Keith Creel: Lessons from Life on the Railroad

Keith Creel calls on nearly a decade of experience working with the Canadian Pacific Railway to discuss his strategies for leadership and how he’s turned the company around over five years in charge. We discuss all you need to know about the rail industry and how it affects our daily lives, what changes he sees coming in the future for the industry, how he thinks about leadership in times of change, and how Canadian Pacific secured a $27 billion deal to take over its rival, Kansas City Southern. Creel became the President and CEO of Canadian Pacific in 2017, giving him executive control of one of the largest Class I rail systems in North America, with more than 13,000 miles of rail network stretching from the Atlantic to the Pacific. In 2021 he helped broker a deal that marked the first major merger in the railroad industry in the U. S. in two decades and created the first freight rail network linking Canada, the U. S. and Mexico. -- Want even more? Supporting Members get early access, hand-edited transcripts, member-only episodes, and so much more. Learn more here: https://fs.blog/membership/ Every Sunday, our Brain Food newsletter gives you a mental edge in 5 minutes with timeless insights you can use. Add it to your inbox: https://fs.blog/newsletter/ Follow Shane on Twitter at: https://twitter.com/ShaneAParrish Our Sponsors: MetaLab: Helping the world’s top companies design, build, and ship amazing products and services. https://www.metalab.com Aeropress: Press your perfect cup, every time. https://aeropress.com House of Macadamias: Nourish your daily routine, and nurture your lifestyle. https://www.houseofmacadamias.com/TKP Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  In your career, you're going to work with a lot of managers that want to do things right, but very few that want to lead, and leaders do the right things, even whether or not the comfortable thing to do. 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, even if it's not comfortable. 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 our business.

• 0:46Shane Parrish?

  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 out. If you'd like access to the podcast before public release, private episodes that only appear in your feed, hand-edited transcripts, including my personal highlights, or you just want to support the show that you love, you can join at fs.blog/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.

• 1:26Shane Parrish?

  It has over 13,000 miles of rail network, 11 ports served on both the West and East Coasts, and over 100 transload facilities. Keith has helped Canadian Pacific go from one of the worst-operated rails to one of the best in the world. 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 Hunter Harrison, and also from investor Bill Ackman.

• 2:11Shane Parrish?

  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. It's time to listen and learn.

• 2:45Shane Parrish?

  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?

• 2:53Speaker 00

  I think they misunderstand or they lack an understanding that if the rails don't run, the products that we all enjoy, consume, and that establish or define our quality of life just doesn't happen. I think that's probably came more to bear or maybe more apparent to folks over the last year, year and a half with all the supply chain challenges that we've experienced and inflation we've experienced. But certainly, it's the backbone of the economy in so many ways.

• 3:19Shane Parrish?

  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?

• 3:32Speaker 00

  It's all about size and scale. Obviously, when you have trucks and highways, there are limitations on how far they can haul things 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 the truck, whereas on the rail, it's a dedicated asset that you own and you could haul many, many more cars with the use of technology and efficiency. And the cars carry a lot of weight compared to what a truck can carry.

• 4:07Shane Parrish?

  There are classes of business where trucks have an advantage over rails?

• 4:10Speaker 00

  Yeah, and this is probably why, in large terms, why rail has diminished in importance and 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. 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. Trucks have the benefit of the nation's interstate systems and highway systems and road systems.

• 4:50Speaker 00

  So they're much more agile and flexible than a rail network is. So that agility and flexibility, coupled with historically railways have not always been the most reliable when it comes to a schedule or providing a, what I call a truck-like reliable service. I think that has led to the demise of, of the freight that's hauled by rail. And that's exactly, you know, kind of the narrative that we've tried to change to try to create the benefits of scale that a railroad brings with the reliability of truck that truck brings. It's, it's kind of a hybrid model. That's, that's the way we operate our railway to, to try to make ourselves more attractive to our customers.

• 5:31Shane Parrish?

  And how do you think about driverless trucks?

• 5:33Speaker 00

  Eventually it'd be inevitable. I think that there's obviously a big social hurdle. I know myself, I try to put myself, be human all I can. Obviously when I'm out on the streets, if I were to see a, an ATW going by me, they make me nervous as they are. Passing me on an interstate, or perhaps when they're not paying attention, but they make a mistake, you know, they can pretty much demolish a vehicle. I can't imagine looking up and seeing no one there. It's, uh, it's something I'm not personally comfortable with yet. And I would suggest that, uh, society's not comfortable with yet. But eventually in time, change occurs. We all have to get comfortable with the uncomfortable. I think it's inevitable.

• 6:16Shane Parrish?

  Does that change sort of the equation between rails and trucks?

• 6:19Speaker 00

  I think it could. You know, I look at it as how it could complement, you know, from my perspective of the railroad that I've run, because, you know, we are consumers of truck capacity as well. Uh, so I, I look at it from that perspective, but it, the reality is the competitive advantage from a labor standpoint that, you know, a driverless truck might have, if the technology catches up and the societal issues catch up is inevitable. Uh, so we're going to have to look and continue to look at ways in the rail industry to innovate. To become more efficient ourselves, always putting safety first, but it definitely in time will require that we evolve and we change as well to be able to maintain our competitive advantage.

• 7:03Shane Parrish?

  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.

• 7:10Speaker 00

  Well, actually, in some locations in the world, they actually do. But again, it's in a location where probably not as exposed to the societal issues. So you might have a piece of track that runs across a terrain that's not complex, a flat terrain, point A to point B without road crossings in between. You know, there are situations like this, perhaps in Australia. There are other countries in the world where in very limited fashion it exists. But the reason it doesn't occur here locally, specifically, again, it's that change word. It's, it represents huge technology challenges. It also represents huge societal challenges.

• 7:53Speaker 00

  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 rail industry, heavily regulated. So the regulations would have to change 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 real change is not there at this time.

• 8:18Shane Parrish?

  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? And why aren't the freight trains moving 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.

• 8:35Speaker 00

  Well, it's, you're mixing apples with oranges. It's important to start from a basic understanding. When you talk about passenger rail.

