Canadian National Railway SWOT and PESTLE Analysis

Strength

1. Extensive network covering US and Canada: Canada national railway has an extensive network covering major routes across Canada and US. It’s network of 19,500 route miles connects the farmers, retailers, exporters, and manufacturers to the economy. Some of the major ports served by through its networks are Montreal, Quebec, Toronto, Detroit, Chicago, Memphis, Winnipeg, New Orleans, Vancouver, Prince Rupert, Edmonton. It is the only rail road connecting Canada’s eastern and western coast to US’s south coast. The company’s unique tri coast network spanning from Prince Rupert on the Pacific northwest coast of British Columbia, Halifax on the Atlantic, and New Orleans on the Gulf coast gives it a major advantage over its competitors in terms of reachability and hence enhancing value for its customer.

2. Massive improvement in y-o-y operational performance: The company managed to improve its operational performance over the previous year. The biggest improvement was in terms of operational efficiency, Canada National was able to improve its operating income by CN $839 million or 18% while simultaneously reducing its operational expense by CN $181 million. This improvement is mostly due to positive impact of stronger Canadian dollar and CN $137 million recovery recorded in first quarter of 2021 due to CN $486 million loss held on asset for first half of 2020. Net income also recorded a massive improvement of 37% i.e., CN $1330 million and diluted earnings per share improved by 38% i.e., CN $6.89. The overall revenue improved only by 5% mostly due to lower volumes of Canadian grains in terms of RTMs compared to previous year and negative translation impact of strong Canadian dollar. However, over the next financial year the company is expected grow modestly and easily reach the pre-covid level in terms of revenue.

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Weakness

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Opportunity

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Threat

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Political

1. Trade restriction between Canada and US will hurt CN’s revenue: Despite ratifying the Canada-United States-Mexico Agreement (CUSMA) signed by Canada, Mexico and the U.S to replace the North American Free Trade Agreement (NAFTA) trade barriers still exists on certain commodities resulting in hindrance of free flow of goods across Canada and U.S. The U.S. Department of Commerce issued the final results of its second administrative review of anti-dumping and countervailing duty orders on 24th November 2021, regarding softwood lumber products from Canada, by applying a 17.9% combined duty rate, nearly two times the current combined duty rate of 8.99%. This decision can be challenged in under the CUSMA or USMCA chapter 10 or in US courts, however if the decision stands, then these new duty rates will apply retroactively. This decision has been challenged by the government of Canada on the basis of it being unfair and harmful for business owners on both sides of the border. Given that the lumber products being one of the commodities transported by CN, this decision will have a negative impact on its earning and cashflow.

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Economic

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Social

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Technological

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Legal

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Environmental

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