2015 CN Investor Fact Book - Building for the Future

Except where otherwise indicated, all financial information reflected in this document is expressed in Canadian dollars and determined on the basis of United States generally accepted accounting principles (U.S. GAAP).

COMPANY PROFILE

CN is a world-class transportation leader and the only transcontinental railway in North America. Our 19,600-mile network spans Canada and Mid-America, connecting three coasts: the Atlantic, the Pacific and the Gulf of Mexico. We offer fully integrated rail and other transportation services, including intermodal, trucking, freight forwarding, warehousing and distribution. Our extensive network, along with our co-production arrangements, routing protocols, marketing alliances and interline agreements provide connections to all points in North America and beyond. A true backbone of the economy, CN handles over $250 billion worth of goods, hauls about 20 per cent of Canada’s exports, and carries more than 300 million tons of cargo annually. If you eat it, drive it or use it, chances are we move it.

CN’s freight revenues are derived from seven commodity groups representing a diversified and balanced portfolio of goods transported between a wide range of origins and destinations. This product and geographic diversity positions CN to weather economic fluctuations and enhances our potential for growth opportunities. CN is the originating carrier for approximately 85 per cent of traffic moving along our network and close to 70 per cent of our traffic originates and terminates on our network, which allows CN to capitalize on service and asset utilization advantages.

CN is an engaged company, committed to safety for our employees, our customers and the communities in which we operate. CN strives to provide a safe, supportive work environment that values diversity, respect, integrity and pride. With a clear strategic agenda driven by a commitment to safety, innovation, productivity, collaboration and sustainability, CN aims to create value for its customers and shareholders.

For the most up-to-date information, please visit www.cn.ca/en/investors. A variety of informative documents is available, including annual reports, proxy statements, quarterly earnings, press releases, company presentations and weekly performance metrics.

As used herein, the word “Company” or “CN” means, as the context requires, Canadian National Railway Company and/or its subsidiaries.

Certain information included in the 2015 CN Investor Fact Book constitutes “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and under Canadian securities laws. CN cautions that, by their nature, these forward-looking statements involve risks, uncertainties and assumptions. The Company cautions that its assumptions may not materialize and that current economic conditions render such assumptions, although reasonable at the time they were made, subject to greater uncertainty.

Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results or performance of the Company or the rail industry to be materially different from the outlook or any future results or performance implied by such statements. Important risk factors that could affect the forward-looking statements include, but are not limited to, the effects of general economic and business conditions, industry competition, inflation, currency and interest rate fluctuations; changes in fuel prices; legislative and/or regulatory developments; compliance with environmental laws and regulations; actions by regulators; various events which could disrupt operations, including natural events such as severe weather, droughts, floods and earthquakes; labor negotiations and disruptions; environmental claims; uncertainties of investigations, proceedings or other types of claims and litigation; risks and liabilities arising from derailments; and other risks detailed from time to time in reports filed by CN with securities regulators in Canada and the United States. Reference should be made to “Management’s Discussion and Analysis” in CN’s annual and interim reports, Annual Information Form and Form 40-F filed with Canadian and U.S. securities regulators, available on CN’s website (www.cn.ca/en/investors), for a summary of major risks.

CN assumes no obligation to update or revise forward-looking statements to reflect future events, changes in circumstances, or changes in beliefs, unless required by applicable Canadian securities laws. In the event CN does update any forward-looking statement, no inference should be made that CN will make additional updates with respect to that statement, related matters, or any other forward-looking statement.

TABLE OF CONTENTS

OVERVIEW

4 A Message from Claude Mongeau

6 Leadership Team

8 A Transformational Journey

11 Rewarding Shareholders

14 Financial & Operational Measures

16 Traffic Density Map

SERVICE AND INNOVATION 

20 Balancing Operational and Service Excellence

22 Key Metrics

23 Investing to Support our Growth Agenda

29 Creating Value for Customers

MARKETS

36 Delivering on Our Growth Agenda

38 Business Unit Overview

40 Petroleum & Chemicals

50 Metals & Minerals

60 Forest Products

68 Coal

76 Grain & Fertilizers

86 Intermodal

94 Automotive

100 End-to-End Supply Chain Solutions

DELIVERING RESPONSIBLY

106 Developing the Next Generation of Railroaders

110 Fostering a Safe, Supportive and Collaborative Workplace

113 Putting Safety First 

118 Improving the Safety and Fluidity of the Network

124 Building for a Sustainable Future 

130 Helping Build Stronger Communities

134 A Robust Regulatory Environment 

136 Committed to Good Corporate Governance

ADDITIONAL INFORMATION

140 Quarterly Financial & Statistical Information

146 Reconciliation of Non-GAAP Measures

148 Glossary

152 Shareholder & Investor Contact Information

This year’s edition of the CN Investor Fact Book is aptly entitled “Building for the Future.” Although CN has been an industry leader for many years, we’re not content to rest on our laurels. We are intently focused on how to shape our future and the steps we need to take to stay at the forefront of the industry.

The Fact Book is an important resource for anyone wanting to learn more about CN. It explains our business model and operating philosophy, our network and equipment, as well as our markets and financials. It lays out our goals in a comprehensive manner. In short, this book has CN covered.

2014 was a good year for CN. Among our many achievements, we moved record volumes, including the largest grain harvest in Canadian history, earned our highest revenues and profits ever, and improved many of our service metrics. CN’s growth continues to outpace base economic conditions at low incremental cost. We’re building on a strong foundation of Operational and Service Excellence, with an end-to-end supply chain approach. We continue to grow the business by helping our customers to win in their markets and, at the same time, improve our own efficiencies. Our focus on efficiency and profitable growth is the basis for driving solid shareholder value.

Some of our other accomplishments in 2014 included launching innovative tools to improve our interaction with customers, such as iAdvise. iAdvise addresses key customer pinch points, especially in the first and last miles of the shipment cycle, by providing merchandise customers with a suite of electronic tools to help them manage their shipments. We also opened two new state-of-the-art training facilities for employees. Our CN Campus delivers a modern, hands-on training curriculum focused on instilling a strong safety culture and upgrading skills for hundreds of railroaders every week. Our sustainability practices confirmed CN as the leader in the Transportation and 

A MESSAGE

FROM CLAUDE
MONGEAU

In 2015, CN is celebrating the 20th anniversary of our Initial Public Offering (IPO). It has been a remarkable transformational journey since the Government of Canada privatized CN on November 17, 1995. The privatization of CN was the largest in Canadian history, raising $2.2 billion for government coffers.

We’ve made huge strides since that day. Once considered an industry laggard and largely a Canada-only enterprise, CN today is one of the leaders of the North American rail industry in terms of efficiency and service. We span eight Canadian provinces and 16 U.S. states, transporting freight traffic seamlessly over a 19,600-mile network that reflects more than $8 billion of acquisitions since 1998. CN has taken the lead in developing collaborative supply chain solutions, emphasizing new first-mile/last-mile services for merchandise freight, and scheduled services for bulk freight.