• 8:44Speaker 00

  They can move faster. And obviously, there are numerous examples and locations where they do. But if we look at the Canadian example and the proportions of the US example, they're freight, those faster trains are running on freight rails. It's not often that you have a dedicated passenger network. Uh, so when you intermix the two, 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. Well, they're not going to move as fast as a passenger train, which

• 9:29Speaker 00

  can accelerate quickly, could decelerate quickly. Just all of those scientific facts of passenger trains conflict with freight trains. So if you try to create an infrastructure that allows both, you get into safety concerns. And I've experienced this. I at Canadian National, actually, in my history, I remember several deroments that I went to. And it was created because of a disconnect between the two. You had to super elevate curves. So for a passenger train to go fast around a curve, which the curves are out in in the geography, uh, you elevate the outer rail and you drop down the inner rail. And it's sort of, you know, as inertia carries, carries you around the curve, you use that geometry to be able to accomplish that speed

• 10:14Speaker 00

  safely for passenger. But if you mix that with with a freight train that by nature has to move slower around that curve, you're putting a ton of weight on that low rail. And that low rail effectively will open up the gauge that 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, mixing passenger and freight. Uh, you've got to find that balance. Otherwise, there are safety issues, incapacity issues, because a passenger train, given its nature of moving so fast, consumes a tremendous amount of capacity, because it gets from point A to point B so much faster.

• 10:52Shane Parrish?

  I had never thought about it in those details. Thank you for that. You mentioned long, big, heavy trains. Is that the backbone of precision railroading?

• 11:00Speaker 00

  Uh, that's, that's part of it. When I say long, big and heavy, you know, I've got to be careful in the definition because never one you have, you know, safety limitations, you have technology limitations, and then you got to make sure you got the track infrastructure limitation satisfied. So, 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, until PSR started to evolve, a normal railroad would be built every 10 or 11 miles, you had a six or 7,000 foot siding.

• 11:43Speaker 00

  And the sidings, for those that don't understand railroading, that's where two trains meet as opposed to having, you know, a two lane road, you have a one lane road with a siding every 10 or 11 miles so they can pass.

• 11:56Speaker 00

  And when you get into the terminals, the terminals receiving our arrival and departure tracks match the siding lengths. So historically, terminals would have six or 7,000 foot 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 10 or 12 miles, the perfect design, or at least in my 30 years of experience doing this, is having a 10 or 12,000 foot siding every 15 miles. That allows you the right spacing to be able to sequence trains, run long trains, make train meets and still be efficient.

• 12:40Shane Parrish?

  When you say PSR, what do you mean?

• 12:42Speaker 00

  Precision Scheduled Railroading. It's, um, it's an acronym that has been coined by the industry to truly define an operating model that Hunter Harrison, he was a legendary railroader that I had the honor and privilege to, to mentor me and work with and for for over two decades, pioneered in the industry. And essentially, it's, it's a people and process business. And it really is just defining a process for every.

• 13:12Speaker 00

  Process within the movement of freight from point A to point B and that's the train movement process, that's the mechanical process, that's the locomotive process. It's defining the process and then applying the right number of people and measures to create a service that your customers want to buy. So it really is, 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. And then you end up in our industry, which is heavily capital intensive, you have a great service product that allows

• 13:53Speaker 00

  people's freight or customers freight to move from point A to point B efficiently. You move a lot of it back to the scaled question and you do it in a scheduled manner back to the truck like reliable to question. That's truly what PSR is.

• 14:07Shane Parrish?

  And it sounds like that actually makes the rails less capital intensive as well. Fewer sightings, fewer maintenance, the yard switching, does that change at all?

• 14:16Speaker 00

  No, you're exactly correct. At the end of the day, you're able to do more with the less, you're able to run the railway more efficiently and listen, this is a capital intensive business. You know, I think about, I'll give you a great example. At CP where we implemented precision scheduled railroad and back in 2012, 2013, we were running with 1500 locomotives in service a day. Today, we're moving more freight with about two thirds of that. So 1,000 to 1,100. Well, if you think about in simple terms, 500 additional locomotives, well, just in capital expense alone, they cost two to three million dollars

• 14:59Speaker 00

  a piece. And then you've got to have two or three mechanics per locomotive to maintain them. You've got to have repair parts. And then if you apply that, that thinking, not just to locomotives, but to rail cars, to track infrastructure, to switches and track the facilities. I mean, you get into this virtuous cycle of inefficiency if you don't really right size and optimize your assets. So it's, it's through that process. Again, it's just the right way to run any business. I think you can apply it to any manufacturing business. You could apply it to the airlines. You can apply it to the trucking lines. You can apply it to the simply plant. Again, it's all, all goes back to.

• 15:41Speaker 00

  Process refinement and executing what good looks like through people and through culture.

• 15:48Shane Parrish?

  How do you think about getting the next sort of advantage out of sweating those assets? So PSR took CP from, I believe, the worst performing Class 1 rail in North America to the best. How do you think about what comes next?

• 16:02Speaker 00

  I call it a journey. You've never really arrived. And again, if I stick to the process definition, there are so many processes in running a railway, and I would suggest to running any business, and they're 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 go. But you have people that are trained, giving their best effort. Because in a world like we live in, and I think about CP terms, there are 13,000 employees. Well, 10, 11,000 of those 13,000 are the men and women that actually do the work

• 16:46Speaker 00

  day in and day out that are executing those processes. Well, naturally, they're going to tread out, they're going to retire, they're going to leave the industry. So you're always having to retrain. 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 look at it something like track capacity. 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 menu of what I call a shopping list of capital projects that allow us to create more capacity. And

• 17:31Speaker 00

  every year, you know, based on, and I do it as simple as train delays and impact to our train velocity and our asset turns, you know, these are the top 10 that cause us the most pain. Well, once you fix those top 10, well, guess what? There's 10 below it that move up. So it's a virtuous cycle of continually.

• 17:54Speaker 00

  Define what good looks like through the process. Measure it because if it matters, you got to measure it and understand how you're doing. Reference what good looks like and constantly tweaking and refining through processing people to create a better product, create more capacity, to create a tighter cost control, to create a better service for the customer. So again, 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.

• 18:28Shane Parrish?

  There's a couple of rabbit holes I want to go down there. One is, how do you think about the trade off between efficient and resilient?

• 18:36Speaker 00

  I think there has to be a balance. You know, you can create so much resiliency or redundancy that you go out of business. I think about a church and Hunter said this to me one day, 20 something years ago, and it resonated with me. He said, you can't build a church for Easter Sunday. If you do, you go out of business the other 51 weeks out of the year because you can't, you can't pay to sustain it. So you can over, I guess, over engineer something, spend more money than is necessary 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.

• 19:21Speaker 00

  You don't want to cut to the bone. There's a tension, and I speak to this as well, that's, you know, there's a constructive tension where if you get beyond it, then you're going to be damaging your ability to produce the product. And that's, again, I liken it to the way we manage our capacity on our network. I get extremely down to the brass tacks involved in large contract negotiations because of scale. It's not because of money. 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 over subscribe my network because I understand there's only so much redundancy in the pursuit of efficiency and end up causing the entire network to melt down.

