Teamsters Canada Rail Conference

Canadian National Railway Co. plans to hire as many as 2,000 people annually over the next five years to replace retiring employees and reduce operating costs.

About 47 per cent of the workforce is planning to retire in that period, Chief Executive Officer Claude Mongeau said Tuesday in an interview in his Montreal office. Canadian National, the country’s largest railroad, had 21,501 employees as of Dec. 31.

The Canadian and U.S. economies will expand gradually in 2010, Mongeau said, and the railroad must ensure that hiring coincides with a revenue increase to preserve profitability. About 43 per cent of revenue last year came from Canadian and U.S. companies shipping goods within their home markets, while exporters from both countries accounted for the rest, Canadian National data show.

“It’s important for us to be there when the business comes,” he said. “We don’t want to hire too early, but we certainly don’t want to hire too late.”

Canadian National is looking for mechanics, engineers and train conductors, said Mongeau, 48, who took over from Hunter Harrison Jan. 1. On average, the company must replace 8 per cent to 10 per cent of its workforce each year, he said.

“We are not hiring one-for-one everywhere, because we do want to get productivity,” Mongeau said. “Many of these jobs take a lot of time to be trained and we want to do it well. Our challenge is to make sure the people who have been running CN all these years can coach the young generation.”

The hiring drive comes amid growing investor concern that the U.S. economy will slip back into a recession. After Canadian National reported a 21 per cent jump in first-quarter net income in April, Mongeau said, he’s not seen any evidence that the recovery might be fading.

This year, the railroad has transported record amounts of coal and potash in western Canada, fueled by “strong” demand in China and other Asian countries, he said. Grain, steel and iron ore shipments also continue to increase, he said.

“If I look at the commodities we move, there is no clear sign at the moment of a double dip,” he said. “The path going forward in the good case is a gradual economic recovery, and I am hopeful that is going to be the scenario that unfolds.”

Canadian National plans to improve fuel productivity 3 per cent annually in the next few years as it buys new locomotives and runs longer trains, Mongeau said. The company reported an operating ratio — total expenses as a percentage of total revenue — of 69.3 per cent in the first quarter, down from 74.1 per cent in the period a year earlier.

“You won’t find many companies in the North American transport industry that are better run,” said Denis Durand, a senior partner at Jarislowsky Fraser Ltd., a Montreal-based money manager. “They always find ways of becoming more efficient.”

Jarislowsky Fraser is the company’s fourth-largest investor, with 12.9 million shares as of March, according to data compiled by Bloomberg.

Canadian National will consider small acquisitions to expand a rail network that stretches across Canada and into the U.S. as far south as the Gulf of Mexico, Mongeau said. No deal is imminent, he added. Last year, the company bought the Elgin, Joliet & Eastern Railway Co. line in the Chicago area for $300 million from U.S. Steel Corp.

“There are small regional, tuck-in opportunities that might create themselves, and we would seize on them and do them if they come about,” Mongeau said. “But the opportunity right now is more in organic growth, helping our customers gain market share.”