#153 Keith Creel: Lessons from Life on the Railroad
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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 when they're 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.

so

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.blogs.com.

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 one 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 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.

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.

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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 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. 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 scale. You know, 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. There are classes of business where trucks have an advantage over rails? Yeah, and this is part of 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 companies,

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 to. Trucks have the benefit of the nation's interstate systems and highway systems and road systems. 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 what I call a truck-like reliable service. I think that has led to the demise 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 railways.

the benefits of scale that a railroad brings with the reliability of truck that truck brings. So it's kind of a hybrid model. That's the way we operate our railway to try to make ourselves more attractive to our customers. And how do you think about driverless trucks? 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 an A2 welder 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 something I'm not personally comfortable with yet and I would suggest that 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. Does that change sort of the equation between rails and trucks? 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 run, because, you know, we are consumers of truck capacity as well. So I look at it from that perspective. But 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. 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. 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 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 uh flat terrain point a to point b without road crossings in between you know there 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 uh it represents

huge technology challenges. It also represents huge societal challenges. And when I say societal, in our definition, it's the workforce that we work with. We're a 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 and the rule of change is not there at this time. 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. Well, you're mixing apples with the oranges. So it's important to start from a basic understanding. When you talk about

passenger rail, 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 preponderance of the U.S. example, those faster trains are running on freight rails. It's not often that you have a dedicated passenger network. 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. You're limited by tons in weight. So we go back to that scale question. You want to ride long, big, heavy trains that are safe and efficient. Well, they're not going to move as fast as a passenger train, which

It can accelerate quickly. It can 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 at Canadian National, actually, in my history. I remember several developments that I went to.

and it was created because of a disconnect between the two. You have to super elevate curves. So for a passenger train to go fast around a curve, which the curves are out in the geography, you elevate the outer rail and you drop down the inner rail, and it sort of, you know, as inertia carries you around the curve, you use that geometry to be able to accomplish that speed safely for passenger. If you mix that with

with a freight train that by nature has to move slow around that curve 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

Mixing passenger and freight. 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.

I never thought about it in those details. Thank you for that. You mentioned long, big, heavy trains. Is that the backbone of precision railroading? 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 when you have, you know, safety limitations, you have technology limitations, and then you've got to make sure you've 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. 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 seven thousand foot siding 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 and when you get into the terminals the terminals receiving or arrival and departure tracks

match the siding lengths. So historically terminals would have 6,000 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. When you say PSR, what do you mean? Precision Scheduled Railroading. It's an acronym that has been coined by the industry to truly define an operating model that Hunter Harrison, who is 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 in process business and it really is just defining a process for every process within 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 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 customers

freight or customer's 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 or lot build a 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, the yard switching. Does that change at all? 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, when we implemented precision-scheduled railroading back in 2012-2013, we were running with 1,500 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 it in simple terms,

500 additional locomotives, just in capital expense alone, they cost $2 to $3 million 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, to 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 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 it to the Simply Plant. Again, it all goes back to process refinement and executing what good looks like through people and through culture.

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 one rail in North America to the best. How do you think about what comes next? I call it a journey. You never really arrive. And again, if I stick to the process definition, there are so many processes in running a railway, and I would suggest 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 note. 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.

10, 11,000 of those 13,000 are the men and women that actually do the work 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 every year,

you know based on and i do it as simple as train delays and impact to our training 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 to move up uh so you know it's it's a virtuous cycle of continually define what good looks like through the process measure it because if it

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 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, how do you think about the trade-off between efficient and resilient? I think there has to be a balance. You can create so much resiliency or redundancy that you go out of business. I think about the 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 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 the 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 guard rails. You don't want to cut to the bone. There's a tension and I speak to this as well. 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. Money 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 oversubscribe 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. If I allow my aspirations or eagerness to grow revenue to exceed my ability to be able to produce a product, 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. Are there any examples that come to mind that you can share? 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 customer's 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. 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 individually.

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 sort of de-risk 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.

own assets. We need you to build this. We need you to give it 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.