• 20:05Speaker 00

  If I allow my aspirations or eagerness to grow revenue to exceed my ability to be able to produce a product, I don't, I not only destroy trust with that particular customer, I destroy my business model. And there are many, many cases I could suggest where people lose sight of that. And you end up 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.

• 20:38Shane Parrish?

  Are there any examples that come to mind that you can share?

• 20:41Speaker 00

  Yeah, contract examples. We just recently went through a contract negotiation with a customer. That 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, 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. I can't service all your business. I'm just going to set you up to fail and set myself up to fail.

• 21:21Speaker 00

  However, if there's business lanes that I can help you and you can help me and we have capacity in existing train starts, then I'm more than happy to entertain those lanes. So we literally went through with a fine tooth comb every OD pair. So every origin, destination. So if it's coming into Vancouver 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 to customize the lanes that we served. And that's the business that we bid on and that's the business that we won. So I've not jeopardized my ability to meet any existing commitment. And I've created a superior product that allows this customer to at least

• 22:06Speaker 00

  sort of derisk their total business mix, not having all of their freight with one provider. They have their freight with us. And the way I see that, not only is it good for us, it's great for them. It's good for a long-term relationship because at some point, if I want to spend additional money to handle more of their business in partnership with that customer, I've established trust. And I can say, okay, if you want us to handle these additional lanes, we need commitment on assets. We need you to build this. We need you to commit that. And in turn, we're willing to match. And that allows us to bespoke our network to grow with our customers in a very unique way that's not replicable by our competition.

• 22:48Shane Parrish?

  At what point do you walk away from customers? 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 chemical transportation, things that are just necessary to run over rails from a scale perspective.

• 23:05Speaker 00

  Yeah, I think we start with a common legal understanding in the rail industry. There's, we have a common carrier obligation to provide rail service to any customer that comes to us. It's, you know, the negotiation of the terms and the service expectations, it really sort of determines 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, we could never walk away. However, you know, there are customers as well that in normal business, that quite frankly, 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.

• 23:50Speaker 00

  And that's a value proposition that we pride ourselves on in our railway. We provide a different outcome. We provide a better service.

• 24:00Speaker 00

  Not because I say it, but because we have in a world where capacity has been constrained, customers have not been able to get their products from point A to point B. Because of the way we run a railroad, we've, we've not been perfect. You're never going to be perfect. But our service experience for our customers is uniquely different than our competitors. And that's, that's kind of the, the magic recipe. If I go in and tell you I'm going to do it, I'm going to 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 faster than your competitor or faster than a truck. It's about doing what you're say you're going to do and being a reliable service provider. So if I go in and tell the customer that, that's our service offering,

• 24:46Speaker 00

  they'll choose me and it often pay more for our reliable service than they would.

• 24:53Speaker 00

  A service provider that's not, and again, I'll use an analogy. This is the way I try to communicate this vision with our team at Canadian Pacific.

• 25:03Speaker 00

  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 want to make sure it gets there tomorrow, the next day for my family member, for my business commitment. I'll pay a premium to UPS to get it there versus putting a postage stamp on it and hoping it gets there in six or seven days. 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. They don't understand that six months from now, they might've had the lowest rate.

• 25:45Speaker 00

  But if their product can't get from point A to point B because you've engaged with the railroad that oversells their ability to produce because they've oversold their rail network, then I would suggest after a whole lot of pain and suffering, and maybe if you're a transportation manager, you might've even lost your job over that decision. 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. So service doesn't matter.

• 26:13Shane Parrish?

  How do you think about volume variance? Like I'm thinking, you know, an auto company that knows how many cars they're going to sell every month. That works for PSR really well, but something like grain where the variance might be, you know, 20, 30% on any given year. And you're expected to carry all of that capacity. How does that work?

• 26:31Speaker 00

  Well, number you get two key points. Number one, any customer that can, can give us accurate forecasting as much as they can. The more information we have, the better we can plan the way, where our models work.

• 26:45Speaker 00

  But some things like grain, and that's a great example, and especially relevant in Canada. There are ups and flows, there are peaks and valleys, you know, there's, there's droughts and there's peak harvest. So what we have to do is size our network. You know, we look at five year averages, three year averages. You know, the, the big swings. Their quantum swings sometimes, but historically and generally they're not. They're within a range. 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 40% peak in one year because the next 10 years I've gone out of business.

• 27:27Speaker 00

  So what we have to do is keep some surge capacity and we do. By nature, our railroad, because we operate in Canada, winter requires surge capacity as well. You just can't run 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 line, it just physically can't do it. So by nature, we have some latent capacity or surplus that we design. Back to your point about that trade off between efficiency. We have to make sure that we protect that, but again, there is a limitation.

• 28:08Speaker 00

  You know, we can't do something that's so unhealthy for the company to satisfy one customer's, you know, 10 year or 100 year harvest that puts us out of business that we're not there three or four years from now. You know, in simple terms, I don't, I don't want to oversimplify, but in this business, that's kind of what it is. We do our best, we work closely with our customers, we have some surge capacity, but there is a limitation.

• 28:34Shane Parrish?

  Seems like over the past 40 to 50 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. 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 20 years and how that changes the network?

• 29:02Speaker 00

  Well, I definitely think it's, it's not an opportunity. I think it's occurring and I think it will accelerate when it comes to nearshoring or, you know, the last six months since Russia invaded Ukraine, that, you know, the topic of ally shoring is just as prominent as and impactful. So I think, I think over the future, 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 as well as.

• 29:34Speaker 00

  Our customers and industry and even with each other to invest and to work out best practices. You know, I'll go to our, our transaction that's, that's very, uh, that's very real in these moments. You know, what we are going to create with this extended network that takes out, eliminates handoffs and takes away interchanges and unnecessary work events for cars. All of that in and of itself is going to create a lot of capacity. Uh, but in turn that has to be managed 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.

• 30:18Speaker 00

  Uh, that, that is being developed as a result of our transaction. It's going to be enabled as soon as we get this thing approved. Uh, and that's, that involves, uh, Mexico and it involves the U S and it involves Canada. 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. West Coast ports have a lot of product that we consume as Americans and as Canadians and as Mexicans. Uh, that comes into the port of L A Long Beach. I'll, I'll back up a moment for the question you asked me about, you know, how do you plan for these, these peak grain harvests?

• 30:59Speaker 00

  Well, it's not just the railroad, you know, we're in partnership with the ports. That tide water that load that grain in Canada's example, uh, to export to feed the world where, you know, it does no good to create a whole lot of capacity in the middle if the bookends 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 port to get it on the ship or get it off the ship. And then going back to. Investment inland where you create the product. And in this case, I'm going to talk about potash. You know, Canada, which is, you know, Canada is the world's largest producer of potash.

