Work Stoppage Will Make CN's 2024 Results Noisy, but We Look for Margin Gains to Return in 2025

While peers—especially Canadian Pacific—have caught up over the years, Canadian National was long the Class I railroad with the highest margin (lowest operating ratio) because it was the precision scheduled railroading pioneer in the 2000s. PSR architect Hunter Harrison left CN in 2009 and ended up applying his playbook at CP and eventually CSX. Historically, CN bolstered its velocity by making greater use of distributed-power and extending sidings at port staging areas. Running a precision scheduled railroad requires commitment to on-time train departures from employees and customers queuing cars for departure. We think PSR remains in CN's DNA, though we sense management was focused more on growth than margins between 2019 and 2021, before the 2022 leadership changes (albeit growth was tempered by external events like congestion, strikes, blockages, and tough weather).