BUILDING A STRONG FRANCHISE THROUGH ACQUISITIONS

Building from a strong core Canadian network, CN has made several strategic acquisitions since privatization:

1998

Illinois Central

This ground-breaking addition linked Canada to the Gulf of Mexico and made CN the fifth-largest railroad in North America (based on revenues), increasing its competitiveness with trucking and other railways.

2001

Wisconsin Central

This addition filled an important gap at the heart of CN’s transcontinental network with a direct link from Western Canada into Chicago, IL.

2004

BC Rail

CN strengthened its forest products franchise and extended its reach into northern British Columbia.

Great Lakes Transportation

This acquisition allowed CN to gain new efficiencies in network performance, and become a major player in the commodities stream for the U.S. steel industry.

2009

Elgin, Joliet and Eastern

For the first time, CN linked its five rail lines entering Chicago from all directions into one seamless system around the city, creating an important competitive advantage.

BUILDING A SOLID OPERATING MODEL

As a Precision Railroad^® – CN’s business model that ensures disciplined operational execution and intense asset utilization – we’ve transformed ourselves into one of the most efficient railroads in North America. By balancing Operational and Service Excellence, we continue to drive asset utilization and productivity while also improving end-to-end customer service. Our unique supply chain approach is redefining the way we interact with customers and supply chain partners.

At CN, we believe that safety is the key to outstanding railroading. Our vision is to be the safest railroad in North America by building a strong safety culture. That’s why CN invests significantly in training, coaching, recognition and employee involvement initiatives. We also understand that minimizing our environmental footprint is fundamental to achieving sustainable business success.

BUILDING THE NEXT GENERATION OF RAILROADERS

The most important success factor for CN is our people. Since 2010, CN has hired 14,000 employees to renew our workforce because of attrition, retirements and our growing business. This seismic shift represents over half of our workforce! In 2014 alone, we onboarded more than 3,900 new employees. A cornerstone of this renewal is CN’s $55-million investment in two state-of-the-art training centres in Winnipeg, MB, and Homewood, IL. Through our CN Campus, we are providing hundreds of CN students a week with consistent hands-on training for all key railway jobs.

CONSISTENT DIVIDEND PAYMENT

CN’s dividend policy is based on our overall financial performance and cash flow generation. Decisions on dividend payout are made on an annual and quarterly basis by our Board of Directors. CN has increased its dividend 19 consecutive times since 1995 at an average compound annual growth rate of 17 per cent. Earlier in 2015, CN’s Board of Directors approved a 25 per cent increase in the quarterly dividend to common shareholders, from $0.2500 per share in 2014 to $0.3125 per share in 2015. For Canadian and U.S. tax information regarding CN dividends, please consult www.cn.ca/en/investors.

OPPORTUNISTIC SHARE REPURCHASE PROGRAM

CN has created significant value for shareholders through regular share repurchases since its first buyback program in 2000. The Company may repurchase shares pursuant to a normal course issuer bid at prevailing market prices plus brokerage fees, or such other prices as may be permitted by the Toronto Stock Exchange. Up to the end of 2014, CN repurchased over 550 million shares through normal course issuer bids for a total cash expense of close to $14 billion. The current share repurchase program runs from October 24, 2014 until no later than October 23, 2015. It allows for the buyback of up to 28 million common shares, representing 3.9 per cent of the common shares outstanding not held by company insiders on October 15, 2014. 

(1)   Statistical operating data, key operating measures and rolling stock information are unaudited and based on estimated data available at such time and are subject to change as more complete information becomes avail-able. As such, certain of the comparative data have been restated. Definitions of these indicators are provided at the end of this Fact Book or on our website, www.cn.ca/glossary.

(2)   In 2014, certain Other revenues were reclassified to the commodity groups within rail freight revenues. This change has no impact on the Company’s previously reported results of operations as Total revenues remain unchanged. The 2010 to 2013 comparative figures have been reclassified in order to be consistent with the 2014 presentation.

(3)   See the section entitled Liquidity and capital resources – Free cash flow in the MD&A of the 2014 Annual Report for an explanation of this non-GAAP measure.

See page 146 for a reconciliation of non-GAAP measures.

CN’s business agenda starts with an unwavering commitment to safety and a mindset of balancing Operational and Service Excellence through disciplined execution in all aspects of running our railroad. We work hard to operate more efficient trains, reduce dwell times at terminals and improve overall network velocity. Through these efforts, we strive to provide cost-effective and high-quality service to our customers.

OPERATIONAL EXCELLENCE

CN’s objective of delivering operational excellence focuses on improving every process that affects the shipment of our customers’ goods. Our railroaders are continually monitoring all aspects of CN’s operations: scheduling, measuring, executing and reviewing. Constant improvement is a hallmark of how we do business. We never accept the status quo and strive to raise the bar at every opportunity. With this philosophy, fewer railcars and locomotives are needed to ship the same amount of freight in a tight, reliable and efficient operation. We continue to strengthen our commitment to operational excellence through a wide range of innovations anchored in continuous improvement.

SERVICE EXCELLENCE

For CN, service excellence means expanding our perspective, working closely with customers and supply chain partners to deliver quality end-to-end service. Our goal is to provide broad-based service innovations that benefit customers and allow us to grow profitably. To that end we collaborate with customers and other players to become a true supply chain enabler. We encourage all links in the supply chain to move away from a silo mentality towards daily engagement, information sharing, problem solving and execution. We work

BALANCING

OPERATIONAL
AND SERVICE
EXCELLENCE

INVESTING

TO

SUPPORT

OUR

GROWTH

AGENDA

CN is investing significantly to build for the future, increasing capacity and fluidity while enhancing safety and integrity across our network.

In the five years leading up to and including 2014, CN has spent over $9.5 billion on capital investments. CN’s capital expenditures amounted to $2.3 billion in 2014. CN expects to invest $2.7 billion in its capital program in 2015.

REINVESTING IN THE BUSINESS

ROLLING STOCK

By regularly investing in rolling stock, we are ensuring a modern, fuel-efficient locomotive fleet to drive productivity and to better serve our customers. Additional benefits include lowering our carbon footprint, increasing locomotive reliability and tapping growth opportunities. Between 2012 and 2014, CN acquired 129 new Alternating Current (AC) traction locomotives which provide significantly better rail adhesion for pulling heavier and longer trains. Three AC locomotives can pull the same number of cars as four direct current (DC) locomotives. AC locomotives comply with stringent U.S. Environmental Protection Agency (EPA) standards and have dynamic brake capability at very low speed.