• 31:45Speaker 00

  We've got Camper Techs, which is the worldwide exporter of potash. They they export potash for nutrient as well as mosaic. You've got K plus S, which is a German producer of potash. And soon you have, you're going to have BHP 2025, 2026. It's common knowledge that they're building a potash mine in Janssen. So with all that said, all that capacity and all that investment, we need more Thai water to export too. So with our network, with this combination, creating a seamless, single line move that goes from a potash mine in Saskatchewan,

• 32:29Speaker 00

  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 and to create the scale when you start to do that as the world evolves. And as we near shore and we all offshore, those kinds of things move the needle. So again, our combination uniquely provides 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 Thai water and to load it onto the ships. So it requires a combination and a coordination between the rail, the customer and government to be able to make all this happen for our nations.

• 33:14Shane Parrish?

  Why don't the rails own the terminals? It seems like a logical vertical integration for you guys.

• 33:20Speaker 00

  It is, you know, sometimes it's a government owned entity. Sometimes it's a private entity and there's not willingness to to sell it. I can give you a couple of cases of one in Canadian soil. There's a couple of terminals that if I had control, to your point about vertical integration of the port, I could control throughput. I would argue that we could probably be a bit more efficient 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 their very best. When there's not one voice of command and control and coordination, complexities introduce inefficiencies.

• 34:04Speaker 00

  So I would suggest it's either the government owns it, they don't want to 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 USA standpoint indoor. It's individually privately owned and they understand the importance of that piece of the supply chain and it's a revenue stream for them and they just, it's not for sale.

• 34:30Shane Parrish?

  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?

• 34:38Speaker 00

  Well, we have a very unique position that was created actually when I took over as the CEO, because I'm so sensitive about matching capacity and not oversubscribing our network. So we have an individual, a team, that sits between literally myself and marketing. So when it comes to pursuing business, securing business, there's a very methodical approach to it so that we're matching track capacity, yard capacity, people capacity, locomotive pack capacity, and car capacity. So this one particular group, I call them, they maintain the tension in our organization.

• 35:22Speaker 00

  They're not about harmony, they're about doing the right thing. So they have to assess the marketing opportunities and in turn, they sign off on, we have the capacity, whether it's track, people, physical assets, terminal assets, before we sell the product. So it's truly a triangle where you have the marketing, 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 a recipe for success, eliminating the silos that most organizations have where you have marketing going out and selling a product and then operations, they're told to deliver it.

• 36:06Speaker 00

  Well, marketing doesn't even understand if operations can or can't really deliver it. 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 like it at Tabasco Robbins, you can't have 52 flavors, you know, pick the few that you're good at and have really be really good at them. That's kind of the simple approach to business. And that, that recipe has allowed us to 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.

• 36:49Speaker 00

  It's an outcome. It's not the focus. And at the same time, it's a great service because again, it's scheduled. 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 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, you know, it's not guesswork, I guess. There's a science to it and a very structured approach to it.

• 37:21Shane Parrish?

  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?

• 37:30Speaker 00

  Accountability, leadership, the importance of leadership, picking the right people, creating the right culture, delivering results. I mean, he's always, he told me from the very beginning, as 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 the right motivation to succeed. And as a leader, to me, that's what leadership's about. You, you have to create a vision. You gotta tell people what's important and why it's important. You gotta hold them accountable and you gotta motivate them. And if you do that, most people,

• 38:13Speaker 00

  I think God made us in a way that we all wanna be part of something successful. 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. And we all have experiences that are live, whether it's on a sports team, or whether it's in a local organization, or the company you work for. What you've done that once, I find that people enjoy that. And it's more than the money. It's an emotional connection that creates this virtual cycle of success. And he fundamentally taught me all those things.

• 38:57Speaker 00

  I know, working for him, probably the most challenging individual I've ever worked for in my life, but at the same time, the most rewarding. Because we achieved so much for so many people, not just ourselves. We are serving a bigger cause, not serving ourselves. Seeing the success we created for customers, you know, at an individual level, seeing families that were positively impacted, seeing employees, seeing jobs grow, seeing people enjoy a better quality of life that I know in my experience, I never would have dreamed possible.

• 39:34Speaker 00

  That means a lot to me. So to be able to accomplish more with people than I could ever do myself, you know, 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 loved, loved serving people and serving a bigger cause more than himself.

• 39:52Shane Parrish?

  Seems like one of the common themes from studying great leaders, whether it be sports or business, is that they set a bar that is higher than other people think is possible. And then they challenge people to reach that. And I'm wondering, are there any stories that stick out in your mind of when Hunter did that with you? Cause you mentioned he was the most challenging person you worked for. There's probably moments where you wanted to quit or give up.

• 40:18Speaker 00

  Yeah, I've got so many of them. I'll tell you though, he was a master at doing that. He would raise the bar so high that even if you didn't make it all the way, you were accomplishing a whole lot more than anybody else was. Because he caused, he created a world where you had to stretch. You had to really understand your business in every detail and drill issues to the root cause and define what good looks like in a way that 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, my mind, I worked in the railroad for four years before I joined the Illinois Central was where I first met Hunter.

• 41:02Speaker 00

  And my first job, I worked my way up from a frontline operating position. I pride myself in being an operating officer. And I thought I knew a little bit about running trains from my previous four years of experience. I went to Memphis, Tennessee. I was in a tower and in our terms, a tower train master is sort of like an air traffic control. You've got a yard master that's directing train movements and you're in the background overseeing the priorities and the coordination, connecting all the dots, building the train plans. So I remember we had a train design, which was kind of new to me, but it prescribed all the blocks.

• 41:46Speaker 00

  And precision scheduled railroading means you run the same train every day at the same time. And there's a sequence to everything. So there was a particular train that was called M E N O. Memphis to New Orleans was the train and it left at three o'clock in the afternoon every day. Well, you sequence your day knowing, you know, there's a train that leaves at 1:00 PM. This train leaves at 3:00 PM. You had to make connections, you're switching your cars to make these blocks that make up this train. And that particular day, it was a big train, I think 140, 135 cars. It was, you know, full pin train optimized, it was 150 cars for the IC model. And again, that goes back to image size of the train, link the train to size of sidings,

• 42:30Speaker 00

  all those things that I described earlier. Uh, so, you know, we're 135, 140 cars. I think we did a great job. Two o'clock in the morning, my phone rings. As you can imagine, the phone ringing all the time. You're hitting the speaker phone all the time. You're on the phone with the dispatcher, you're talking to the yard master, you're talking to crews. It's managed chaos. You've got radios in the background and I hit the speaker phone. You know Keith Krill, IC Tower. And you hear this deep, baritone voice and it's not, hey, this is Hunter Harrison. How are you doing? It's, why did you leave 10 cars off M E and O? And I said, excuse me? He said, this is Hunter Harrison.

