14 November 2008
Q+A With CP Rail's Fred Green
After an impressive run in recent years, the clouds are starting
to form over North America's top-tier railways.
The economy is foundering and so are rail volumes.
In fact, Canadian Pacific Railway Ltd. pushed off giving its earnings guidance at its annual investor conference this week, saying the
continued uncertainty would make it impossible to give an accurate outlook for 2009 given the current turmoil.
Compounding those concerns is the potential for a tighter regulatory environment in the United States now that the Democrats have
taken the presidency and both levels of Congress.
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Fred Green.
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Fred Green, CP chief executive, sat down to discuss these issues with the Financial Post on Friday.
Q: Is there much of a chance for consolidation in the industry if this winds up being a much more protracted
downturn?
A: It's interesting because when you have massive change in the economy, in principle, that can be a stimulus for some
form of consolidation. But countering that, you have the Democratic changes in the U.S. government, and they will populate some of the
regulatory bodies also. I think that the combination of those things leads to it being very unlikely that you would see any
Class-1 consolidation.
Q: You said this week you were worried there might be a bias in Washington towards re-regulation now that
the Democrats are in power. Why?
A: I wouldn't call it worried, but I'm practical. There's a movement afoot now that railroads - after 20 years of not
making any money - finally have had two or three years where they're approaching the point where they earn their cost of capital. All
of a sudden everybody on the other side thinks it's time to once again regulate the industry and once again take the value out of the
rail industry and give it to the shippers. The shipper groups, and there are a handful of them in the States that have been pleading
the "re-regulation game" for a long time, will simply have a more sympathetic audience with a Democratic
government than they might have had with the Republicans, and it's simply based on the left-leaning vs. the
right-leaning fundamental orientation of Republicans and Democrats. These are groups that have been largely silent during
2005 and 2006. But you started to hear a little bit of rumblings from some of the shipper lobby groups in 2008, and I think it's
guaranteed you'll hear more from them now that they think they have a more receptive government in the House.
Q: What's it like to be steering the railway into so much uncertainty?
A: Interestingly enough, we are probably more seasoned and more experienced at managing in difficult times than we are
at managing in good times. It sounds a bit odd, but if you look at our industry's history in the 1980's, the 1990's, and even in the
early 2000's, our existence was really a function of our ability to trim and manage and maintain costs and minimize fixed costs. It's
really only in the last three or four years that we had to almost relearn the ability to grow and the kinds of skills and competencies
to do that. You can probably argue that I am - and most of the management team - is heading into a space we're more comfortable
in.
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