Supply Chain Tools improve decision-making across supply chain partners 

SUPPLY CHAIN INNOVATION 

Over the past few years, we’ve raised our game through an approach that looks at the entire movement of goods through the complete supply chain; not just how we handle our portion of the process. We are increasingly involved in every step of the way, working with all supply chain players to improve how products and material get to where they need to be. 

CN’s major push in first-mile/last-mile activities is all about quality interaction with customers from end-to-end: 

•     Developing a sharper outside-in perspective

•     Better monitoring of traffic forecasts 

•     Higher and more responsive car order fulfillment 

•     Proactive customer communication at the local level supported by iAdvise, an information tool that is improving the reliability and consistency of shipment information

This mindset is driving solid results. We have some of the best transit times in the industry and a spotlight on all customer touch points. At CN, our focus on seamless end-to-end transportation solutions helps to make our customers more competitive in their own markets, both at home and abroad.

BUSINESS

UNIT 

OVERVIEW

CN serves petroleum and chemical producers throughout Canada and the U.S., with expertise in the Alberta Heartland, Eastern Canada as well as the Gulf of Mexico. Most of our petroleum and chemicals shipments originate in:

•     The Louisiana petrochemical corridor between New Orleans and Baton Rouge

•     Western Canada, a key oil and gas development area and a major centre for natural gas feedstock and world-scale petrochemicals and plastics

•     Regional plants in Eastern Canada

The Petroleum and Chemicals group comprises a wide range of commodities, including chemicals and plastics, crude oil, natural gas liquids, refined petroleum products and sulfur. The primary markets for these commodities are within North America and, as such, the performance of this commodity group is closely correlated with the North American economy as well as oil and gas production.

CHEMICALS AND PLASTICS

The current low natural gas price environment in North America is having a positive effect on the chemicals and plastics sector. Lower feedstock and energy costs are leading to new investments that increase the productivity of North American plastics and chemical plants – creating opportunities for CN. These streamlined plants are in areas where CN enjoys significant market share, namely the Louisiana petrochemical corridor, northern Alberta and southern Ontario. The increased production is serving solid demand in the automotive, construction and packaging sectors.

CN works with both producers and receivers to establish end-to-end supply chain solutions and promote the trade of CN-sourced raw materials and end products.

PETROLEUM
& CHEMICALS

“We are a true supply chain enabler, connecting crude producers with their suppliers and markets.”

James Cairns

Vice-President

Petroleum and Chemicals

See map of CN CargoFlo^® facilities on pages 100-101

An extensive network of strategically located CargoFlo^® facilities for liquids transfer and break-bulk needs complements CN’s direct-rail franchise, enabling us to offer complete door-to-door service to customers. This network provides the economy of long-distance rail transportation with the flexibility of short-haul truck delivery anywhere in Canada, the U.S. and Mexico.

CRUDE OIL AND CONDENSATES

CN is an important link in the crude oil supply chain. Our vast rail network provides customers with accessible single-line connectivity between Western Canada and the Gulf Coast, with efficient movement through the all-important Chicago area, as well as Eastern Canada. CN also connects with other Class I railroads to reach the U.S. East Coast, U.S. West Coast and Texas.

CRUDE BY RAIL

CN provides unique access to Alberta heavy crude oil, with a track network that directly overlays the Peace River, Athabasca and Cold Lake areas. CN also has a presence in the Canadian Bakken Shale light crude region in southern Saskatchewan.

CN provides single-line service from Western Canada to all eastern Canadian refineries: Sarnia and Nanticoke in Ontario, Montreal and Saint-Romuald in Quebec, and Saint John in New Brunswick. In addition, CN’s customers have access to offshore markets via the St. Lawrence Seaway terminals at Tracy and Quebec City in Quebec. In the U.S., CN can access refineries and crude oil terminals directly (Petroleum Administrative Defense District - PADD II and III) or via other Class I railroads (PADD I, IV and V).

What began as simple truck-to-rail manifest service has quickly evolved and now includes a pipeline-connected tank-to-rail unit-train service. In 2014,

CN moved almost 128,000 carloads of crude, up from approximately 75,000 in 2013 and 34,000 in 2012. In 2015, crude-by-rail shipments are being impacted by a low oil price environment.

For crude-by-rail customers, CN offers a safe and complementary alternative to pipelines with a number of competitive advantages, including lower capital costs and shorter lead times. Another advantage is scalability, since shippers can move 1, 2, 20, 100 or more railcars at a time as production fluctuates with market conditions. Geographic flexibility is one more advantage, enabling customers to move their product to various destinations where they can capitalize on price differentials or meet specific demand.

Crude can be moved by rail as pure bitumen (neat bitumen) when in coil-insulated cars, but needs to be diluted with up to 30% condensate (dilbit) in order to flow through a pipeline. The cost of moving neat bitumen in railcars is very competitive with transporting dilbit through pipelines. The economics of rail for both the customer and CN are further improved when condensate is shipped as a back-haul to the neat bitumen head-haul movement. In addition, neat bitumen is far less volatile than any other type of crude and can be considered a non-dangerous good to transport, like asphalt. Although current neat bitumen shipments are quite limited, CN believes this is a good future opportunity.

CN welcomes the new DOT/TC-117 tank car standards for the transport of crude oil and other flammable liquids unveiled on May 1, 2015, including the 9/16-inch tank shell, 11-gauge jacket, ½-inch full-height head shield, ½-inch thermal protection, and improved pressure-relief and bottom-outlet valves. Tank cars manufactured to transport flammable liquid after October 1, 2015, must meet these enhanced tank car standards. Older tank cars (DOT-111, CPC-1232) will be retrofitted or phased out, with the oldest and most

PROPANE BY RAIL: AN EMERGING MARKET

Propane is a by-product of natural gas processing and petroleum refining. It is commonly used as a fuel for heating, cooking, crop drying, and engines in fork lifts, buses, Zambonis and other vehicles. It is also an important feedstock in the production of polypropylene.

About half of western Canadian propane is used within the region and one third is shipped to Eastern Canada, with the balance transported to the U.S. Midwest.

In April 2014, the Cochin pipeline, which transported propane from Alberta to Illinois, was reversed to transport condensate to the oil sands. This pipeline reversal eliminated up to 100 railcars per day, at peak demand, of takeaway capacity from the Alberta market, which has created significant growth for CN.

Terminal facilities do not currently exist in Canada that allow for propane exports to overseas markets. However, a liquid bulk export terminal in Prince Rupert is in the planning stages. CN, through our rail partners, serves export terminals on the U.S. Gulf Coast and U.S. West Coast.

“We are working closely with customers to develop innovative transportation solutions and help them win in their markets.”