• 43:11Speaker 00

  And I hit mute and I'm, my yard master's there and I'm like, this, somebody's played a game. This isn't Hunter. It's two o'clock in the morning. And he immediately turned his eyes, elected me and he said, Keith, that's Mr. Harrison. His voice is undeniable. You better pick the phone up. So I did. And I went through 30 minutes of an understanding because in my mind, I left 10 cars. But it is mine as he explained to me, it's not the 10 cars. Yes, those 10 customers will get their traffic a day later, but it's all the unintended consequences. So think about the 10 today. 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.

• 43:53Speaker 00

  You have more cars coming in the terminal because historically they didn't work weekends. They come back in on Monday, they load the cars that were spotted and it's set there for two days, unused. Then they release them and by the time you pull them back in your terminal, you've got no cars Monday, Tuesday, a lot of cars Wednesday, Thursday, Friday. Well, if on Tuesday I missed 10 cars, well, on Wednesday, Thursday, Friday, that pressure builds up and I have more trains than I have capacity, more demand cars than I have trains to move it on. Going back to what I said, one train a day, it's all defined on the business that you have. And I've created an unnatural outcome where by Saturday or Sunday, I've got a train worth

• 44:36Speaker 00

  of extra cars and I've got an additional train start to run, which leads into all kinds of other inefficiencies. 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 locomotive. There's all kinds of inefficiencies 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, that to survive those phone calls, I had to learn it too.

• 45:11Speaker 00

  So he required that level of knowledge and that level of of deep dive like no person that I've ever met before, no person that I've ever met since.

• 45:21Speaker 00

  It creates an environment that not only if you get a ride, you get to keep your job in his terms. He was he was big on accountability. You got to produce results. It goes back to his number one. I don't care how much I like you. If you don't do your job, there's somebody else that's going to come in to do it for you. I've got that responsibility. But when you do that and you understand that level of detail, you can start optimizing those processes and that leads to that's better service product, that lower costs, that better asset terms. Those kind of lessons I for 20 years and I never quit learning from from Hunter. He was always teaching. And if you listened, you know, he was some would say he's controversial.

• 46:02Speaker 00

  He was a visionary and I would suggest that most pioneers and visionaries are because they're, you know, trying to get you to do something different than what society or history says you should do. Change is not comfortable for anyone, but he was a change agent. He did the right thing and that's that's the one other key thing he taught me. He said, Keith, in your career, you're going to work with a lot of managers that want to do things right, but very few that want to lead and leaders do the right things, even whether or not the comfortable thing to do. And that was his point about driving change. 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, even if it's not comfortable.

• 46:45Speaker 00

  And that leads to greatness. That was kind of the way he was wired. And I learned a lot from that. I my style is 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.

• 47:00Shane Parrish?

  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 that you're thinking of when you say that that you you've done?

• 47:12Speaker 00

  Yeah, absolutely. This is a sensitive word. You think about discipline and we haven't gotten this all right. And in fact, I remember 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, this culture of fear that had been created at Canadian Pacific. As a human being, I believe in treating people with the respect. And some of the examples that I read made the hairs in the back of my neck stand up. Uh, so after that,

• 47:44Speaker 00

  I went and pulled probably three years of up disciplined records and I spent days reading investigations. And effectively, an investigation is just the formal contractual requirement to sit down and sort of get to what happened and why it happened. And employees have an opportunity to explain their story and you sort of develop the facts and determine if, if something, a rule was broken. Uh, so I read through all that. Uh, and we got a lot right, but we got a lot wrong. And, you know, it was all in the spirit of trying to do, do the right thing because the reality of the culture that we inherited, uh, is, was a culture of permissiveness. And in our industry,

• 48:28Speaker 00

  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 freight cars and locomotives. Uh, there's not a lot of room for error. These cars weigh hundreds of tons. These locomotives, you know, your life 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. Uh, so I've always understood that and prided myself in creating a safe work environment to protect people.

• 49:12Speaker 00

  But to do that, you have to go through this discipline process. And if you have officers that don't understand how to be fair and impartial, um, then you can get it 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 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. Then not saying something says a lot. You're the officer. You're, you're, it's like you're the

• 49:51Speaker 00

  police officer. If I speed by an RCMP or a state trooper every day and they never turn the lights on, I'm gonna do what I think is safe for me and I might end up killing myself or killing somebody else. 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 look the other way. And that's a very simple example, but some people, if you're not a right fit, that intestinal, I guess that churn it creates, this stress it creates inside of you is not meant for everyone. So a manager might go the other way. They might wanna have a safe work environment. They might wanna run an efficient terminal.

• 50:34Speaker 00

  But if they see an employee engaging in an unsafe act that could derail a car or kill themselves because they don't wanna 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 preached that. I believe the leader sets the example. 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. And I used to speak to people this way when I was driving, this change in the culture at, at a field level.

• 51:18Speaker 00

  I'm like, all the rules matter. Which one that you don't follow leads to you taking your life or somebody else's. When I get on an airplane, for example, and I see the pilot going through his checklist and I've got my family with me, I want him to make sure he checks every box before he takes me up in the air because I wanna come back down safely. So every box matters. So with that said, when you go out in the field, especially as a senior officer, you've gotta know the rules. Because if you see something and you don't know what you've seen 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 that work for

• 52:03Speaker 00

  you think the same thing. So I remember like it was yesterday, I took this trip in preparation for my new CEO. This is after Hunter retired and Claude took over as the CEO. He wanted to come out and high rail and we were high railing between Hamilton, Ontario, and our terminal in Toronto. And we were inspecting the railroad in a high rail truck. And that's literally, you know, it's a, put an SUV with some rail wheels on it and you go down the track, inspecting the track. And we came upon a crew outside of Hamilton, the crew was switching 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

• 52:46Speaker 00

  books, we talked to them about safety, we talked to them about the work they were doing, gave them some positive feedback. Very, very engaging crew, very respectful. We had a good karma between everyone talking about the business. And then as I started to get down off the locomotive, there'd been one of the crew members, I called it out of my right eye, he was smoking a cigarette. Well, we can't smoke cigarettes on locomotives. You got to respect other people. It's not a safe environment to do that. And it's not allowed by rules. But some people would say that's trivial, you know, I'm not going to ruin a good conversation because a guy was out there smoking a cigarette. Well, I saw it as I stepped off the locomotive, there were several people following me. We

• 53:30Speaker 00

  got on the high rail, we started to pull down the, the track. And just in my head, I said, I saw that. I can't not deal with that. So I asked the team that I was with, I said, 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 backed the truck up, I got to engage it. I've got to let him know that what he's did, what he's done is not. What good looks like and what I expect in the future so this behavior can change because if I don't, his behavior is not going to 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. 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 everyone of you

• 54:14Speaker 00

  that I don't expect you to enforce and require employees to work safely and efficiently and none of that's true.

