to day.

43:44 What happens when you get into the later cycles of the business, Wednesday, Thursday, Friday The way customers release cars. That's when your business builds up. You have more cars coming in the terminal because Historically they didn't work weekends.

43:58 They come back in on Monday, they Load the cars that were spotted that it sat there for two days. Unused. Then they release'em and by the time you pull'em back into your terminal You've got no cars Monday, Tuesday, a lot of cars Wednesday, Thursday, Friday.

44:11 Well if on Tuesday I missed ten cars. Well, on Wednesday, Thursday, Friday that pressure builds up and I have more trains than I have capacity more demand than cars than I have trains to move it on. Going back to what I said, one train a day.

44:27 It's all defined on the business that that you have and I've created at a natural outcome or by Saturday or Sunday I've got a train worth of extra cars and I've got an additional train start to run. Which

44:41 Hit efficiency's now I've got imbalance. I've got to run A special train It doesn't have a train max to bring the crew back, so I've got a deadhead cruise, I've got a deadhead Locomotives, there's all kinds of inefficiencies.

44:55 that in four years of experience I never thought about all those unintended outcomes. Well with him. He was so in tune with all the nuts and bolts. of the way scheduled railroading worked.

45:07 That to survive those phone calls I had to learn at two. So he required that level of knowledge and that level of a deep dive like no person that I've ever met before, no person that I've ever met since. S Yeah, it creates an environment.

45:22 The not only If you get a ride, you get to keep your job. In his terms, he was He was big on accountability. You gotta produce results. It goes back to his number one.

45:31 I don't care how much I like you if you don't do your job there's Somebody else that's gonna come in. To do it for you, I've got that responsibility. Uh but when you do that and you understand that level of detail You can start optimizing those processes.

45:45 And that leads to that's better service product, that lower costs, at better Asset terms. Those kind of lessons I For twenty years and I never quit learning from Hutter. He was always teaching.

45:57 And if you listened You know, he was Some would say he's controversial. He was a visionary, and I would suggest that most pioneers and visionaries are. Because they're

46:07 Trying to get you to do something different than what Society of History says you should do. Change is not comfortable for anyone. Uh, but he was a change agent. Uh he did the right thing and that's that's the one other

46:20 Key thing he taught me. in your career you're gonna work with a lot of managers that wanna do things right. But very few that want to lead and leaders do the right things even when they're not the comfortable thing to do. And that was his point about driving change.

46:34 You know, often Change Threatens people. You've got to be able to articulate why you need to change and how you need to change. And stick with it.

46:44 Even if it's not comfortable. And that leads to greatness. That was kind of the way he was wired and I learned a lot from that. I my style's a bit different, but those lessons You know, to me I think are universal and I think they're undeniably true. And I think they lead to success in any business and most specifically in in our business. You said leaders do the right thing even when it's not the most comfortable thing or the most defendable thing. Are there examples or an example that comes to mind?

47:09 That you're thinking of when you say that that you you've done. Yeah, absolutely. Um, this is a sensitive word. You think about discipline. And we haven't gotten this all right, and in fact I remember Uh one of the first things I dealt with is the CEO. There was an article that came out in a Canadian publications And it was about this um

47:28 This culture of fear. That Had been created. It's Canadian Pacific. As a human being, I believe in treating people with the respect.

47:36 And some of the examples that I read make the hairs in the back of my neck stand up. Uh so after that I went and pulled Probably three years of Up discipline records in our

47:50 Spent days reading Investigations. And effectively an investigation is Just the formal contractual requirement to set down and sort of get to what happened and why it happened and

48:01 Employees have an opportunity to explain. their story and you sort of develop the facts and determine it. Except them the rule was broken. Um so I read through all that. Uh and

48:13 We got a lot right, but we got a lot wrong, and You know. It was all in the spirit of trying to d do the right thing because the reality of The culture that we inherited. uh is it was a culture of permissiveness and in in our industry

48:28 I'll go back to the point of not a Not a bad person, but a bad fit. If you allow people to create their own culture And Execute work practices day in and day out, especially moving

48:40 freight cars and locomotives. Uh there's not a lot of room for error. These cars weigh hundreds of times these locomotives. You know. Your life.

