Good afternoon, everyone.
I'm only going to spend a brief part of my time discussing the circumstances that put us in this position. I believe it's more useful to focus on what we have done and are doing to recover and ensure that our service is back at the levels that you and our customers have come to expect as quickly as possible.
At the outset, let me point out that the situation has not been taken lightly by CN. On March 5, the CN board of directors took unprecedented, decisive action. You're probably aware that we have a new CEO, J-J Ruest, and within two days of taking up the position, J-J acknowledged our service issues, apologized to our customers, and pledged to do better on behalf of all of us at CN.
The challenges we have been facing are not specific to grain. All areas of our business have been impacted. CN has been facing a capacity and resiliency challenge over the winter.
After six consecutive quarters of flat to negative growth, we underestimated the level of growth that was about to come at us. We're not alone in this; the Bank of Canada and many of our customers also greatly underestimated the strength of the Canadian economy. This has left us seriously stretched, with little resiliency in some corridors.
Frac sand and intermodal traffic are both up very significantly. Forest products, coal, potash, and virtually everything we move saw an increase in volume. Grain volumes were not a surprise and the grain car fleet is sufficient to handle the volume; however, locomotive power and crews have presented a serious challenge, along with winter resiliency that wasn't there this year. We simply did not have enough locomotive power or crews to deal with the rapid increase in business. Hiring and training operating personnel takes a minimum of six to nine months, and there is also a long lead time for acquiring new locomotives and for building capacity.
The increased business also led to bottlenecks at a number of locations on the network. Through the fall and early winter, we were getting by and providing fair service, but we did suffer setbacks in the late fall owing to mainline incidents, including a severe windstorm that blew a train off a bridge in Alberta, shutting down the main line until the bridge could be repaired.
However, as our CEO recently said, we had a horrible February. When the extreme cold hit us in February, forcing us to shorten our trains and requiring even more locomotives, crews, and network capacity, our service deteriorated badly to levels that were clearly unacceptable to our customers and to every one of the hard-working, dedicated CN employees who take great pride in their work.
While our grain service prior to February did not match last year's record numbers, in every month from September to January we moved the third-highest volume of grain in CN's history. This clearly was not sufficient, but not so weak that we cannot recover over the balance of the crop year.
I am pleased to say that we are already making good progress in turning things around in moving the backlog that accumulated in February. In week 31 we spotted 5,349 grain cars, including 772 customer cars, at Prairie elevators; in week 32, we spotted 5,953 cars, including 905 customer cars, and in the week that just ended, we spotted 5,742 cars, including 647 customer cars.
As a reference, we view 4,000 CN cars per week as the normal sustainable capacity of the system in a normal winter operating condition, and 5,500 CN cars as being the sustainable capacity outside of winter and when the port of Thunder Bay is open.
We are confident that we can maintain this pace through the spring. We are committed to catching up, as we are with all of our customer traffic. Our car placement numbers to the week for grain are not yet in line with where they need to be, but there has been significant improvement.
To begin turning things around, the first thing we needed to do was relieve network congestion, particularly in the very busy Edmonton-Winnipeg corridor. We undertook a number of measures to temporarily restrict traffic in this corridor to gain fluidity and velocity in our network. Only by reducing congestion could we create more capacity and resiliency.
We had to make some tough decisions to restrict and regulate the flow of cars into this congested part of our network. For example, we implemented a system controlling the flow of both incremental frac sand and crude cars.
We have also established a 24-7 situation room of cross-functional representatives at our network operations centre in Edmonton to review critical customer issues and to prioritize their movements.
Turning to other actions we have taken to add capacity to our system, in the short and medium term we added 250 qualified conductors in the fourth quarter of 2017, and an additional 400 will have completed their training and be in place by March 31. We will be adding a further 375 conductors in the second quarter. That said, we are still hiring, and there remains a challenge to find new labour at some remote locations. Our national training centre in Winnipeg will remain at full capacity.
With regard to locomotives, CN added 34 new high-horsepower locomotives in Q4 of 2017, and that was all we could get from the manufacturer. We also leased 130 locomotives, some of which required upgrading, but almost all of which are now online. For the longer term, we have placed an order for over 200 new locomotives and will begin to receive the first 60 in the second half of this year.
CN has a strong record of investing in our network. Even in the years with weaker growth, we maintained a very robust capital spending program. Earlier this year, our board of directors approved an increase in our capital expenditures from $2.7 billion to a record $3.2 billion. Over $250 million of this increase will be spent this spring and summer on projects in our western region to increase both track and yard capacity and to create fluidity that will build a base of capacity and resiliency before next winter.
If there is one thing that has become clear from this year's challenges, it's the need for better sharing of data among the supply chain stakeholders. Bill C-49 will require railways to provide even more data than at present, and we accept that. We are, however, only one link in the supply chain, and we are concerned with the lack of data provided by some of the other supply chain participants. For all of us, transparency with all partners in the supply chain is in our interests, and it ultimately benefits the Canadian economy.
Recent actions by our board of directors and all of us at CN have shown how seriously we take these service issues that have adversely affected our customers. Our capacity challenges will not go away overnight, but we have acted aggressively to address them, and I am confident that our service will continue to improve for the grain sector and all parts of our business going forward.
Thank you.