• 54:21Speaker 00

  So that to me,

• 54:24Speaker 00

  you had to stop, you had to get uncomfortable in a lot of ways. I had to admit that I was wrong. I had to admit that what happened had to be addressed and then we had to take the time to go address it. So to me, 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.

• 54:41Shane Parrish?

  That's a powerful example. Thank you for sharing that. You were brought in to CP with Hunter, shortly after Hunter, through an activist investor. I'm curious what you learned from working with Bill Ackman in those early years.

• 54:56Speaker 00

  You know what? I've learned so much about business, good business from Bill. You know, not knowing what I was getting into, you hear all these things about active investors and all they care about is making a profit, turn it a buck and, you know, short money versus long money, all those things.

• 55:12Speaker 00

  You know, and Bill obviously had a reputation and I'm not going to suggest any of that was true, but certainly he was an activist investor. He, he drove change at Canadian Pacific. So going into it,

• 55:27Speaker 00

  you know, I had my own preconceived notions about what might be true, but what I learned is Bill 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 as we navigated and I had an opportunity to interact with Bill and Paul and in the CP board as it evolved. 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. We've never spent more in the company's history. So you think about an activist investor, if he's really there to make a quick buck, he wants you to make things efficiently,

• 56:12Speaker 00

  spend the least amount money as possible, you know, show some success and then they, they take their profit and they leave. And what you're left with perhaps is not an ideal physical plant and infrastructure to sustain long-term success. Well, Bill was the exact opposite of that. You know, every issue we came to with Bill, we said, okay, um, you know what? I'll give you a case in point. Part of our optimizing the railroad, I tripped into this from experience. I had a whiteboarding session on potash. Potash, back to my point earlier, we leave more than any country in the world. So effective supply chain for potash matters. Well, I got to Canadian Pacific. And in Canada, the potash mines are dual-served.

• 56:57Speaker 00

  So Canadian National serves them, CP serves them. And often, you know, we come in one side 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, you go your own way to Vancouver, which is where most of this potash is exported from. Uh, well, I learned at CN when CP got into some trouble before Bill came along as part of what drove to that opportunity. Um, they weren't meeting Campatex's expectations and they were committed to 100% of the business. So at CN, we, we were asked by Campatex to help them get product to Tidewater because CN, CP couldn't get it there. So when we did it, I measured, back to my point about measurement. I said, well, okay, let's

• 57:42Speaker 00

  let's measure the asset turns. We're coming from the same locations, going to the same location. How fast can we do it versus how fast CP's doing it? Well, at CN 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, end at the same place. Well, one of my first exercises at CP, I said, okay, let's go through the potash supply chain. I don't understand how CN's that much better than CP is. Well, what I found is that at those lines that are in northern Saskatchewan, up around Saskatoon that have all these potash mines, CP was running the traffic east to go down the Latigan Sub, down to Regina, across the May Line back to Vancouver. So we were taking it out of route

• 58:28Speaker 00

  several hundred miles each way. And I said, well, if you do that, you're going to have more locomotives more. Cruise more cars and it takes longer. 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 Edmonton, down to Calgary, then 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. And I'm not proud of saying this, but we derailed two trains. And I, in my mind, coming from where I came from, if the track is there, it better be safe to operate on, or it shouldn't be in service. So I never, that equation never entered my head.

• 59:13Speaker 00

  Well, I immediately, I said, send me pictures of the tie condition. I want to see the railroad. 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 had time to get out on the railroad yet. Uh, I said, that's not safe to operate on. No way in the world, we're gonna send another potash train that way. Uh, but we're gonna have to get it fixed. So I went into the board meeting and I said, we have an issue. 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 ballots.

• 59:54Speaker 00

  Uh, and that was not planned for at all. And Bill was the first one to say, you need 200 million. Whatever you need to make sure the railroad is safe to operate and operate efficiently, you're gonna get it, Keith. Well, I would say by definition, most activist investors would never be defined by that act. Uh, but he demonstrated that then and continued it to the time he left. He was always focused on the long term, never on the short term. So I learned a tremendous amount about business from Bill and just in that one example, but so much more that, you know, 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 railroad knowledge

• 1:00:37Speaker 00

  has, has enabled me to effectively be sitting where I'm sitting today. And it helped me even navigate, uh, in large part, the way I thought about and approached our transaction.

• 1:00:47Shane Parrish?

  I want to talk about Kansas City Southern in a second. I just want to make 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 very quarterly or weekly basis.

• 1:01:01Speaker 00

  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 success quarter to quarter. And listen, our business is ebbs and flows. We had, I would suggest, the worst quarter financially that I've ever had any railroad experience with, the first quarter of this year at CP, for a lot of reasons. And we were able to explain those reasons and duplicate, you know, we came out and said the second quarter matters. We got to do better, and we will do better, and we've created the credibility and we, the results to do that. But I'll tell you,

• 1:01:42Speaker 00

  market, short-term and long-term, you've got to mix of long-term investors and short-term investors. You got to figure out how to maintain a balance to satisfy both voices. But again, back to your trade-off point, you can never trade off your ability to successfully and safely operate the railroad for a short-term gain. You just can't sustain this business that way. So you can't be so consumed in the short-term that you forget the long game, because this, especially in the railroad business, with, with the backbone of being, you know, the economy's backbone of commerce, it's a long game. So you've got to understand that and maintain, protect that.

• 1:02:18Shane Parrish?

  Speaking of the long game, can you take us behind the scenes of the Kansas City Southern decision, from sort of the idea being floated to signing the deal? What does it look like? How did you make a $27 billion decision?

• 1:02:30Speaker 00

  Well, it goes back to sort of my history. You know, I've said this, you know, a man's heart pursues. This path, but a Lord determines the steps and I went through 20 years before CP. That gave me an experience set where I kind of understood wins and losses and what reach means. In service offerings and I worked at Canadian National and we had a lot of reach. And we benefited from that and we expanded and grew the network to create more reach, you know, through the transactions and the integrations that we successfully achieved in my experience there.