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. Yeah, I think we start with a common legal understanding in the rail industry. 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 can 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. And that's a value proposition that we provide ourselves on at our railway. We provide a different outcome. We provide a better service. 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 our railroad. 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 kind of 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 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, they'll choose me and often pay more for our reliable service than they would

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. I compare the service of U.S. 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 or 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

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 have even lost your job over that decision. People understand that 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.

How do you think about volume variance? I'm thinking 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 20, 30% on any given year, and you're expected to carry all of that capacity. How does that work? Whenever 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 our models work. But some things like grain, and that's a great example, especially relevant in Canada, there are ebbs and flows, there are peaks and valleys. There's droughts and there's peak harvest. So what we have to do is size our network. We look at

Five-year averages, three-year averages, you know, the big swings, they're 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.

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 in the wintertime as you can in the summertime because of mechanical limitations. Air going through a train line, you 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. We can't do something that's so unhealthy for the company to satisfy one customer's 10-year or 100-year harvest that puts us out of business so we're not there three or four years from now. 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 search capacity, but there is a limitation. 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, New York.

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? Well, I definitely think it's not an opportunity. I think it's occurring, and I think it will accelerate when it comes to nearshoring or reshoring.

You know, the last six months since Russia invaded Ukraine, you know, the topic of ally shoring is just as prominent and is an impactful. So 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 our customers and industry and even with each other to invest in

to work out best practices. I'll go to our transaction that's very real in these moments. 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. But in turn, that has to be matched to really optimize it with investment

that requires coordination between governments as well as with customers. And I'll give you a great one that we're working on now that is being developed as a result of our transaction that's going to be enabled the same way we get this thing approved. And that involves Mexico, and it involves the U.S., and it involves Canada. We look at ports. You know, ports have been a very topical topic

topic of 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 that comes into the port of L.A. Long Beach. I'll back up a moment for the question you asked me about, you know, how do you plan for these these peak grain harvest? Well, it's not just the railroad. You know, we're in partnership with

with the ports at Tidewater that load that grain in Canada's example to export to feed the world, where 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.

We've got Campitex, which is the worldwide exporter of potash. They export potash for Nutrien as well as Mosaic. You've got K+S, which is a German producer of potash. And soon you're going to have BHP 2025, 2026. It's common knowledge that they're building a potash mine in Jansen.

So with all that said, all that capacity and all that investment, we need more tidewater to export to. So with our network, with this combination,

creating a seamless single line move that goes from a potash mine in Saskatchewan all the way to a new terminal that will be developed, in this case, Port Arthur, Texas, requires investment, requires the combination of the economics and to create the scale. When you start to do that as the world evolves and as we near shore and we ally shore, 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 Tidewater 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. Why don't the rails own the terminals? It seems like a logical vertical integration for you guys. It is. Sometimes it's a government-owned entity. Sometimes it's a private entity, and there's no willingness to sell it.

I can give you a couple of cases in point. 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. 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 U.S. standpoint, indoor. It's individually or privately owned and they understand the

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 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 uh 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 sets 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 capacity, and car capacity. So this one particular group, I call them

They maintain the tension in an organization. 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 team.

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. 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 over committed 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. It's an outcome. It's not the focus. And at the same time, it's a great service because, again, 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 going to do,

when they commit to their customers to grow, there's a clear path of 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. 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, 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 going to 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 have to create a vision. You got to tell people what's important and why it's important. You got to hold them accountable and you got to motivate them.

And if you do that, most people, I think God made us in a way that we all want to 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 experience it. And we all have experienced it in our life, 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. 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. 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. That means a lot to me. So to be able to accomplish that,

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. 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. I'm wondering, are there any stories that stick out in your mind of when Hunter did that with you? Because 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 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. Yeah.

because he caused you 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 at another railroad for four years before I joined the Illinois Central where I first met Hunter. 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.