48:50 can be taken in a matter of inches. You know, you can be one inch in the foul of a locomotive and it hits you and grabs your sleeve. And drags you down the track. And you die. You know, the the consequences are severe.

49:03 No. So I've always Understood that and prided myself in creating a safe work environment. To protect people. But to do that.

49:13 You have to go through this discipline process. And if you have officers that don't understand How to be fair. And impartial. Um

49:24 Then you can get a wrong. Um so oftentimes what happens In our industry. people just look the other way because they don't want to get into that Tough discussion.

49:35 Or that conflict. Uh, and that's what I define as permissive management. So They look the other way. Well, when you look the other way, if someone's violating a rule

49:46 Then Not saying something says a lot. You're the officer. You're you're it's you're it's like you're the police officer. If I Speed by an R C and P

49:56 Or a state trooper every day and they never Turn the lights on. I'm gonna do what I think is Save for me, and I might end up Killing myself or killing somebody else.

50:06 Uh well. In our positions It says that you gotta do the right thing. So if you see somebody violate, you gotta go have that uncomfortable conversation. You can't work the other way. And that's a very simple example.

50:18 But some people if you're not a right fit, that intestinal I guess that churning creates this stress it creates inside of you. Is not meant for everyone. Um

50:29 So a manager might go the other way. They might want to have a safe work environment. They might wanna run an efficient terminal, but if they see an employee engaging In an unsafe act that could Durella car. Or kill themselves.

50:41 Because they don't want to deal with that conflict. They walk the other way. They turn the other way. A leader does the right thing, they step into it. I'll I'll give you one other case in point. This this one resonates with me. I've always preach that I believe the leader sets the example.

50:58 You don't ask your people to do anything you're not willing to do yourselves. And I've always said I'm not gonna apologize for running a safe railway, so we have to follow the rules. You can't pick and choose which ones you comply with. And again I liken this to an analogy Um And I used to speak to people this way when I was driving this change in the culture at at a field level.

51:18 I'm like All the rules matter. Um Which one? Did you not follow leads to

51:24 you taking your life for somebody else's. Uh when I get on an airplane, for example. And I see the poly going through his check list and I've got my family with me. I'll let him do. Make sure he checks every box. before he takes me up in the air because I'm gonna come back down safely.

51:39 So every box matters. Um So with that said, when you go out in the field, especially as a senior officer You've got to know the rules. Because if you see something and you don't know what you've seen.

51:53 And somebody's violated a rule? Especially as a senior officer, not only does that employee think That What they've done is okay, you validate the bad behavior. All of the officers in the that work for you.

52:04 Think the same thing. Uh so I I remember like it was yesterday I took this trip in preparation for my new CEO. This is after Hunter retired and clothed. took over as the CEO he wanted to come out and high rail.

52:17 And we were high railing between Hamilton Ontario. in our terminal in Toronto and Yeah, we were

52:26 Inspecting the railroad in a high rail truck. That's literally You know, it's a Put an S U B with some rail wheels on it and you go down the track inspecting the track and we came upon a crew.

52:37 outside of Hamilton, the crew of Switch and Local Industries, and you know, we pulled up and we wanted to stop and talk with them, engage with them. We got up a locomotive You know, we checked the rule books, we talked to'em about safety, we talked to'em about the work they were doing, gave them some positive feedback. Very, very engaging crew. Very Respectful. We ha you had a good Karma between everyone talking about the business.

52:59 And then as I started to get down out of the locomotive, there'd been one of the crew members I caught it out of my right eye. Uh he was Smoking a cigarette. Well

53:09 We can't smoke cigarettes on locomotives. You gotta respect other people. It's not safe. Environment to do that. Uh, and it's not allowed by rules. But some people would say that's trivial. You know, I'm not gonna

53:21 ruin a good conversation because a guy Was out there Smoking a cigarette, well I saw it as I stepped off the locomotive and there's several people following me. We got on the high rail. We started to pull down the

53:33 The track. And just in my head I said, I saw that. I can't Not Deal with that. So

53:39 Asked the team that I was with stop the truck and they said, What's wrong? And I said, Well I don't know if any of you saw That gentleman smoking, but I did. So back the truck up. I've gotta engage it. I've gotta let him know that what he's did what he's done is not

53:54 what good looks like and what I expect in the future so this behavior can change because if I don't His behavior's not gonna change. I've told the other crew members that he worked with that You know. You can pick and choose what rules you comply with.

