16 January 2006
CP Rail Cuts Jobs to Keep Pace with CN
Canadian Pacific Railway Ltd. plans to cut nearly 400 management and office support jobs, or 15
percent of its white-collar positions, industry and labour officials say.
The Calgary-based company seeks productivity gains to narrow the gap between it and larger rival Canadian National Railway
Co., say sources familiar with the cuts.
Many of the non-unionized CPR employees affected include those who transferred to Calgary from Montreal in 1996, when CPR
moved its head office to Alberta.
The office shakeup is designed to be carried out through attrition as some managers accept buyout packages and others take early retirement. Some of the administrative staff left CPR last month and others are scheduled to follow at the end of January or later this year.
Another 140 people have been or will be laid off in the so-called "running trades" - train crews and others such
as carpenters and maintenance workers - but many of those blue-collar positions could be filled again if commodity
shipments pick up, sources say.
CPR spokesman Len Cocolicchio declined to comment on the office cuts, which are hitting Calgary headquarters as well as branches in
other cities. But he confirmed that 140 trade positions have been affected. "That reflects some softness in our coal volumes, as
well as the impact of a mild winter in many areas. We anticipate that the unionized layoffs will be temporary."
Mild weather has contributed to the crew reductions because extra workers normally required to help keep the trains running in the cold
haven't been needed, he said.
The Teamsters Canada Rail Conference union is bearing the brunt of the crew layoffs. Union president Gilles Halle said he expects that
most of his members will return to work by this spring because demand is still generally strong for rail services, but managers who
remain will have to step up their productivity and adjust to a heavier work load.
"Managers already work long hours and take their briefcases home on the weekend," he said.
CN's third-quarter operating ratio fell to 63.3 percent from 65.4 percent in the same period in 2004.
The ratio is a key industry measure arrived at by dividing operating expenses by operating revenue.
At CPR, the third-quarter operating ratio fell to 77.4 percent from 77.9 percent. CN's lower ratio indicates it was able
to better control its expenses and boost revenue.
"CPR is realigning, and getting leaner and meaner. Many people who made the big move from Montreal are now part of this big move
to downsize," said Tom Murphy, president of Local 101 of the Canadian Auto Workers union, which represents repair-shop
employees such as mechanics.
The CAW isn't suffering any CPR job losses in this round of downsizing of 540 positions, which represents a 3 percent decrease in the
work force. The railway, which averaged almost 16,400 employees in the first nine months of 2005, employed 16,880 people last fall.
CPR chopped 820 positions in parts of its rail system from mid-2003 until late 2005, although it hired workers for a
recent expansion program and added staff to handle business growth in some areas.
Montreal-based CN had 22,100 staff at the end of the third quarter, down from 23,400 a year earlier, but Canada's largest
railway hasn't launched any new campaign this year to reduce its head count.
CPR shares rose 15 cents to $47.27 Friday on the Toronto Stock Exchange.
The shares have fallen 8 percent since 7 Dec 2005 when its customer Fording Canadian Oil Trust indicated it would be
making lower coal shipments. However the shares are still 18 percent higher than mid-January of 2005.
Calgary-based Fording, majority owner of Elk Valley Coal Partnership, said production at Elk Valley's B.C. mines would be
lower than forecast because of a shortage of tires for trucks used at coal sites.
Randy Cousins, an analyst with BMO Nesbitt Burns Inc., said that while the stock prices of major North American railways staged a
rally during most of 2005, there has been a pullback in recent weeks.
"It's quite natural to pause and refresh. Thematically, there's a strong flow of goods internationally," Mr. Cousins said.
Spurred by robust trade, the outlook for the railway industry in 2006 is bright, he said, noting locomotives are more
fuel-efficient than trucks, which compete for transport contracts.
David Newman, an analyst with National Bank Financial Inc., said CPR is facing "business headwinds" such as
lower-than-forecast coal and potash shipments, but the railway's stock price appears undervalued. He has a
52-week target price of $54 on CPR.
CPR recently completed a $160-million program to boost freight capacity in Western Canada by 12 percent to help the
railway handle booming Asian trade.
"The back office people are disappearing because the rail systems are running more efficiently," another analyst said.
CN reports fourth-quarter and 2005 results on 24 Jan 2006. CPR will release its financial report on
31 Jan 2006.
Analysts' consensus estimate for CN's fourth-quarter profit is $1.54 a share, up 19 percent from the same period in 2004.
The fourth-quarter forecast for CPR is 94 cents a share, up 29 percent from a year earlier.
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