Doug MacDonald

Vice-President

Industrial Products

METALS &
MINERALS

CN has the market covered from A to Z – aluminum to zinc – and let’s not forget about frac sand, iron ore, steel, copper and lead. CN’s far-reaching rail service and our transload and port facilities make us a strong partner for our customers.

The Metals and Minerals group consists primarily of materials related to oil and gas development, steel, iron ore, non-ferrous base metals and ores, construction materials and machinery, and dimensional (large) loads. We provide unique rail access to base metals, iron ore and frac sand mining as well as aluminum and steel producing regions, which are among the most important in North America. This strong origin franchise, coupled with our access to port facilities and the end markets for these commodities, has made CN a leader in the transportation of metals and minerals products. The key drivers for this market segment are:

•     Manufacturing production (e.g., automobiles, railcars, heavy equipment, aerospace)

•     Non-residential (commercial and industrial) construction activity

•     Government spending on infrastructure projects

•     Energy development projects (i.e., oil, gas, wind, solar)

•     World demand for ores and metals

METALS

CN ships primarily steel, aluminum, copper and zinc, serving key customers who are leaders in their respective markets. Through our strategically located network of 16 metals distribution centres, CN is working closely with customers to make the entire supply chain more efficient. Furthermore, CN’s fleet of railcars for metals is the largest active fleet in Canada.

STEEL

COPPER

CN has a strong position in the transport of copper, a highly ductile metal used as a conductor of heat and electricity, a building material and a constituent in various metal alloys.

ZINC

Zinc is most commonly used as an anti-corrosion agent. Galvanization is a process that involves coating iron or steel with zinc to prevent corrosion. Zinc is also used as anode material for batteries. Zinc alloys include brass, bronze and solder.

ENERGY MATERIALS

Increased activity in the shale oil and gas sector in recent years has created demand for frac sand, piping and other related materials.

FRAC SAND

Hydraulic fracturing – or fracking – technology coupled with horizontal drilling has made unconventional oil and gas reserves economically viable – and significantly increased recoverable reserves of oil and gas. The oil and gas industry uses frac sand as a proppant (propping agent) to hold these shale fractures open in order to let natural gas and oil flow out. Global frac sand demand continues to grow – with Canada and the U.S. leading that demand. CN has direct access to one of the oil and gas sector’s most sought-after proppants – Northern White frac sand found in Wisconsin. As part of our commitment to bring this product to North America’s major shale basins, CN has invested approximately $70 million in infrastructure upgrades on two of our Wisconsin subdivisions to help create the right supply chain connections between our frac sand customers and oil and gas shales in British Columbia, Alberta, Saskatchewan and the U.S.

In light of low energy prices, the shale oil and gas industry has been trying to find methods to lower its extraction costs. Some producers have implemented “super fracking,” a process that creates longer and deeper fractures in the shale to release more oil and natural gas. This process can require up to 100 carloads of frac sand per well compared to the typical 30 to 40 carloads, a potential opportunity for frac sand producers and CN.

STEEL PIPES

CN steel shipments for the oil and gas industry include products such as steel transmission pipes for the construction of pipelines and drilling pipes for extracting oil and gas in the fracking process. While the recent slowdown in the oil and gas industry is impacting the shipments of steel pipes, the long-term fundamentals for this sector remain positive.

MINERALS

The main commodities included in this group are aggregates, cement, roofing materials, non-ferrous ore concentrates and empty railcars.

Through tight co-ordination, CN handled 47 million tons of iron ore in 2014. This strong performance was the result of many factors: trains arriving on time, swapping trains from one dock to another to ensure timely vessel loads, vessels arriving on schedule, swapping vessels when necessary to ensure efficient loading/unloading, excellent operations management by the docks and our end-to-end perspective.

OUTLOOK

The improving U.S. economy is expected to continue to drive demand for finished steel used in vehicles and consumer durables. Steel for road and bridge infrastructure projects, as well as large diameter pipe for pipeline projects, will also support demand. New tank car production to replace DOT-111 tank cars will benefit sheet steel production.

Expanding use of aluminum in industrial production, such as in Ford’s F-150 pickup truck, is creating new markets for the low-cost aluminum producers on CN’s network.

CN is well positioned as one of the largest carriers of frac sand to Western Canada shale plays. An eventual improvement in crude oil prices, coupled with “super fracking,” could provide some upside to our frac sand shipments as well as to shipments of drilling pipe and other commodities tied to oil and gas drilling.

CN’s well-diversified book of business of metals and minerals products positions us to capitalize on growth opportunities. Our Sell One CN program is expected to continue to benefit our customers as they take advantage of our intermodal service to complement our carload service.

“CN is North America’s largest carrier of forest products and, through our network of 21 transload facilities, we offer the continent’s first truly integrated solution.”

Doug MacDonald

Vice-President

Industrial Products

FOREST

PRODUCTS

The Forest Products group includes various types of lumber, panels, paper, wood pulp and other fibres such as logs, recycled paper, wood chips and wood pellets. CN has extensive rail access to the western and eastern Canadian fibre-producing regions, which are among the largest fibre source areas in North America. In the U.S., CN is strategically located to serve both the mid-west and southern U.S. forest products end markets as well as other regions with interline connections to other Class I railroads.

The key drivers for the various forest products are:

•     For lumber and panels: housing construction and renovation activities, primarily in the U.S.; especially single-family homes, which require significantly more lumber than multi-family dwellings.

•     For newsprint: advertising lineage, non-print media and overall economic conditions, primarily in the U.S.

•     For fibres: the consumption of paper, pulpboard and tissue in North American and offshore markets as well as lumber production, which both generates and requires fibres.

In preparing to take advantage of an improving U.S. housing market, CN added 950 new railcars in 2014 and another 325 in 2015 to what was already one of the largest fleets of high-capacity railcars. In addition, through our Sell One CN integrated service, we provide customers the flexibility of using our intermodal service to get wood products to destination.

LUMBER AND PANELS

CN’s lumber and panel shipments originate mainly in Western Canada and are destined for various points in North America and offshore. The U.S. is the primary destination, accounting for over 70 per cent of the segment’s carloads over the past three years.

The U.S. housing market has been slowly recovering and is expected to continue to improve, with 2014 housing starts reaching one million for the first time since 2007, up eight per cent over 2013. CN is well positioned to benefit from this recovery.

The 2009 recession-related downturn in U.S. demand provided opportunities for Canadian producers to diversify the market for Canadian lumber. Lumber shipments to Asia, particularly to China, have increased substantially over the last five years and now represent the second-largest market after the U.S. for CN lumber. The rise in shipments to China reflects increased use of wood for framing purposes. Even with the U.S. recovery, these producers are likely to continue to capitalize on overseas opportunities and maintain a presence in Asia.