54:06 I've said I don't respect their Health and welfare because I'm allowing somebody to smoke on a locomotive. And I've told every one of you That I don't expect you to enforce and require employees to work safely and efficiently.

54:18 And none of that's true. So That to me. Yeah to step. Yeah, to get uncomfortable.

54:26 In a lot of ways I had to admit that I was wrong. I had in the What happened had to be addressed and then we had to take the time to go address it. Um so to me

54:37 You know, it would have been easily just to roll away from it, but doing the right thing meant going back and dealing with it. That's a powerful example. Thank you for sharing that. Y you were brought in to CP with with Hunter shortly after Hunter. uh through an activist investor. I'm curious what you learned from working with Bill Ackman. In those early years. You know what? I've learned so much about business, good business from Bill.

55:00 You know, not knowing what I was getting into, you you hear all these things about activists investors and All they care about's making a profit, turn it a buck and You know, short money versus long money, all those things. Uh you know, and Bill obviously had a reputation, and I'm not gonna suggest any of that was true, but certainly he was an activist investor. He

55:20 he drove change at Canadian Pacific. So Going into it. Um You know, I had my own preconceived notions about what might be true, but what I learned. Is built

55:33 Takes a long view, not a short view. And I don't care how you define his fund. He cares about sustainability and the long term success and profitability of a company. So You know, that's what he said, but more importantly what he did. Uh

55:47 As we navigated and I hadn't an opportunity to interact with Bill and Paul and And the CP board as it evolved. Um all the decisions that we made, it required again back to what I said earlier, you have to invest in the infrastructure. To really create a true PSR railroad.

56:03 Uh, we've never spent more in the company's history. Uh so you think about an act as investor If he's really there to make a quick buck, he wants you to make things efficiently, spend the least amount Money as possible. You know, show some success and then they

56:17 They take their profit and they leave. And what you're left with perhaps is not an ideal physical plant and infrastructure sustain long term success. Well, Bill was the exact opposite of that. Yeah, every issue we came to with Bill and we said, Okay, um

56:33 You know what? Now I'll give you a case in point. Part of our Optimizing the railroad. I tripped into this. From experience.

56:41 I had a whiteboarding session. Well Potash, Potash. Back to my point earlier. We move more than any country in the world so effective Supply chain for potash matters. Well, I got to Canadian Pacific.

56:54 And in Canada the potash mines are dual served. So Canadian National serves them, C P serves them, and often You know, we come in once out of the the terminal they come in another side or we share the same access in and out. Uh but when you get to your rail line

57:10 You go your own way to Vancouver, which is where most of this pot ash is exported from. Uh well I learned It's C in When CP got into some trouble before

57:21 Bill came along. It's part of what drove to that opportunity. Um they weren't meeting Campa Tex's expectations and they were committed to a hundred percent of the business. So it's C and we we were asked Campo Tex to help them get

57:34 product to Tab War because seeing C P couldn't get it there. So when we did it I measure. Back to my point about measurement. I said, Well okay, let's Let's measure the asset terms. We're coming from the same locations, going to the same location. How fast do we do it versus how fast C P's doing it?

57:49 Well at C and then we did it about a week. quicker. And I'm like, how does that make any sense? We're start at the same place, in at the same place. Well one of my first Exercises at C P. I said, Okay, let's go to the

58:02 Potash supply chain. I don't understand how C's that much better than C P is. Well when I found is that at those lines That are in North of Saskatchewan, up around

58:13 Saskatchewan. that have all these potash wines. C P was running the traffic east to go down the Ladigan sub down to Regina. across the May line back to Vancouver. So we were taking it out of route.

58:28 Several hundred miles each way. And I said well, if you do that, you're gonna have more locomotives More Cruise. More cards.

58:38 And it takes while over. That's not what good looks like. So Why do we not go west out of Saskatoon? go over to where we connect to south of Eventon down to Calgary. Than to Vancouver. That's a quicker route. It's a shorter route. Uh, well, we just don't do it that way. And I said, Well, we're gonna do it that way. That's the quickest way. So we started to do it.