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. It was called MENO, Memphis to New Orleans was the train. And it left at 3 o'clock in the afternoon every day. Well, you sequence your day knowing, you know, there's a train that leaves at 1 p.m., this train leaves at 3 p.m. 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 optimizers, 150 cars for the IC model. And again, that goes back to imagine size of the train, length of the train, the size of sidings, all those things that I described earlier. So, you know, we're at 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 speakerphone all the time. You're on the phone with the dispatcher. You're talking to the yardmaster. You're talking to crews. It's managed chaos. You've got radios in the background. And I hit the speakerphone, you know, Keith Creel, I see 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 MENO? And I said, excuse me? He said, this is Hunter Harrison.

And I hit mute and my yardmaster's there and I'm like, 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. 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 in his mind, 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. 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 that have sat there for two days.

unused, then they release them and by the time you pull them back into your terminal, you've got no cars Monday, Tuesday, a lot of cars Wednesday, Thursday, Friday. Well, if on Tuesday I miss 10 cars, well, on Wednesday, Thursday, Friday, that pressure builds up and I have more trains

Then I have capacity, more demand cars that 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 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 locomotives. 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 run it too.

So he required that level of knowledge and that level of deep dive, like no person that I've ever met before, no person that I've ever met since. It creates an environment that not only if you get a ride, you get to keep your job. In his terms, 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 better service product, that lower cost, that better asset terms. Those kind of lessons, for 20 years, and I never quit learning from Hunter, he was always teaching. 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 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 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 when they're 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. And that leads to greatness. That was kind of the way he was wired. And I learned a lot from that. 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 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 that you're thinking of when you say that, that you've done? 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 as the CEO, there was an article that came out in a Canadian publication and it was about this culture of fear that had been created at Canadian Pacific. As a human being, I believe in treating people with respect and some of the examples that I read made the hairs on the back of my neck stand up. So after that, I went and pulled probably three years of

of discipline 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 something, a rule was broken. So I read through all that 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 the right thing because the reality of the culture that we inherited was a culture of permissiveness. And in our industry, I'll go back to the point of 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, 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 consequences are severe. So I've always understood that and prided myself in creating a safe work environment to protect people. 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, then you can get it wrong. 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. 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 the rule,

then not saying something says a lot. You're the officer. It's like you're the police officer. If I'd be by an RCMP or a state trooper every day and they never turn the lights on, I'm going to 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've got to do the right thing. So if you see somebody violate, you've got to 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 want to have a safe work environment. They might want to run an efficient terminal. But if they see an employee engaging in an unsafe act that could derail a car or kill themselves 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 give you one other case in point. 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 going to 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 a field level. I'm like, all the rules matter. Which one that you don't follow leads to you.

You've taken your life for 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 want to 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 got to 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 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 Clover took over as the CEO. He wanted to come out in high rail and we were high rail in between

Hamilton, Ontario, and our terminal in Toronto. And we were inspecting the railroad in a high rail truck. And it'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,

We checked the rule 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 out of the locomotive, there had 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've 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 and there were several people following. We got on the high rail. We started to pull down 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 the

that gentleman smoking but i did so back the truck up i've 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's 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 every one of you

That I don't expect you to enforce and require employees to work safely and efficiently and none of that's true. So that to me, you had to step, 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,

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. 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. You know what? I've learned so much about business, good business from Bill. Not knowing what I was getting into, you hear all these things about activist investors and

All they care about is making a profit, turn it a buck, and short money versus long money, all those things. 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 drove change at Canadian Pacific. So going into it, I had my own preconceived notions about what might be true, but what I learned was,

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 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 act as an investor, if he's really there to make a quick buck, he wants you to make things efficiently, spend the least amount of money as possible, show some success, and then they take their profit and they leave. And what you're left with perhaps is not an ideal situation.

physical plant and infrastructure sustain long-term success? Well, Bill was the exact opposite of that. You know, every issue we came to with Bill, we said, okay, 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 live 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. So Canadian National serves them, CP serves them. And often, you know, we come in one side of the terminal, they come in another side, or we share the same access in and out. 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. Well, I learned at CN that

When CP got into some trouble before Bill came along as part of what drove to that opportunity, they weren't meeting Campotex's expectations and they were committed to 100% of the business. So at CM, we were asked by Campotex to help them get product to Tidewater because seeing 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 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 is 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 starting at the same place, ending 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 is 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 Ladigan Sub down to Regina across the main line back to Vancouver. So we were taking it out of route several hundred miles each way. And I said, well, if you do that, you're going to have more locomotives, more cars,

more crews, 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. Well, we just don't do it that way. And I said, well, we're going to 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. 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.