U.S. HOUSING RECOVERY

In a positive 2015 home buying season, new home sales have been steadily increasing, reflecting buyer confidence and providing some much-needed release to built-up demand accumulated in recent years. Housing starts have improved since the recession of 2009, reaching one million units in 2014 and are expected to continue to increase over the next few years.

CN’s strong franchise in North America and our leadership position in the movement of forest products will allow us to continue to benefit from the U.S. housing recovery. Our focus on balancing Operational and Service Excellence, combined with our extensive network, provide us with the capacity to ship increasing volumes of lumber, panels and other housing-related products. Close to 10 per cent of CN’s revenues are tied to the housing market, including not only lumber and panels, but also the furniture and electronics needed to equip a new house, the metals needed for the home’s plumbing and appliances, and even the roofing shingles needed to cover it. If it’s on, in or around a new house, CN probably had a hand in getting it there.

CN LUMBER AND PANEL VOLUMES TO THE U.S.

(1) Thousands of carloads

(2) Thousands of units – Source: U.S. Census Bureau

PULP AND PAPER

Wood pulp is used predominantly as a major component in the manufacture of paper, paperboard, tissue, diapers and other personal care products. The majority of CN-served pulp producers are located in Western Canada, with most consumers located overseas, mainly in Asia. Canada is currently the second-largest pulp producer in the world, surpassed only by Brazil.

North American demand for most paper grades is shrinking, with the newsprint sector being the hardest hit. North American newsprint demand fell nine per cent to 6.5 million tonnes in 2014, marking the 15th consecutive year it has decreased. The decline in newsprint consumption is driven largely by increased competition from alternate media sources, including 24-hour television news channels, the Internet and several other new technologies.

A rise in the global trade of forest products is also changing supply and demand flows. Increasing worldwide consumption of pulpboard and tissue products, especially in India, has led to an increase in overseas production capacity. Manufacturers in developing markets, notably China, have been 

forced to import a significant amount of raw materials, primarily wood pulp and recycled paper, from Russia, North America and other fibre-rich regions because of scarce domestic wood-fibre supply.

WOOD PELLETS

Wood pellets are made from compacted sawdust and wood chip residue from the milling of lumber. They can be used as fuel for power generation, commercial or residential heating, and cooking. Wood pellets have a very high combustion efficiency and the EPA in the U.S. has endorsed wood pellet heat as one of the cleanest-burning, most renewable energy sources on earth.

A significant portion of the world’s wood pellet production comes from Canada – and much of that from British Columbia. CN ships about 1.6 million tons annually, or more than 15,000 carloads, helping these producers get their pellets to customers in the United Kingdom, Italy and other countries around the world.

“CN continues to work closely with its coal customers, helping them compete in an ever-evolving global coal market.”

Andy Gonta

Vice-President

Bulk

COAL

Coal is an important commodity for CN. We have direct access to 12 coal mines and seven petroleum coke facilities in Canada and the U.S.

The Coal group consists of thermal grades of bituminous coal, metallurgical coal and petroleum coke. Canadian thermal and metallurgical coal are largely exported via terminals on the west coast of Canada to offshore markets. In the U.S., thermal coal is transported from mines we serve in Illinois, or from western U.S. mines via interchange with other railroads, to major utilities in the midwestern and southern U.S., as well as offshore markets via terminals in the Gulf of Mexico.

The key drivers impacting coal production are:

•     Worldwide supply and demand for thermal and metallurgical coal

•     Mining and environmental regulations

•     Seasonality (cold winters and hot summers increase demand for electricity)

CN has developed a comprehensive end-to-end coal supply chain approach with the ultimate goal of helping our customers gain market share in a very competitive commodity market. We’ve signed innovative agreements with customers and coal terminal operators, and developed an exclusive information system to better manage the flow of coal from mine to ship. Clear metrics highlight coal inventories at mines and ports, the arrival date of vessels, the amount of coal being shipped from mines, as well as the number of trains in transit to and from the mines. We measure the amount of coal on hand, on the trains and at the ports, and adapt our train schedule and frequency to a specific vessel schedule, as required. CN optimizes the supply chain by helping to drive better synchronization between producers, terminals and vessels,

THE RISE OF ILLINOIS BASIN COAL

Demand for coal from the Illinois Basin (IBC) has climbed to its highest level since 1990 as sales of nearby Appalachian coal dipped and consumption of U.S. Powder River Basin (PRB) coal from Wyoming grew at a slower pace. IBC is sought after, despite its greater sulfur content, by utilities that have installed scrubbers on their power plants because of its higher heat content and lower cost. IBC’s share of U.S. production is expected to continue to climb through 2040 according to the U.S. Energy Information Administration.

CN is in the heart of coal country and well positioned to take advantage of the shift towards IBC with shorter hauls to power plants in the Midwest and Southeast. 

66%

GRAIN TRAFFIC

ORIGINATING IN

CANADA

% of 2014 CN grain revenues

•

74%

REGULATED CANADIAN

GRAIN TRAFFIC

% of 2014 CN

Canadian-originating

grain revenues

GRAIN &

FERTILIZERS

The Grain and Fertilizers group transports primarily crops grown and fertilizers processed in Western Canada and the U.S. Midwest.

GRAIN

The grain segment consists of three primary product groups:

•     Food grains (mainly wheat, oats and malting barley)

•     Feed grains and feed-grain products (including feed barley, feed wheat, peas, corn, ethanol and dried distillers grains) 

•     Oilseeds and oilseed products (primarily canola seed, oil and meal as well as soybeans)

Production of grain varies considerably from year to year, affected primarily by weather conditions, seeded and harvested acreage, the mix of grains produced and crop yields. Grain exports are sensitive to the size and quality of the crop produced, international market conditions and foreign government policies.

CANADA

Key offshore markets for western Canadian grain include the Pacific Rim and the Middle East. The grain is moved from a network of high-throughput elevators, well positioned along CN’s lines in the grain-growing areas of northeastern British Columbia, Alberta, Saskatchewan and Manitoba, to port terminal elevators that load vessels in Vancouver and Prince Rupert, BC, as well as Thunder Bay, ON. CN also moves western Canadian grain and processed products to eastern Canadian and U.S. Gulf ports for export, as well as to a variety of domestic receivers in North America.

CN moves significant volumes of grain and processed products with our domestic and international intermodal container service, using Sell One CN to meet the complex needs of the global grain supply chain. CN’s Scheduled

price index. In 2014, grain traffic subject to the revenue cap accounted for approximately 74 per cent of CN’s Canadian-originating grain revenues.

UNITED STATES

In the U.S., the CN rail system is well positioned in the heart of an important grain-producing territory. Four states where CN originates grain traffic – Illinois, Iowa, Michigan and Wisconsin – produce, on average, about 40 per cent of the corn and soybeans grown in the U.S. CN’s domestic grain movements include corn and soybeans from these states to large grain processors in Illinois, Iowa, Tennessee and Mississippi. Other domestic grain movements are to the poultry-feeder markets in the southeastern U.S., which rely on corn for feed. CN also moves grain and grain products to major export facilities on the Mississippi River and in Louisiana on the Gulf of Mexico.