58:57 And I'm not Proud of saying yes. But We derailed two trains. And I in my mind coming from where I came from, if the track is there

59:08 It better be safe to operate on or it shouldn't be in service. So I never that equation never entered my head. Well I immediately I said Semi Pitchers. Uh The tie condition. I want to see the railroad.

59:21 So I had sent my chief engineer out, he sent me pictures and I saw Track additions. And this was in my first two, three months on the property. So I hadn't hadn't time to get out on the railroad yet. Uh.

59:33 I said that's not safe to operate on No way in the world we're gonna send another potash train that way. Um But we're gonna have to get it fixed. So I went into the board meeting. And I said, We have an issue.

59:43 For me to optimize my service. I've got to run west out of Saskatoon, not east. Uh, but I need A hundred million dollars to spend on rail and Ties and ballast.

59:54 I that was not plan for at all. And Bill was the first one to say it. Do you need two hundred million? You whatever you need to make sure the railroad's safe to operate and operate efficiently. You're gonna get it, Keith.

1:00:06 Well I would say by definition Most activist investors would never be defined by that act. Uh but he demonstrated that then. And continued until the time he left. He was always focused on the long term.

1:00:18 Never on the short term. So I learned A tremendous amount about Business. From the old And just in that one example, but so much more that you know the

1:00:28 The mentorship and the respect that I have for him and the way he has taught me fundamentally how to be a better business person. uh combined with my real knowledge has has enabled me to effectively be setting where I'm sitting today, it'd help me even navigate Uh, in large part the way I thought about it approached our transaction.

1:00:47 I I wanna talk about Kansas City Southern in a second. I just want to make a a point on what you said there. There's so much advantage that can be gained just by lengthening the timeline for success. in a world that operates on a a very quarterly or weekly basis. There is. The challenge is as a publicly traded company, you've got to do both. You know, so you've got to You've got to show momentum and And

1:01:10 success quarter to quarter. Um And listen, our businesses of ebbs and flows. We we had I would suggest the worst quarter financially that I've ever had any railway experience with the first quarter of this year at C V.

1:01:23 For a lot of reasons. Uh in We were able to explain those reasons. Yeah. Duplicate, you know, we came out and said the second quarter matters.

1:01:33 We gotta do better, and we will do better. And we've created the credibility and we the results to to do that, but I'll I'll tell you Uh market short term and long term. You've got a mix of long term investors and short term investors. You gotta figure out how to maintain a balance to satisfy both voices.

1:01:50 Uh, but again, back to your trade off point. You can never trade off your ability to successfully and safely operate the railroad for short term gain. You just Can't sustain this business that way. So You can't be so conceived in the short term that you forget the long game because this especially in the railroad business.

1:02:09 With With the backbone being You know, the economies backbone of commerce, it's a long game. Uh so you've got to understand that and make and protect that.

1:02:18 Speaking of the long game, can you take us behind the scenes of the Kansas City Southern decision Um, from sort of the idea being floated to signing the deal, what does it look like? How did you make a twenty seven billion dollar decision? Well that goes back to um Sort of my history. You know I back.

1:02:35 said this, you know, a man's heart pursues this path, but the Lord determines his steps. And and I went through twenty Years before CP. uh that gave me an experience set where

1:02:50 I I I kind of understood wins and losses and what reach means. Um in service offerings. You know, I worked at Canadian National when we had a lot of reach. And we benefited from that. And we expanded and grew the network to create

1:03:05 More reach, you know, through the transactions and The integrations that uh we successfully Achieve In my experience there. And then I came to Canadian Pacific.

1:03:16 And I had a very origin rich network. Uh, but it was destination poor. It was destination poor. I was disadvantaged in Canada because I didn't reach as far east as my competitor did. And I was disadvantaged in the US. And when I say I'm disadvantaged, that means my customers are disadvantaged too because I didn't reach market south of Kansas City or south of Chicago.

1:03:37 Uh so I knew in time. As we Grew the company. You know, we pivoted to gross.

1:03:45 In two thousand seventeen when I took over as the CEO, you know the first four or five years of my experience at C P was get the engine fixed. You know. Implement PSR. Fine tune the assets, make sure we've got the right culture, make sure our terminals processes

1:04:00 All those things that allow us produce a great service product at a low cost. uh were created, we did that. But then we because of that we had a lot of capacity of the network. So the man the mandate was grow.