I said, that's not safe to operate on. No way in the world we're going to send another potash drain that way. But we're going to 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. But I need $100 million to spend on rail and ties and ballasts. 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's safe to operate and operate efficiently you're going to get it keith well i would say by definition most activist investors would never be defined by that act 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

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, combined with my real knowledge, has enabled me to effectively be sitting where I'm sitting today. It had helped me even navigate, in large part, the way I thought about it, approached our transaction.

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. There is. The challenge is, as a publicly traded company, you've got to do both. So you've got to

You've got to show momentum 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 revenue experience with the first quarter of this year at CV 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 the results to do that. But I'll tell you, market short-term and long-term, you've got a 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 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 the backbone of being the economy's backbone of commerce, it's a long game. So you've got to understand that and protect that. 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? Well, it goes back to sort of my history. I've said this, a man's heart pursues success.

But the Lord determines the steps. And I went through 20 years before CP that gave me an experience set where I kind of understood ways and losses and what reach means in service offerings. And I worked at Canadian National where we had a lot of reach.

And we benefited from that and we expanded and grew the network to create more reach through the transactions and the integrations that we successfully achieved in my experience there. 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 U.S.,

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 year.

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 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 and then we can take advantage of it. So that's what we focused on. We grew for several years.

We got to a point, though, the CMQ transaction that happened in 2019. I think we closed down 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 in 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, again, it was kind of a warm-up 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 $40 million railroad project.

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 investors that were to say, John, you know, we grew from,

40 million this year, we're on the track record of 200 million of revenue and much more attractive margins that allow you to invest in the physical plan. So it was just a smaller scale, an amazing success story. So that gets you into a place where financially we're doing well. The pandemic happens. I think our company and our employees allow this to be true. We created success like no other rail did 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. And then having done it, 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 years

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 at Canadian Nashville, and that was absolutely true at 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 chapters in their story of PSR that they're going to have to manage it going up and going down. You've got to manage the cycle to really be effective at it. So there's going to be some what I thought are deemed as execution risk. And if they stumble a little bit, then that multiple is going to come down and that's probably going to be the right time for us to make a move.

So that was in the back of my head. But the problem was they kept creating some success, you know, and the price kept going up. So 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 emergible 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 and in the history of problematic history of transactions and combinations in the U S rail industry. I kind of lived through the last two decades of them. So with that said, I said, you know what, there's nothing wrong with going and talking and,

and having some hypothetical discussions. So I went to Kansas City, I contacted Pat, and I said, let's have lunch. 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 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. 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 of

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'd gone 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. 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. 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 private equity. And ultimately that's what resulted in our

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,

being spied off again 10 years from now or five years from now, being part of a bigger entity to create longer 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-laden guy. Throttle-laden is a railroad term that's full throttle to locomotive. I like to do things fast. 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 engaged with the employees. We engaged with the officers. We engaged with customers. And the sense of energy around these opportunities exceeded my expectations even. You know, going and interacting with their customers

And hearing them ask me in a town hall, you know, Mr. Creel, can we do this? You do this in Canada. You know, the grain model is a great example. That's something we innovated at CTE in Canada. We changed the model from, you know, the 112-car grain train to now it's an 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. You're willing to invest, right?

with your grain elevators and we can get a port to send them to you they can offload them we can replicate that and create tons of efficiency for the railroads and for you as a customer in market advantage because you'll get more freight more grain to tidewater lower cost so i was super energized about it everyone was energized about it um we had our agm i flew to my not montreal flew to uh 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 breach 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 step

put a ring in the hat. What I didn't expect was how strong they jumped in the game. So I remember landing in Calgary. I had a 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. Um,

And I said, you know, we'll talk soon on the phone. But immediately I went to the office. And in the meantime, I called Pat. And obviously Pat had a contractual obligation with us because we had a merger agreement at that time. And he said, Keith, I saw the number. I didn't know what it was. It went to voicemail. And I said, well, it's JJ. And obviously I know you've got to produce your response to talk to him. And I said, so go ahead and have your discussions and we'll talk later.

