Canadian National Railway's Timely Profits

Burlington Northern Santa Fe's (BNI) Matthew Rose is not the only railroad CEO who has captured the attention of a high-profile billionaire investor. So has E. Hunter Harrison, chief of Montreal-based Canadian National Railway (CNI), of which Bill Gates' private investment firm Cascade owns 7%, making it the company's largest shareholder. (The Bill and Melinda Gates Foundation owns another 1.67%). Harrison, a 63-year-old Memphis native who has worked on railways ever since he dropped out of college in 1964 to crawl beneath rail cars and squirt oil on their bearings at the St. Louis-San Francisco Railway Co., estimates that Gates has netted $1.8 billion since he first invested in CN in 1997. "I was bringing that to the attention of his advisers who are doing the investing," Harrison says. "And they said that will take care of his tax bill." Harrison has never met Gates. Through spokespeople, Gates declined to comment. A call to his financial adviser was not returned.

The key to CN's high returns has been Harrison's mission to transform the company into what he calls a "precision" or "scheduled" railroad. Since becoming the chief operating officer of Canada's largest railroad in 1998, Harrison has run the company's freight locomotives like passenger trains and airplanes—on a strict schedule. Many railways send locomotives off only when their cars are filled to capacity. Harrison found that when he gave up waiting for every car to fill to capacity, he ended up running cars at about 80% capacity but was able to run many more cars through the railway's system since it was operating more efficiently. What CN lost in capacity is made up on volume—being able to turn around its locomotives more efficiently. "Everything we do revolves around the rail car and getting it to the customer on a predetermined schedule," Harrison says.