1:04:14 So we protect the engine. We grow with our customers, but you get to a point where without reach you're limited. So I always said in the back of my head at some point. Well, we're gonna have to expand the reach of this company. Somehow, some way. So

1:04:30 I've gotta make sure that I keep the company financially stable so that when that opportunity comes We can afford to invest. Um And then we can we can take advantage of it. So that's what we focused on and we we grew for several years. We got to a point though, the C and Q transaction that happened in

1:04:49 Twenty nineteen. I think we closed on it in twenty twenty. you know, we didn't go east to Montreal and I was disadvantaged in a lot of contract discussions because If I can't serve all markets. you know, I might be able to help you in one, but if the competitive option Hurt you and the other.

1:05:05 And it offsets the gain you get by the one I could help you in, you don't get to play the game. So in the C M Q transaction, which You know, C P used to own they sold out a financial weakness'cause they couldn't make money on it. Uh it gave us an opportunity To go to Saint John.

1:05:21 So In nineteen and twenty. Again. It was kind of a A warm up.

1:05:28 for what was going to evolve and to happen. We saw the power of that additional reach. I was blown away by You know, what was a forty million dollar railroad And all the customers out there that needed solutions. And it was like the doors opened and as soon as we got out there we sold our product.

1:05:44 And we matched it with investment. To make sure that infrastructure could safely and efficiently move it. It's like these opportunities just kept coming. You know, we had investors at the Port of St. John. You know, we grew from

1:05:56 Forty million this year, we're on a track record of Two hundred million. Of revenue. uh a much more attractive margins

1:06:05 That allow you to Invest in the physical plan. So it was just a Smaller scale An amazing success story. So that gives you gets you into a place where financially we're doing well.

1:06:17 Um The pandemic happens, I think our company And our employees allow this to be true, we created success like no other rail did. Uh in a very unique way. And then

1:06:29 All of a sudden I'm looking and I'm thinking about okay The timing has gotta come when we're gonna grow this network. Well, PSR was being implemented across the entire industry. Uh and then having done it. Um, it takes some experience and knowledge to be able to do it the right way.

1:06:45 And I in my mind felt that without the lack of knowledge, there'd be some stumbling because we didn't get it all right in our experience either. There's gonna be some growing things. And there's one railroad that I've known From

1:06:59 twenty years previously that if we could combine the two, we could extend our networking in Connect markets in Mexico and the Texas markets. Uh that was true at Canadian Nashville. And that was absolutely true Canadian Pacific, even more so

1:07:14 true at C P because of the knee. And the unique way the network's created with no overlap. But again I thought about it and I said, You know what? K C S is

1:07:26 Treating at a multiple It's really expensive. They're doing a good job. They're creating some momentum here. There's gonna be some Some chapter in their story of PSR that you know, they're gonna have to manage it going up and going down. You gotta manage the soccer to really

1:07:40 The effect about it. What I thought are deemed as execution risk. And if they stumble a little bit, then that multiple's gonna come down and that's probably gonna be the right time for us to To make a move.

1:07:52 So that was in the back of my head. Uh But the problem was they kept creating some success, you know, and and the front price kept going up. So we We had this board meeting in July of twenty twenty. And myself and a couple of board members were talking about it.

1:08:08 And we came to this point in our mind, it's probably not gonna get any cheaper, and that's a whole lot of risk. So You know Maybe we can't afford it at that multiple, it doesn't make sense, but let's at least Go explore and see if they're willing to maybe do a

1:08:24 Emerging vehicles. You know, again Physically I knew that we connected in a very unique way and I also had a very good understanding of the regulatory backdrop. in in the history of

1:08:36 problematic history of transactions and combinations and the US rail industry, I kinda lived through the last two decades at them. Um, so with that said, I said, You know what, there's nothing wrong with going and Talking.

1:08:49 And having some hypothetical discussion. So I went to Kansas City, I contacted Pat and I said, Let's have lunch. Uh, and I floated this concept to him. I said, Listen, Pat, at some point You know Your

1:09:03 Destination rich. in origin four, I'm origin four and destination. I'm origin rich in Destination Four. It's an end in combination. There's no

1:09:16 customer that loses competitive alternatives. Uh, from a regulatory standpoint Having experienced CP's fellow attempts with N S and with CSX. M I C P history.