PROCESSED GRAIN PRODUCTS

CN participates in the movement of processed grain products. Some of the leading global agribusinesses have grain- and oilseed-processing plants located on CN lines in Canada and the U.S.

CN is an important contributor in the delivery to North American markets of vegetable oil and meal produced by Canadian oilseed processors. The Canadian canola-crushing industry has expanded capacity in response to increased demand for biodiesel fuels and low-trans-fat edible oils. The seven oilseed crushing plants served by CN in Canada operate more than three quarters of the country’s production capacity and account for over half of all global trade in canola seed, meal and oil.

According to the Canola Council of Canada, canola is one of the world’s healthiest vegetable oils. The oil content of canola seed is roughly 44 per cent oil, which is more than double the oil content of soybeans. Canola oil also contains the least amount of saturated fat of any common edible oil. As a result, demand for canola has been steadily increasing.

Refined canola oil is primarily exported to the U.S. to be used in food processing. Canola oils are commonly used in cooking oil and sprays, as well as an ingredient in salad dressings, margarines and shortenings, baked goods, coffee creamers and for deep frying.

Canola meal is an ingredient in livestock rations. The U.S. consumes 96 per cent of total Canadian canola meal exports, with California accounting for 40 per cent of U.S. imports.

CN directly serves 22 ethanol production facilities in the U.S. and Canada with efficient access to key consumers in the U.S. Midwest. These plants have an estimated annual production capacity of 2.3 billion gallons. CN also has access to an additional 700 million gallons of ethanol production capacity through U.S. short lines. CN’s ethanol traffic reached close to 33,000 carloads in 2014. Ethanol moves exclusively in private rail equipment.

Soybean and corn gluten feed, barley malt, corn syrup and starches are among the other processed grain products moved by CN. These products move mostly in private rail equipment and containers.

FERTILIZERS

Canada is the largest producer of potash in the world and CN serves, or has access to, all the major potash mines in Saskatchewan, the centre for western Canadian production. The majority of Canadian potash moves by rail to markets in the U.S. or to ports for export to overseas markets. CN’s train design is highly efficient, using DP locomotives pulling up to 170-car trains.

In the U.S., CN serves producers and consumers of various types of fertilizers, including nitrogen solutions, ammonium nitrate, urea and phosphate fertilizers. North American fertilizer production is heavily affected by the price of natural gas – a main raw material for most fertilizer production. These products move in a mix of private and CN rail equipment. 

OUTLOOK

The 2014/15 Canadian grain crop represented a significant reduction toward the historical trend line while the U.S. grain crop was above trend. CN assumes that the 2015/16 grain crop in Canada will be below the five-year average and that the U.S. crop will be above the five-year average.

CN believes that the strength of its network, supply chain focus and execution capabilities position it as an important player in the grain supply chains of its customers. Our Sell One CN principle and our “match-back” of ocean carrier containers to ship grain internationally allow CN to make the most efficient use of assets. In the U.S., the key CN-served states of Illinois, Iowa, Michigan and Wisconsin will continue to play a major role in supplying the demand for corn and soybeans in domestic and international markets. In Canada, CN’s extensive grain-gathering network and export connections, including unique access to two West Coast ports, are a competitive advantage that we believe will allow us to maintain our position in the Canadian grain industry.

Potash demand continues to grow and Canada has a strong competitive position in world markets. The world’s growing population and limited arable land mean that crop yield improvements will play a critical role in meeting the increasing demand for food, underscoring solid demand for fertilizers. CN is well positioned to benefit from an increase in demand through our broad North American franchise and connections to key ports. 

INTERMODAL

CN’s intermodal terminals are located near ports and large urban centres, allowing goods to access major markets in North America and overseas. The Intermodal group includes rail and trucking services and is comprised of two segments: international and domestic.

INTERNATIONAL

CN Intermodal’s international segment handles import and export container traffic on behalf of ocean carrier companies, directly serving the major ports of Vancouver, Prince Rupert, Montreal, Halifax and New Orleans. The international segment is driven by world and North American economic and trade conditions. On the West Coast, CN serves the ports of Vancouver and Prince Rupert, key trade gateways between North America and Asia. CN’s route to and from the West Coast benefits from the lowest grades through the Rockies, leading to fuel efficiency and quick speed to market. The Port of Prince Rupert, the closest port to Asia, coupled with the speed and reliability of CN’s network, offers a key supply chain advantage to the Asian market over other West Coast ports. On the East Coast, CN serves the ports of Montreal and Halifax, providing key trade links between North America and Europe.

CN’s supply chain approach has been a key growth driver for the international segment through innovative collaboration agreements with all major ports and terminal operators in Canada, developed with real-time performance metrics and a proactive approach. In addition, CN’s extensive network of intermodal terminals provides our customers the ability to discharge more of their traffic at CN-served ports.

CN intends to continue increasing our intermodal footprint. In early 2015, we announced a plan to build a $250-million intermodal and logistics facility in Milton, ON, to help us efficiently handle growing intermodal traffic in the Greater Toronto and Hamilton Area. The new hub will benefit our customers and the regional economy by improving Central Canada’s access to the key transborder market as well as the Pacific and Atlantic coast trade gateways we serve, generating new supply chain efficiencies and creating well-paying local jobs. This project will be submitted for review to the Canadian Environmental Assessment Agency.

CN has developed a strong network of logistics parks strategically located in, or adjacent to, our intermodal rail yards in Calgary, Chicago, Memphis, Montreal and Toronto. Our logistics parks are multi-functional facilities connecting rail with trucks, vessels and barges, as well as offering warehousing and distribution services.

Ocean carriers need export traffic to balance their shipments and cover the cost of bringing equipment back to the overseas origins. CN has invested in an extensive network of transload facilities to assist ocean carriers in securing export commodity traffic and helping them with their round-trip economics. In line with our Sell One CN approach, we work closely with ocean carriers to develop a multitude of export opportunities in all our core service offerings, such as grain in the U.S. Midwest and Canadian Prairies, forest products and pork in Western Canada, and many others.

DOMESTIC

CN’s domestic intermodal segment transports consumer products, manufactured goods and natural resources, within and between Canada, the U.S. and Mexico. The domestic segment is divided into wholesale and 

retail services and is driven by North American consumer markets. Growth is generally tied to the economy and competition from trucks.

In our door-to-door retail service, CN provides all the required equipment along with in-house CNTL trucking services. CNTL is one of Canada’s largest trucking companies operating with more than 1,000 independent drivers and a fleet of 8,000 chassis and 8,500 containers (including dry, heated and refrigerated 53-foot containers and insulated 40-foot containers), giving our customers access to a large portion of the North American population.

