Canadian National Railway Business Report

Competitive Analysis Using Porter’s Five Forces Model

GROUP #49 - Canadian National Railway - CNR

Connor Legault – 1220284

Caleb Young – 1188310

FIN*3000 FALL ‘24

October 12th, 2024

Canadian National Railway (CNR) is Canada's top freight

transportation and logistics company. Canadian National Railway primarily

deals with the transportation of agricultural, automotive, energy, forestry,

and manufacturing industries. They offer coast-to-coast supply chain

solutions consisting of housing goods, distribution, and management to help

businesses optimize the movement of their goods with sustainability in

mind. They are the top choice for the mass distribution of goods across

North America via road, railway, and water.

Value Proposition

Canada National Railway creates its value as the only transcontinental

railway in North America, which helps establish ease when distributing

goods between countries. CNR excels in sustainability and efficiency with

the most fuel-efficient locomotives in the market. Optimizing routing and

operations by using “Precision Scheduled Railroading,” which helps

minimize downtime, improving train scheduling. CNR’s premium logistics

solutions can complete door-to-door transportation for their customers

without having to switch between companies. The ability to go by road, rail

or water while owniinng 49.1% of railroads in Canada alone ensures

reliability and efficiency for their customers.

Competitive Analysis: Use Porter’s 5 Forces Model

CNR encounters a moderate to high degree of rivalry within the

industry. They face many direct competitors within Canada, with their main

competitor being the Canadian Pacific Railway (CP). They compete for

market shares in the freight and grain transport markets. Both companies

own extensive railway systems throughout North America. CNR owns about

double the railway distance, giving them an advantage over CP. CNR also

faces strong competition in the United States as they compete with major

American railroads such as Union Pacific (UP) and Norfolk Southern (NS).

These are powerful competitors within the US, owning large shares of the

railway. The degree of rivalry CNR faces with price competition is moderate

compared to industries with many small competitors. The railroad industry

between Canada and the US is made up of a handful of large organizations.

Pricing still plays a large role as firms compete for long-term contracts with

buyers, increasing pricing competition within the industry. The competition

in the industry for CNR is moderate to high, driven by strong competition

within the international and domestic markets between other large railway

organizations.

(II) Potential of New Entrants

The transportation and logistics industry, particularly the railway

sector, faces significant barriers to entry, such as the large amount of initial

capital required and steep regulations, making the threat of new entrants
extremely low. Regulatory barriers within Canada are highly monitored to

ensure safety, labour, and environmental standards are met. Canada

National Railroad maintains a strong relationship with the government,

providing a competitive advantage in building and occupying major railroad

networks.

(III) Bargaining Power of Suppliers

Using Porter's five forces, it was discovered that CNR’s suppliers have

a high degree of bargaining power over the company. CNR’s suppliers who

provide them with their equipment, such as locomotives and railcars, as

well as the parts and services to keep them running, have the most power

over CNR. These suppliers have a high degree of bargaining power since

there is very little competition within the industry, and the barriers to entry

are extremely high, similar to that of aircraft manufacturers. CNR depends

on its specialized suppliers for its rolling stock of locomotives and rail carts,

as this equipment is essential in CNR’s operation. The two main suppliers

that CNR relies on for its locomotives and rail carts are General Electric

and Siemens. CNR enters long-term contracts with these companies to

mitigate price fluctuation and to ensure they have the supplies they need,

along with this, there are very few suppliers within this industry,

strengthening the bargaining power that General Electric and Siemens have

over CNR.
(IV) Power of Customers

CNR has a large customer base with a huge variety of different

industries, including oil, gas, agricultural, automotive, manufacturing, and

consumer goods. This diversity with CNR’s buyers gives them low

bargaining power as it reduces the power of any single buyer since CNR

isn't overly dependent on any one type of customer. Another reason that

gives CNR more power over its buyers is CNR owns over 31,000 KM of

railroad across North America, connecting three coasts: Atlantic, Pacific,

and Gulf of Mexico. CNR transports extremely large quantities of goods to

customers across the country, which gives buyers very few alternatives.

Their only other option would be to transport their goods by semi-trucks,

which are less efficient and more expensive, and trucks are only able to take

a fraction of the amount of goods a train can transport. CNR’s customers

often enter into long-term contracts with the company as consistent and

reliable transportation of their goods is critical. This gives buyers very little

negotiating power and is why CNR’s buyers have a low degree of

bargaining power within this industry.

(V) Threat of Substitutes

The transportation industry faces a variety of substitutes as there are

plenty of other modes of transportation. However, the threat of substitutes

facing CNR remains relatively low. Canadian National Railway diversifies

and excels in various types of sectors within the transportation and logistics
industry. CNR, in addition to the rail sector, offers container shipping and

storage, trucking, and high-end supply chain solutions. The ability to

diversify gives CNR access to door-to-door delivery in a timely and efficient

manner. CNR offers the quickest and most reliable and only

transcontinental services railway, setting CNR apart from other substitutes.

This allows customers to save on alternative transportation methods during

the distribution process. Furthermore, the Canadian National Railway is

considered the most sustainable and environmentally friendly compared to

airplanes, boats and trucks. CNR has the most environmentally friendly and

cost-efficient locomotives on the market. As the world progresses toward

renewable energy, a possible substitute could be electric trains, but for the

near future, this is unrealistic.