1:09:29 I knew it was important that we had to have a friendly transaction. And I said, so if if we both see the value in this I really think this could be something special. And Pat said, You know what, that's interesting, let me think about it and long story short, you know, he went back and Floated the idea.

1:09:48 eventually with his board, but right after that meeting Uh this was the trigger to it all. That was on a Wednesday. On Friday I remember like it was yesterday I I I was with my wife and my son, we Going somewhere for the weekend and we're gonna do some hiking.

1:10:05 And I got off the plane and my phone blew up. And it was People texting, did you see KCS's stock price? And it appears somebody's trying to buy them. And of course I looked at it and their stock just

1:10:17 I thought it wasn't affordable when it went down there. I was like holy smoke, it just went to the roof. Um and what I found out quickly is There was an investor a fine that was looking to buy them. So that sort of

1:10:33 triggered a process where You know, we had to decide if we're gonna be in the game or not in the game. Uh, so we ultimately engaged after a series of twists and turns. And competed against private equity. And ultimately that

1:10:46 That's what uh resulted in our Our merger. agreement or announcement, uh back, I guess it was March of twenty twenty one. Uh, we had defeated the profit equity investment uh opportunity. Our value was much superior.

1:11:01 our deal could be done. Pat had a had a very strong commitment to creating long term value. uh for his stakeholders. Not just think it's save our private equity and Perhaps just you know. being sput off again ten years from now or five years from now, being part of a bigger entity to create long term value.

1:11:21 So we had two common visions Uh The numbers made all the sense in the world. We agreed to to combine and we m we made our announcement. Yeah, we got really excited about it. I

1:11:33 I'm a throttle aid god. brottle eight is a railroad term for that's that's full of broad on a locomotive. I like to do things fast and I like to Grape omitum and And hit the ground running, so immediately

1:11:46 You know, I engage with Pat. I went down to Kansas City. We engage with the employees, we engage with the officers, we engage with the customers. And the sense of energy around these opportunities. Excuse him uh

1:11:58 Expectations even, you know. going and interacting with their customers. And hearing them ask me in a town hall, you know. Mr Krill, can we do this? You do this in Canada can

1:12:09 You know, the green The gray model is a great example. That's something we innovated at C T in Canada. We changed the model from No, the hundred and twelve car grain trained and now it's a Eighty five hundred foot.

1:12:20 Train said that was matched by Vest but at both bookends, ports as well as You know, the great elevators where you load'em. Can you bring that to the US? I said absolutely. You're willing to invest. with your grain elevators and we can get a port to send'em to they can offload'em. We can replicate that and create tons of efficiency.

1:12:39 For the railroads and for you as a customer. And market advantage. Because you'll get more freight. More grain to tide water lower cost. So I was super energized about it. Everyone was energized about it.

1:12:53 Um We had our A GM I flew to my not Montreal. I flew to uh to Calgary and I landed about Four o'clock. Five o'clock in the morning.

1:13:05 And I had this You know. suspicion in the back of my head or this feeling, I knew that if anyone was gonna try to come over the top From a competitive response standpoint Um

1:13:16 It had to be the railroad most threatened. And having worked there, I'd understood new. The Canadian National you know, a more competitive C P was a threat to them because of breach and network, all the things I talked about earlier. So I expect at the back of my head that at some point they would have to

1:13:32 Likely. But a ring in the hat. Uh what I didn't expect was how strong they jumped in the game. Uh so I remember landing in Calgary. I had um

1:13:42 Five one four number come up and given that I worked there for seventeen years, I knew it was J J. Well, I answered the phone and It was J J and he told me what they had just done and obviously my phone was was blowing up. And I heard the number and he told me and I said, Well, J J I said appreciate the phone call, I said but good luck.

1:14:00 Uh because we're gonna fight. For this, um And I said, You know, we'll talk soon on the phone on the phone out that immediately I went to the office. And in the meantime I'll call Pat.

1:14:14 Yeah, but obviously Pat That a contractual obligation. with us'cause we had a merger agreement at that time. And he said, Keith, uh I saw the number, I didn't know what it was. It went to voice spell and I said, Well it's J J.