• 1:03:13Speaker 00

  And then I came to Canadian Pacific and I had a very origin-rich network. 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 markets south of Kansas City or south of Chicago. So I knew in time as we grew the company, you know, we pivoted to growth in 2017 when I took over as the CEO, you know, the first four or five years of my experience at CP was get the engine fixed. You know, implement PSR, fine tune the assets, make sure we've got the right culture, make sure

• 1:03:59Speaker 00

  our terminals, processes, all those things that allow us to produce a great service product at a low cost. We're creative. We did that. But then we, because of that, we had a lot of capacity in the network. So the mandate was grow. 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 had in the back of my head at some point, we're going to have to expand the reach of this company somehow, some way. So I've got to make sure that I keep the company financially stable so that when that opportunity comes, we can afford to invest.

• 1:04:39Speaker 00

  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 CMQ transaction, that happened in 2019. I think we closed on it in 2020. 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 hurts you in the other, and it offsets the gain you get by the one I could help you and you don't get to play the game. So in the CMQ transaction, which, you know, CP used to own, they sold out of financial weakness because they couldn't make money on it. It gave us an opportunity to go to St. John. So in 19 and 20,

• 1:05:24Speaker 00

  again, it was kind of a, a warm up for what was going to evolve into happen. We saw the power of that additional reach. I was blown away by, you know, what was a $40 million 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 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 invested at the Port of St. John, you know, we grew from 40 million. This year we're on a track record of 200 million of revenue at much more attractive margins that allow you to invest in the physical plant. So it was just a smaller scale,

• 1:06:10Speaker 00

  an amazing success story. So that goes you, gets you into a place where financially we're doing well.

• 1:06:17Speaker 00

  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 all of a sudden I'm looking and I'm thinking about, okay, the timing has got to come when we're going to 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. 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 going to be some growing pains and there's one railroad that I've known from.

• 1:06:59Speaker 00

  20 years previous that if we could combine the two, we could extend our networking in connect markets in Mexico and the Texas markets. That was true in Canadian Nashville and that was absolutely true Canadian Pacific, even more so true at CP because of the knee and the unique way the networks created with no overlap. But again, I thought about it and I said, you know what, KCS is trading at a multiple. It's really expensive. They're doing a good job. They're creating some momentum here. There's going to be some, some chapters in their story of PSR that, you know, they're going to have to manage it going up and going down. You got to manage the cycle to really be effective

• 1:07:40Speaker 00

  at it. So there's going to be some, what I thought are deemed as execution risk. And if they stumble a little bit and that multiple is going to come down and that's probably going to be the right time for us to, to make a move. So that was in the back of my head.

• 1:07:55Speaker 00

  Uh, but the problem was they kept creating some success, you know, and, and the price kept going up. So we, we had this board meeting in July of 2020 and myself and a couple of board members were talking about it. And we came to this point in our mind, it's probably not going to 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, a merger vehicles, you know, again, physically I knew that we connected in a very unique way and also had a very good understanding of the regulatory backdrop in, in the history of problematic

• 1:08:37Speaker 00

  history of transactions and combinations in the US rail industry. I kind of lived through the last two decades of them. Um, so with that said, I said, you know what, there's nothing wrong with going and talking and having some hypothetical discussions. 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, you're destination rich in origin four, I'm origin four in destination, I'm origin rich in destination four. It's an end-to-end combination, very little complexity. There's no customer that loses competitive

• 1:09:17Speaker 00

  alternatives. From a regulatory standpoint, having experienced CP's failed attempts with NS and with CSX in my CP history, I knew it was important that we had to have a friendly transaction. And I said, so if we both see the value in this, I really think this could be something special.

• 1:09:40Speaker 00

  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 eventually with his board. But right after that meeting, this was the trigger to it all. That was on a Wednesday. On Friday, I remember it like it was yesterday. I was with my wife and my son. We going somewhere for the weekend and we're going to do some hiking. 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, I thought it wasn't affordable. When I went down there,

• 1:10:19Speaker 00

  I was like, holy smoke, it just went to the roof. And what I found out quickly is there was an investor, a fund that was looking to buy them.

• 1:10:31Speaker 00

  So that sort of triggered a process where, you know, we had to decide if we're going to be in the game or not in the game. So we ultimately engaged after a series of twists and turns and competed against profit equity. And ultimately, that's what resulted in our merger agreement or announcement back, I guess it was March of 2021. We had defeated the profit equity investment opportunity. Our value was much superior. Our deal could be done. Pat had a very strong commitment to creating long-term value for his stakeholders, not just being consumed by our profit equity and perhaps just, you know,

• 1:11:15Speaker 00

  Being spun off again 10 years from now, or five years from now, being part of a bigger entity to create long-term value. So we had two common visions. The numbers made all the sense in the world. We agreed to combine and we made our announcement. And we got really excited about it. I'm a throttle-laid god. Throttle-laid is a railroad term for that's that's full throttle to locomotive. I like to do things fast and I like to create momentum and and hit the ground running. So immediately, you know, I engaged with Pat. I went down to Kansas City. We engage with the employees. We engage with the officers. We engage with customers. And the sense of energy around these opportunities exceeded my expectations even, you know,

• 1:12:00Speaker 00

  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, you know, the grain, the gray model is a great example. That's something we innovated at C P in Canada. We changed the model from, you know, the 112 car grain train to now it's a 8,500 foot train set that was matched by investment at both bookends, ports, as well as, you know, the grain elevators where you load them. Can you bring that to the U.S.? I said, absolutely. If you're willing to invest with your grain elevators and we can get a port to send them to you that can offload them, we can replicate that and create tons of efficiency for the railroads and for you as a customer and market advantage. Because you'll get more freight,

• 1:12:44Speaker 00

  more grain to tie water at a lower cost. So I was super energized about it. Everyone was energized about it.

• 1:12:54Speaker 00

  We had our AGM. I flew to my, not Montreal, flew to Calgary and I landed about four o'clock, five o'clock in the morning. And I had this, you know, suspicion in the back of my head or this feeling, I knew that if anyone was going to try to come over the top from a competitive response standpoint, it had to be the railroad most threatened. And having worked there, I understood and knew that Canadian National, you know, a more competitive CP was a threat to them because of reach and network, all the things I talked about earlier. So I expected in the back of my head that at some point they would have to likely put a ring in the hat. What I didn't

• 1:13:35Speaker 00

  expect was how strong they jumped in the game. So I remember landing in Calgary, I had 514 number come up and given that I worked there for 17 years, I knew it was JJ. I answered the phone and it was JJ 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, JJ, I said, I appreciate the phone call. I said, but good luck because we're going to fight for this. And I said, you know, we'll talk soon. Hung the phone up and immediately I went to the office and in the meantime, I called Pat, you know, and obviously Pat had a contractual obligation with us because

• 1:14:19Speaker 00

  we had a merger agreement at that time. And he said, Keith, I I saw the number. I didn't know what it was with the voice bell. And I said, well, it's JJ. And obviously I know you got to produce your responsibility to talk to him. 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 fate had it. And again, I leaned to my faith. I think this happened for a reason. That was the very first board meeting post-COVID during COVID when I was there with my Chair of the Board, Isabel Corvall. She had literally flown to Calgary for that meeting. That was her first one since COVID started in person.