And I went to the office and his luck had it. And I think his fate had it. And again, I lead 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 Corvell. She had literally flown to Calgary for that meeting. That was her first one since COVID started in person. And we had our AGM. So I went to the office. I went in.

And because of what I said earlier, trying to be prepared, thinking that they might be coming, we literally, my team, our financial advisors and the people that negotiated to deal with me, a very small group, we spent the weekend prior to that phone call on Monday.

doing what-if scenarios. What if C-in comes in? What can they afford to pay? What can we afford to pay? So 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. And Bill said this to me at one point in the process. You know, any deal, it depends on certainty and value. Those are the two key fundamentals that a board of directors has to take into account.

And I said, well, to me, the only way to defeat them is not 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 the office in Calgary. Our board meeting was about to start. They obviously had read all the press releases. 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.

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 going to 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? He said, well, how are you going to approach this on your call tomorrow morning? Because we literally...

I had to do a call the next morning. I said, you know what? I haven't quite figured it out yet, the strategy. He said, well, let me say one thing too. He said, you've got to fight. I said, okay, I appreciate that. I'm going to think about that. 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. I woke up about three o'clock in the morning and I said, we're going to fight with the truth. 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. So we came together that morning. We had our public call that we had to go through how we were going to respond. And I think we might've even been an earnings call too. There've been so many meetings since then. 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 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 straights 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 a lot here drawn in the sand. I knew where it was. I knew we never won that fight, so I wasn't going to get into a bidding war with them. I was going to fight their ability to get their deal approved, and it all boiled down to the trust. KCS, their terms of the deal, they wanted to get their money for their shareholders up front.

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 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

then the chances of getting approved are slim to none. And 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 going to wait on the trust to be ruled on. But CN and their aggressiveness moved up their date for their shareholders to vote on it in the absence of the trust approval because the trust decision did not come out by the STB. So they sort of put their shareholder vote ahead of the trust decision.

which would have meant that had that shareholder bulk gone through, that KCS would have been married to CEN, CNES would have taken all the risk of the trust, but they would have gone into that transaction locked up, not knowing if it would or would not be approved. And there were provisions in that contract that said that even if it got turned down, they would have had to stuck with CEN for a six-month period where CEN could try to get it overturned.

It could appeal the trust decision. And then you get to a point where, you know, play it all out. At that point, seeing as it's going so far, they still have balance sheet. They might just put more money on the table, make it more even out of reach. So it was so unpredictable. We just said at that point, now if we're going to get back in the freight, now's the time. So that's when we came out and figured the best way to do it is following their proxy. So we had our own proxy filing process.

We met with, and I think I met with 60% of KCS's shareholders. I did one-on-one meetings virtually. I flew to New York City. I sold them our deal. And my sell was, number one, you can't replicate our value you want, or CN doesn't have the network to do it or the team to do it. And number two, 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, well, 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 boat go through. Don't go forward with the boat. 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. 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

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 how much this transaction would be needed. I never knew and could have predicted the supply chain meltdowns that the industry's gone through. I never could have predicted

how much more near-shoring 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 in the communities. We're going to be serving nations 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 the cause greater than myself, and I think working with a team of railroaders 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 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 my honor. It's always a pleasure to talk about our company's stories and in my journey and in my family's journey and in 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. Thanks for listening and learning with us. For a complete list of episodes, show notes, transcripts, and more, go to fs.blog.com. Or just Google The Knowledge Project. Until next time.