1:14:27 And obviously I know you gotta produce your responsibility to talk to'em and I said, but so go ahead and have your discussions and We'll talk later. And I went to the office and as luck had it And I think his fade had it in Again.

1:14:40 I believe in my faith. I think this happened for a reason. That was the very first Board meeting. Post Covid. During Covid.

1:14:50 When I was there with my Chair of the board is a bell. Corvell. She had literally flown to Calgary for that meeting. That was her first one since Covid started in person. And we had our A GM. So I I went to the office, I went in

1:15:06 And Because of what I said earlier. Um try to be prepared. Taking that They might be coming. We literally my team

1:15:15 Our financial advisors. And the people that negotiate deal with me a very small group We spent the weekend Prior to that phone call on Monday. Um doing what if scenarios.

1:15:28 What if C in comes in, what can they afford to pay? What can we afford to pay? So we We modeled a lot of this stuff out and I sort of knew where our It doesn't make sense point blessed. And I also knew in my mind how I would attack Their bit.

1:15:42 Uh in in in Bill said this to me. one point in the process. You know, any deal It depends on Certainty and value. Those are the two key fundamentals that have

1:15:53 A board of directors have to take into account. And I said, Well to me the only way to defeat them is stop with a balance sheet because they have more spending power It's gotta be with the facts and it's gotta be with their ability to get the deal approved. Did the regulator. So I went into um

1:16:08 The office in Calgary or board. Meeting was about to start. They obviously had read all the press releases. Uh, I walk in and I said, Listen, I need a little bit of time. I've got my team organized next Door

1:16:20 Gimme till noon. continue without me and I'll let you know how we're gonna respond. So we Dotted the I's cross the T's formalize our response. I went back into the board meeting And I briefed the board and I said

1:16:34 No. We're gonna We're gonna address the facts. And I had one particular board member that Again, is a very influential member to me. He's been a great mentor and voice of reason within the board.

1:16:46 You know, he said bottom line, Keith, you've told us all that, but how are you gonna do this? And I said, Well, what do you mean? And he said, Well, how are you gonna approach this on your call tomorrow morning?'Cause we literally I had to do a call the next morning. Yeah, I said, You know what? I haven't quite figured it out yet. the strategy and he said, Well let me say one thing too. He said, You've got to fight.

1:17:05 Uh and I said, Okay, I appreciate that. I'm gonna think about that and I went home that night. And I went to bed. I like to get up early in the morning with a clear head. Went to bed thinking about it and I woke up about three o'clock in the morning. And I said, We're gonna fight with the truth.

1:17:21 Yeah. I got my team. And I wrote. this email and I said, This is what we're gonna do and I said, I'll see you at six o'clock and we're gonna put all this together. Um so

1:17:31 We came together that morning. Uh we had our public call that we had. Uh to To go through

1:17:39 How we were gonna respond. I mean I think we've might have even been an earnings call too. All there have been so many meetings since then. The earnings were sort of a side note it was all about how were we gonna respond. To the CM.

1:17:52 And I just attacked it with truth. I remember right before the call I wrote out the ten truths You know The things that are good about our deal, the things that are bad about their deal. And I went through and wrote all the points of Straight. And how we could get the deal approved.

1:18:07 And what were true about our value creation. And all the things were There were the real truth about theirs. Yeah, from that point That's the strategy we approached it with. It was all about

1:18:18 You know, we're not gonna overpay. You get to a point where you destroy your ability. destroy the company. It's not worth that. There's there's a There's a line here drawn in the sand. I knew where it was. I knew we never win that fight, so I wasn't gonna get into a bidding war with them.

1:18:32 Um I was gonna fight their ability to get their bill approved. And it all Ball down to the trust. You know, K C S their terms of the deal. They wanted

1:18:42 To get their money for their shareholders. Up front. We took the risk of getting the deal approved to whoever the successful bidder was. And that meant putting the company in trust. Which is a model that had been used in the rail industry.

1:18:55 Um So it meant though that the trust had to be approved by the regulator. That that was sort of the trigger in the whole thing. And I knew in my mind this regulator, I believe, to be true then, which turned out to be absolutely true. If it didn't serve public interest. as defined by creating more competition.