• 1:15:02Speaker 00

  And we had our AGM. So I went to the office. I went in and because of what I said earlier, um, trying to be prepared, thinking that they might be coming. We literally, my team, our financial advisors and the people that negotiated, deal with me, a very small group. We spent the weekend prior to that phone call on Monday, uh, doing what if scenarios? What if CN 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 was. And I also knew in my mind how I would attack their bid. Uh, and, and Bill said this to me at

• 1:15:45Speaker 00

  one point in the process, you know, any deal, it depends on certainty and value. Those are the two key fundamentals that have a board of directors have to take into account. And I said, well, to me, the only way to defeat them is start with a balance sheet because they have more spending power. It's got to be with the facts and it's got to be with their ability to get the deal approved through the regulator. So I went into, um, the office in Calgary, our board meeting was about to start. They obviously had read all the press releases. Uh, I walked in and I said, listen, I need a little bit of time. I've got my team organized next door. Give me till noon, continue without me and I'll let you know how we're going to respond.

• 1:16:26Speaker 00

  So we dotted the i's, crossed the t's, formalized our response. I went back into the board meeting and I briefed the board and I said, you know, 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 a voice of reason within the board. You know, he said, bottom line, Keith, you've told us all that, but how are you going to do this? And I said, well, what do you mean? And he said, well, how are you going to approach this on your call tomorrow morning? Cause we literally, I had to do a call the next morning. And 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. Uh, and I said, okay, I appreciate that. I'm going to think about that. And I went home that

• 1:17:09Speaker 00

  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 going to fight with the truth. And I got my team and I wrote this email and I said, this is what we're going to do. And I said, I'll see you at six o'clock and we're going to put all this together. Um, so we came together that morning. Uh, we had our public call that we had, uh, to, to go through how we were going to respond. And I think we might've even been an earnings call too. There have been so many meetings since then. Uh, the earnings were sort of a side note. It was all about how we're going to respond to the CN. And I just attacked it with truth.

• 1:17:53Speaker 00

  I remember right before the call, I wrote out the 10 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 strengths and how we could get the deal approved and what were true about our value creation. And all the things were, that were the real truth about theirs. And from that point, that's the strategy we approached it with. It was all about, you know, we're not going to 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'd never win that fight, so I wasn't going to get into a bidding war with them. Um, I was going to fight their ability to get their deal approved. And it all boiled down to the trust.

• 1:18:38Speaker 00

  You know, KCS, their terms of the deal, they wanted to get their money for their shareholders upfront. We took the risk of getting the deal approved, 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. 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 believed to be true then, which turned out to be absolutely true. If it didn't serve public interest as defined by creating more competition, uh, then the chances of getting approved were slim to none. And I, I bet on none.

• 1:19:19Speaker 00

  So that's where we put our chips on the table and we got to a point that we were just going to wait on the trust to be ruled on. But CN and their aggressiveness, um, moved up their date for their shareholders to vote on it in the absence of the trust approval, because the trust.

• 1:19:40Speaker 00

  Decision and I came out by the SDB. So they sort of put their shareholder vote ahead of the trust decision, uh, which would have meant that had that shareholder vote going through that KCS would have been married to CN. CN, yes, would have taken all the risk of the trusts, but they would have gone into that transaction locked up, not knowing if, if it would or would not be approved. Uh, and there were provisions in that contract that said that even if it got turned down, they would have had to stuck with CN for a six month period where CN could try to get it overturned. They could appeal the trust decision. And then you get to a point where, you

• 1:20:22Speaker 00

  know, play it all out. At that point, CN's 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 fray, now's the time. Uh, so that's when we came out and figured the best way to do it is file on their proxy. So we had our own proxy filing. Um, we met with, and I, I think I, I met with 60% of KCS's shareholders. I did one-on-one meetings virtually. I flew to New York City. I, I, you know, sold them our deal. And, and my sell was number one, you can't replicate our value onter.

• 1:21:07Speaker 00

  CN doesn't have the network to do it or the team to do it. Uh, and number two, uh, you're locking yourself into the uncertainty of a trust. And why vote now when you can wait? The SDB, by that time it said where they're going to 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. Take the deal, but don't let the vote go through. Don't go forward with the vote, and that's what happened. They took a pause, they didn't vote. They put it in advance, the SDB came out, they turned down CN's trust five to zero, and the words they used were so undeniably true that, you know, KCS board of directors I knew would be faced with. You know, there's a lot of money on the table, a lot of value be created.

• 1:21:52Speaker 00

  And for this additional money, I'm taking a whole lot of risks that might not never be realized. So they canceled their deal with Canadian National and signed back up with CP. We paid a little more money, yes. It's still a great deal, it's still a great value for our shareholders and theirs as well. We didn't overpay, we certainly didn't underpay. But we've created an opportunity that's going to allow these two companies together 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 I never knew then

• 1:22:33Speaker 00

  how much this transaction would be needed. I never knew and could have predicted the supply chain meltdowns that the industry's going through. I never could have predicted how much more nearshoring and ally shoring would matter. More so today than I ever would have envisioned in 2020. So so many things have happened since then that say, you know, not only is this a great merger, this is a necessary combination for the good of, maybe this is a bit ideological, for the good of mankind, for the good of the free world. I truly think, back to my point about serving something greater than yourself, we're going to be serving a whole lot more than just our shareholders and our employees and the communities, we're going to be serving nations

• 1:23:17Speaker 00

  and creating an ability to get the products that we produce like potash, like grain, 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 a cause greater than myself, and I think working with a team of rail runners that are wired the same way, both KCS and CP, that's going to be a motivation that keeps us going for a long time. Way exceeds the the financial benefit of anything we might be doing.

• 1:23:59Shane Parrish?

  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.

• 1:24:08Speaker 00

  Well, again, it's been my honor. It's always a pleasure to talk about our company's stories and my journey and my family's journey and the role that God's played in it. Anytime I get an avenue and an opportunity to do that, it's an honor to be able to share that.

• 1:24:30Shane Parrish?

  Thanks for listening and learning with us. For a complete list of episodes, show notes, transcripts, and more, go to fs.blog/podcast or just Google The Knowledge Project. Until next time.