Our wholesale offering provides terminal-to-terminal train service to motor carriers, intermodal marketing companies, third-party logistics companies, couriers and other transportation intermediaries in conjunction with CN partners. Wholesale customers provide all required trucks, containers and other value-added services.

CN’s 40-foot EcoTherm^® temperature-controlled containers do not require fuel to prevent the contents from freezing, thus making them a greener transportation solution. CN also has access to 20-foot and 40-foot containers from its ocean carrier customers to market to its domestic customers. These containers would otherwise be returned empty from the U.S. or Canada to ports.

The domestic market headhaul lanes are often the backhaul (export) lanes for ocean carriers. The use of these one-way containers in CN’s Domestic Repositioning Program (DRP) provides low-cost capacity to domestic shippers and reduces inland costs for ocean carriers. CN continues to expand the DRP service, which is now also offered in the U.S. This enables CN to increase our share of international containers as we help to improve ocean carriers’ round-trip economics. Today, close to 20 per cent of CN-handled 40-foot container imports through the West Coast are used in our DRP.

THE COOLEST TREND IN TRANSBORDER SERVICE

CN’s CargoCool^® service provides a fast, convenient, cost-competitive and eco-friendly approach to moving temperature-sensitive goods like fresh produce and frozen meat in corridors such as California – Ontario, Alberta – Texas and Chicago – Western Canada.

KEY FEATURES OF CARGOCOOL^®

•  Some of the fastest transit times in the industry, along with an on-time arrival rate of over 90 per cent

•  Recently purchased over 200 next-generation 53’ reefer containers

•  A state-of-the-art monitoring system and dedicated team

•  A superior cold chain exception management process enhances food security

CN’s domestic service is also benefiting from new product offerings such as transborder refrigerated container (reefer), U.S. northbound less-than-truckload (LTL) services and specialized equipment to enter new markets (e.g., trays for steel products as well as flexitanks for liquids).

As a transportation leader in the automotive industry with connections to ports on three coasts, CN handles over 2.2 million vehicles annually in North America and over 60 per cent of the cars produced in Canada.

Through our extensive network of 17 automotive distribution facilities, CN moves both finished vehicles and parts throughout North America, providing rail access to 16 vehicle assembly plants in Ontario, Michigan and Mississippi. We also serve vehicle distribution facilities in Canada and the U.S., as well as parts production facilities in Michigan and Ontario. CN serves shippers of import vehicles via the ports of Halifax and Vancouver, and through interchange with other railroads. CN’s automotive revenues are closely correlated to automotive production and sales in North America.

CN’s north-south positioning – with rail connections to all Class I carriers at major gateways including Chicago, IL, Detroit, MI, and Buffalo, NY – offers automotive customers routing alternatives between Canadian, U.S. and Mexican locations. CN also offers service beyond the Chicago gateway, extending its automotive reach to a variety of interchange locations including Salem, IL, and Memphis, TN.

CN Autoport ^®, a subsidiary company, offers the industry’s most comprehensive range of value-added services through processing and distribution centres across Canada and the U.S. Customers such as Ford, GM and Chrysler, as well as European, Japanese and Korean manufacturers, rely on CN Autoport ^® services

These services include:

•   Original equipment manufacturer (OEM) vehicle inventory management

•   Quality assurance and pre-delivery inspections

•   Railcar loading and off-loading 

•   Vehicle release to haul-away carriers

Autoport ® also provides vehicle preparation services, including:

• Mechanical, paint and body-shop work

• Battery, accessory and air conditioning installation 

• Wrap guard

Each component of the comprehensive Autoport ^® service is an integral part of the finished vehicle supply chain.

OUTLOOK

Vehicle sales in Canada are expected to remain on a general upward trend. In the U.S., the improving economy, low borrowing costs and an aging fleet of vehicles, are expected to provide continued growth in vehicle sales. CN is also well positioned to take advantage of new production coming online in Mexico by focusing on destination markets for those vehicles.

CN is well placed to handle this growth, serving automotive production and import facilities that provide vehicles for the North American market. We will continue to work with our automotive customers to develop new supply chain opportunities that will optimize our rail network and assets for domestic and global distribution of vehicles and automotive parts.

What differentiates us from our competition isn’t our locomotives or our tracks, but rather our people. Our 25,000 railroaders bring essential skills and all play important roles in keeping CN’s operations running smoothly. 

CN is devoting significant resources to onboarding and training a new generation of railroaders across our network. The imperative for the investment is clear: since 2010 CN has hired 14,000 people to replace retiring or departing employees and to accommodate growth in freight traffic. In 2014 alone, CN onboarded more than 3,900 new employees. This seismic shift in CN’s workforce is evidenced by the fact that Generation Y – people in their 20s and 30s – now accounts for 40 per cent of our workforce, the largest segment of our employee population.

CN’s Talent Management Strategy is an integrated approach composed of four main elements: Attract, Onboard, Connect and Develop. The strategy is designed to ensure CN has an engaged workforce with the right people in the right place at the right time. 

ATTRACT 

As our retiring employees exit the workforce, we are proud so many younger people are choosing CN. We are more than ready for this demographic shift and continue to focus on workforce planning and recruitment.

To support our hiring efforts, we have a multi-channel recruitment process: 

• Our workforce planning model provides a solid forecast so we can hire in advance of attrition, where needed

DEVELOPING

THE NEXT

GENERATION OF
RAILROADERS

• Aboriginal engagement training, which introduces CN employees to Aboriginal culture and history, and strengthens our ties with their communities

• Celebration of key events such as Black History Month, International Women’s Day, Aboriginal Day, and the International Day for Persons with Disabilities

HUMAN RIGHTS 

Upholding the human rights of our employees and the public at large is simply the right thing to do. While CN is not a signatory to the United Nations Global Compact (UNGC), our approach to sustainability is aligned with the ten UNGC principles in the areas of human rights, labor, environment, and anti-corruption. Human rights are the basic rights and freedoms that belong to every person, regardless of age, race, colour, religion, disability, gender and sexual orientation – and they are embodied in our Code of Business Conduct by which every CN employee must abide. 

We do not tolerate harassment or discrimination in any form and we hold all CN leaders responsible for the enforcement of these policies and guidelines – every day. These principles also protect our customers, suppliers and contractors. Furthermore, we respond promptly to complaints and work to ensure they are resolved quickly, confidentially and without retaliation.

HEALTH AND WELLNESS

Health and safety are things we take very seriously at CN. Our health and wellness program – CN Traction – supports good health habits and active living. The program is supported by Wellness Champions – volunteers who help get the word out regarding good health by encouraging their fellow railroaders to participate in wellness activities at work and at home.