1:19:13 Uh then The chances of getting approved were slim but none, and I I bet on none. So that's where we put our chips on the table and We got to a point. that we were just gonna wait on the trust to be

1:19:26 Rule Don. But See it and they're Aggressiveness Um

1:19:32 Moved up. their date for their shareholders to vote on it in the absence of the trust approval because the trust decision and I came out by the S T B. So they sort of put their shareholder vote ahead up the trust decision. Uh, which would have meant that had that shareholder boat

1:19:50 Go through. That K C S would have been married to see in C and E S would have taken all the risk of the trust. But they would have gone into that transaction locked up, not knowing if

1:20:02 If it would or would not be approved. Um and there were provisions in that contract that said That even if it got Turn down. They would have had to stuck with C and for six months.

1:20:14 period we're seeing could try to get it overturned. They can appeal the trust decision. And then you get to a point where You know. Play it all out.

1:20:25 At that point C is going so far. They still have balance sheet. They They might just put more money on the table, make it more even out of reach. So it was so unpredictable. Uh we just said at that point, now if we're gonna if we're gonna get back in the freight, now's the time.

1:20:40 Uh so that's when we came out. And figure the best way to do it. Nice following the proximity. So we had our own proxy filing. Um

1:20:51 We met with and I I think uh I met with sixty percent of KCS's share orders. I did one oh one meetings virtually, I flew to New York City. I I you know Sold them our deal. Yeah, and my cell was number one You can't replicate our value on term.

1:21:07 CN doesn't have the network to do it or the team to do it. Uh in number two Uh you're locking yourself into the uncertainty of a trust and why vote now when you can wait. The S D B by that time it said where they're gonna rule by a date and I said just wait two weeks. And if I'm wrong, if we're wrong, the deal's still there.

1:21:27 Take the deal. But don't let the boat go through. Don't go for it with the vote. And that's what happened. Uh they took a pause, they didn't vote. They put it in a bayance. The S T B came out. They turned down

1:21:39 C and trust. Five to zero, and the words they use were so undeniably True that, you know, KCS board directors I knew would be faced with You know, there's a lot of money on the table, a lot of value be created. And for this additional money, I'm taking a whole lot of risk that might not never

1:21:56 We realized Uh so they canceled their deal with Canadian National and Sign back up with C P. We paid a little more money, yes. Uh it's still a great deal. Still a great

1:22:07 value for our shareholders and theirs as well. Uh We didn't overpay. We'd We certainly didn't underpay. Uh, but we've created an opportunity that's gonna allow this these two companies together

1:22:19 To not only create huge value for All stakeholders for employees and job growth, for shareholders and Money they'll make. For the commerce that gets created. And had I I never knew then

1:22:33 How much this transaction would be needed. I never knew or could have predicted The supply chain meltdowns that the industry's going through. I never could have predicted.

1:22:45 how much more near shoring and ally shoring would matter. Uh, more so today than I ever would have envisioned in twenty twenty. So so many things have happened since then that say You know, not only is this a great merger, this is a necessary combination

1:23:00 For the good of Maybe this is a bit out of the logical. For the good of mankind. For the good of the free world. I I truly think. Back to my point about serving to something greater than yourself. We're gonna be serving a whole lot more than just our shareholders and our employees.

1:23:14 in the communities we're gonna be serving nations. And creating an ability to get the products that we produce. Like potash, like rain. Uh the products that our three nations produce exported to the free world in a time that's never been more needed. Being someone that cares about serving

1:23:32 The calls greater than myself. Yeah, I think Working with a team of railroaders that are wired the same way. Both K C S and C P Uh, that's gonna be a motivation that keeps us going for a long time.

1:23:43 Uh way exceeds the The financial benefit of anything we might be doing. Thanks for taking us behind the scenes there. I'm really excited to see what you guys can do with it. And thank you so much, Keith, for taking the time today. Well again it's been moderate. It's always a pleasure to talk about.

1:24:12 Or company stores and In my journey and in my family's journey and And and the role that God's played in it, any time I get an avenue and an opportunity to do that it's It's an honor to be able to share that. Thanks for listening and learning with us.

1:24:32 For complete list of episodes, show notes. Transcripts, and more. Go to fs dot blog slash podcast. Or just Google the Knowledge. Until next time.

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