9 May 2008
Canadian Pacific Engineering Steps to Ensure Steady Flow of Grain: CEO
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Fred Green, President and CEO of Canadian Pacific Railway,
addresses shareholders.
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Calgary Alberta - Canadian Pacific Railway Ltd. is taking
steps to make sure grain and other high-demand commodities flow more smoothly across the continent, the company's chief
executive said Friday.
Fred Green said the railway "took away some learnings" from the past few quarters, which were beset by weather delays and
other operational challenges.
"We learned that our grain processors across Canada were built for the era prior to the recent grain company merger activity, and
we were not adaptable enough when the forces of the severe winter impacted the supply chain," Green told the company's annual
meeting in Winnipeg.
"To address this, several organizational changes were implemented in April to better align to our new grain world."
The railway has appointed a new vice-president of grain, and new managers to oversee grain shipment and bulk pulp lines in
the Port of Vancouver.
"With these leaders now in place, we will make process changes to ensure that CP is not the bottleneck in the grain supply
chain."
Green said the railway is poised to take advantage of a strong agriculture industry, with prices of wheat, corn, soybeans, and rice
surging because of soaring demand.
"With record crop prices and strong global demand, our role is to enable the industry's success by having the right capacity in
the right place at the right time - something that will serve both CP and our clients very well for years to come."
Over the trying winter, marked by bitter cold throughout the Prairies and record snowfall in Eastern Canada, the railway also learned
that demand for bulk services is "robust - perhaps even stronger than we thought, not only for today, but very likely well into
the future," Green said.
"As such, we are selectively expanding our track capacity to meet demand, but of equal importance to drive efficiency - a
cornerstone of our game plan every year."
Tom Varesh, an analyst with Canaccord Adams, said it would be a good idea for Canadian Pacific to lay down a second set of tracks
alongside its existing lines in some high-traffic parts of the country.
"That would allow them to bypass a slower-moving train or a train that perhaps would be holding up this grain
shipment," he said in an interview.
At the shareholder meeting Green said the railway is "actively advocating" expanding capacity at the Port of Vancouver so
that high-demand commodities like grain, coal, and potash can be more efficiently shipped to booming Asian markets like
China and India.
"We believe it's critical that all supply chain partners are engaged in the process. We are only as strong as the weakest link in
the supply chain," Green said.
Last fall Canadian Pacific announced the $1.48-billion acquisition of Dakota, Minnesota & Eastern Railroad Corp.,
which would give the railway access to the U.S. Midwest.
Green said he expects to see a "very smooth transition" when CP takes control of DM&E on 30 Oct 2008.
However, there has been some resistance to a planned expansion of that railway into Wyoming's coal-rich Powder River Basin.
The so-called "Rochester Coalition" wants the extended railway to bypass the Rochester, Minn., area, where
opponents say a train accident could endanger patients at the renown Mayo Clinic.
Despite the challenges ahead, Varesh said his outlook for Canadian Pacific is "very positive," giving it a "buy"
rating with an $80 share price target.
Shares in Canadian Pacific were down $1.14 to $73.34 Friday afternoon on the Toronto Stock Exchange, with a 52-week high
and low of $91.00 and $57.30.
Rising prices for coal in particular are expected to be a boon, Varesh said. Fording Canadian Coal Trust has just settled contracts for
most of its coal sales at US$275 per tonne, compared with US$93 last year.
Canadian Pacific's five-year contract to ship coal from Fording's mines to Vancouver for export is set to expire in
March 2009, so the higher prices will not have an effect on the railway's business for a few quarters.
"If commodity prices for coal stay where they are, we're expecting a significant bump in terms of the money they make off
hauling coal and that can have significant upside to the stock," Varesh said.
But there is a risk that volumes may drop off if "the commodity bubble bursts."
And uncontrollable factors like weather are always a risk, Varesh said.
"Railroading in Canada is an outdoor sport, so winter's always a challenge."
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