As part of our ongoing commitment to keep our people healthy, safe and protected, we have zero tolerance for violence in the workplace, as stated in CN’s Workplace Violence Prevention Policy, applicable in both Canada and the U.S. We also have zero tolerance for drug and alcohol impairment in the workplace.

LABOR RELATIONS

Maintaining positive working relationships with our unions and membership is of critical importance to CN given that our labor relations are governed by over 75 different collective agreements in the U.S. and Canada. It is to the benefit of all parties that negotiations to renew these agreements are conducted honestly and in good faith.

CANADA

As at the end of 2014, CN employed a total of 17,732 employees in Canada, of which 13,335 were unionized.

UNITED STATES 

As at the end of 2014, CN employed a total of 7,798 employees in the U.S., of which 6,137 were unionized.

SPEAKING UP, FOR EVERYONE’S SAKE

Looking out for each other is an integral part of CN’s industry-leading safety culture. Starting in the fall of 2015, a new phase is being launched with training for thousands of Operations employees on keeping each other safe. The joint union-management initiative will emphasize the importance of constant vigilance of one’s surroundings and of speaking up to a colleague if unsafe acts are observed. The goal is simple: we all go home safe at the end of the day.

TRAIN ACCIDENT RATIOS 

CN’s 2014 train accident ratios were adversely affected by the most severe winter on record as well as by a rapid and significant increase in volumes on our secondary main track in Western Canada. To achieve our 2015 target, we are:

•     Implementing the recommendations of CN’s Safety Task Force, which was established to reduce accidents and injuries

•     Having each division of the railroad continue to focus on critical safety rules, which account for the majority of non-main track accidents

•     Issuing “Expectations for Safety Leaders,” which clarifies the proactive measures for safety that are expected of general managers, superintendents and functional leaders

•     Continuing Corridor Risk Assessments focused on CN’s secondary main track and implementation of technologies and processes to further enhance derailment prevention

•     Increasing capital investment and focus on areas impacting safety

•     Maintaining the focus on rules compliance and safety culture

•     Continuing the work of the CN Technology Working Group, a multi-functional team that looks at safety data to drive improvement

and branch lines. We are also upgrading over 30 existing locations to the latest detector technology. CN has integrated these detectors into a central computer system, which allows for proactive monitoring of “warm” bearings and ensures their removal prior to a problem. This forward-thinking use of the technology has allowed us to reduce HBD alarms by two thirds since 1996. Derailments caused by overheated bearings have dropped by 64 per cent since the late 1990s. Also in 2014, CN installed 33 new dragging equipment detectors (DED) system-wide. In total, CN has 398 stand-alone DEDs in addition to those integrated in our WIS units. In 2015, we plan to install an additional 21 DEDs to protect key structures and waterways.

Hot and Cold Wheel Detectors (HWD & CWD) are used to monitor the temperature of railcar wheels. A hot wheel is normally an indicator of a stuck hand or air brake. A cold wheel, especially at the bottom of long grades, indicates inadequate brake shoe force. CN has added more than 100 HWDs in the past five years, bringing the total to 593 by the end of 2014 with spacing of 20 to 25 miles on our core network. We also have five strategically placed CWDs. In 2015, CN plans to retrofit five WIS locations on the Yazoo Subdivision in Mississippi to include HWDs. In 2014, CN performed over 49,000 single air brake tests to diagnose air brake problems.

Wheel Impact Load Detectors (WILDs) detect wheels that have surface flat spots and other imperfections that can lead to broken wheels or broken rails. CN uses the information provided by WILD sites to help assess wheel replacement or maintenance needs. CN installed a new WILD on the Chicago-to-Winnipeg corridor in 2014. With 40 WILDs on its system, CN continues to have the largest and most dense network in North America. In 2015, CN plans to install one new WILD on the Fulton Subdivision in Kentucky. CN changes about 80,000 wheel sets (pairs of wheels) per year for all reasons, including sets with defects found by WILDs.

Truck Hunting Detectors (THD) prevent excessive rail and truck wear as well as derailments by looking for dynamic behaviour (hunting) on the track. In 2014, CN added four THDs at three locations. CN now has six THDs in four locations.

Wheel Dimension and Profile Detectors (WDPD) are based on a new technology that uses laser and strobe video to capture wheel profile information as a train passes over the site at speeds of up to 65 mph in order to identify wheels that need replacement. CN has established three WDPD sites on its network.

Image Detection System is designed to assess railcar components and track safety conditions. The system can find a missing bolt on a train moving at track speed. The system transmits an image of any defect in real time, 24 hours a day. In 2015, CN installed this state-of-the-art system on the York Subdivision, just east of Toronto, ON. We plan to install a second module at this location later in 2015.

IN TRANSPORTATION

Trip Optimizer (TO) is an intelligent cruise control system that automatically determines optimal throttle settings on locomotives, improving train handling and fuel economy. TO controls throttle adjustments to reduce in-train forces, minimizing the potential for train separations or damage to our customers’ goods. In 2014, TO was operational on 314 CN locomotives. We plan to add TO on the 90 new locomotive purchases in 2015.

Locomotive Simulators provide computer-based simulation of train driving and rail transport operations. They are valuable tools in locomotive engineer training as well as operational standards and policy development.

Positive Train Control (PTC) is a system for monitoring and controlling train movements to automatically stop or slow a train to prevent incidents. The U.S. Rail Safety Improvement Act of 2008 requires Class I railroads to install PTC systems on tracks that carry passengers or toxic-by-inhalation (TIH) materials by the end of 2015. PTC is one of the most technologically complex initiatives the railway industry has ever undertaken. The PTC deployment initiative in the U.S. has been affected by significant delays in the development of several key technologies and components, as well as in the permitting processes for radio towers. As a result, the U.S. rail industry, including CN, has formally declared it will not be able to achieve the 2015 year-end deadline for complete implementation of PTC despite its best efforts to do so. The industry says it will not be in a position to implement the technology before 2018, with a further two years of testing required to ensure full interoperability.

CN’s total implementation costs associated with PTC are estimated to be US$550 million, of which approximately US$100 million was spent at the end of 2014. In total, CN will be installing PTC on approximately 3,800 miles of track in the U.S.

Distributed Power (DP) allows powered locomotives to be located “remotely” on a train other than at the head. Using DP, locomotives placed in a mid-train and/or tail-end position are controlled from the lead locomotive. DP provides more uniform tractive effort, lower in-train forces and more effective braking, thus reducing the potential of separations and/or derailments. At the end of 2014, CN had 590 locomotives equipped with DP in our fleet. In 2015, we plan to add 90 new AC locomotives to our DP fleet. In January 2015, CN also added 10 new Distributed Braking cars to assist in providing efficient and safe air brake operations, especially in winter.