1 December 2008
Steady As She Goes
 Ask the average Canadian Pacific Railway line
employee what's going on at the railroad, and the answer today is apt to be: "More of the same." That answer is indeed
correct, but an outside observer is apt to modify it.
CP is, indeed, doing more of the same - a lot more than when Railway Age took an in-depth look at this
127-year-old icon of Canadian transportation back in 2004. True, with the exception of the 2007 acquisition of the
Dakota, Minnesota & Eastern system in the U.S. Midwest (more on that later), there have been no earth-shattering
moves. It's been a "steady as she goes" approach to running the transcontinental road's 14,000-mile,
trans-border system according to a plan that seeks to optimize the value of every employee, asset, and market opportunity.
That this approach is working in uncertain economic times - times that saw CP stock lose value on Wall Street - has been noted by
investment analysts in recent weeks. Dahlman Rose & Co. Director Equity Research and Railway Age Contributing Editor Jason Seidl
said on 1 Oct 2008, "Our sense is that Canadian Pacific is in the early stages of a turnaround, fueled by a solid
bulk business, as well as the DM&E acquisition... We continue to believe that CP's shares represent a good value for patient
long-term investors and maintain our buy rating."
This was quickly borne out when CP reported earnings on 27 Oct 2008 exceeding Wall Street expectations.
In further reassuring an understandably anxious workforce, CP President Fred Green told them in October that the company had
"performed exceptionally well between 2004-2007, but 2008 has been a challenge." Adding to the economic and
traffic challenges were those that nature threw on CP's right-of-way. There was severe flooding in the U.S. Midwest
during the second quarter of 2008, and the consequences of a bitterly cold and snowy winter all across Canada were brutal. Still,
Green gave employees many reasons for optimism and encouraged them to "remain focused on our game plan. We will become the safest
and most fluid railway... We have a solid plan."
Facts demonstrate that CP's longstanding plan to make its venerable and well-maintained machine do progressively more is
already well along in reaching that goal, economic jitters and weather variables notwithstanding. "Making the assets sweat"
has long been the rallying cry at CP's Calgary headquarters and all across the property.
"That's still one of our top priorities," says Executive Vice President and Chief Financial Officer Kathryn McQuade.
"Asset turn is going to be even a bigger focus for us in terms of productivity. In everything we do in terms of our
infrastructure and our capital projects, we'll continue trying to get more out of what we have. We have difficulties if there is
flooding in the Midwest, or an avalanche in the Rockies, but I think our ability to recover very quickly shows the resiliency of our
infrastructure."
With economic storm clouds hanging over the heads of all North American business today, resiliency is a commodity that any of them
would be glad to have onboard. CP sees the dangers, but believes it has good reason to remain optimistic and not drop the ball on the
plans it has carefully crafted and implemented in recent years.
Says McQuade, "What we're seeing is not really unique, in terms of softness in automotive and forest products. We're still seeing
strength in the steel industry, which is largely being driven by China's growth. Of course, there can be pipeline and basic supply
issues. Canadian grain is late this year and there are production problems with some of our major coal and potash customers right now
that may drive some of our year-over-year volumes down. But when you look at the overall market - whether that's potash,
coal, sulfur, or other resources - we still feel very bullish and we've positioned ourselves to handle the anticipated growth in those
areas."
"Every little item contributes something, but when you start getting a critical mass of all those different initiatives, then you
get a compounding effect, especially in terms of fluidity," says McQuade, who joined CP in 2007 after 26 years with NS.
"It's very hard to judge what one specific action will do, but when you take a combination of various activities, you end up with
a network impact. That's where we're driving, looking to constantly improve the entire network, not just one corridor or individual
piece of it."
Discipline, with Flexibility
A key element of this drive for accelerated performance (which CP has labeled internally as Execution Excellence for Efficiency) is
actually a dichotomy: discipline and predictability, but also flexibility resulting from the compounding effect of all these
improvements. A parallel objective is added capacity without added capital. Says McQuade, "We are driving to balance all portions
of our operations and take a network view as opposed to a piecemeal approach. And understanding that even within a single year,
depending on the demand on the infrastructure, one ideal situation doesn't work all the time. A train configuration that we use in the
fall may not be ideal in the winter or the spring. What are the variables that drive the changes to that optimum in terms of demand,
time of year, weather conditions, or anything like that? The sophistication around being able to optimize is really growing."
Delivering on that objective is at the heart of CP's MaxNet program, defined as "the next steps toward a fully functional IOP; a
systemwide rollout of best practices in execution excellence, gleaned from lessons learned on the demanding training ground of our
Western Corridor (Moose Jaw-Vancouver)."
That prototype program, dubbed MaxWest, made CP planners and managers consider all the elements involved in delivering service with
clock-like consistency, including train priorities, planning, spacing, and staging. It required that running trades crews
be better coordinated and managed, and engineering services work times be blocked and used more effectively.
The result was a double-digit percentage increase in train speeds on the grueling crossings of the Rocky, Selkirk,
Monashee, and Coastal mountain ranges between Calgary and Vancouver. Station dwell times at the Revelstoke, Kamloops, North Bend, and
Boston Bar crew change points also saw dwell time reductions in the double digits. Vice President-Corporate Planning Don
Campbell says this is just another example of the hidden benefits that continue to flow from WestCap and subsequent improvements made
under CP's annual capital investment plan, which will total $885 million-$895 million in 2008, unchanged from last year.
Says Campbell, "It was very easy for us to do all of our detailed planning and simulations to have a point of view on what we
thought would be available in terms of additional train capacity. What we didn't anticipate fully was the fluidity benefits that just
spread, basically, across the whole network. We've seen that manifested in better asset turns, better use of our running trades
employees, and a better crew-start-to-train-start ratio."
Faster, Longer Trains
The improved crew utilization resulting from increased train speed is being felt elsewhere, too. CP is now negotiating with the
Teamsters Canada Rail Conference, which represents its engineers and conductors, to implement run-throughs on expedited
service trains on the 266-mile Brandon, Manitoba-Moose Jaw and 258-mile Moose
Jaw-Medicine Hat, Alberta, segments of the transcontinental main, as well as the 217-mile Golden,
B.C.-Kamloops portion of the "coal loop" that originates in the Kootenay mines of southern British
Columbia.
Not only are CP's trains getting faster and spending less time in yards and crew change points, they're also getting longer. On
14 Sep 2008, the railroad completed operation of a 142-car, 20,400-ton solid potash train from
the Canpotex mine in Bredenbury, Saskatchewan, to Neptune Terminals in North Vancouver, accessed via CN's Second Narrows crossing of
Burrard Inlet. By repositioning the distributed power, CP was able to boost tonnage 17% over the previous heavy haul model and exceed
the haulage limit for four-unit lashups set by the controlling westward grade at Medicine Hat. The special train used two
head-end units, one mid-train and another on the tail-end; the previous model was two each at
the head-end and mid-train. This is expected to become the new standard and will have a major impact on
train and crew utilization. This configuration also dramatically lowers lateral forces exerted by CP's heaviest trains, and a 20% drop
in those forces can double asset life. Much research has gone into this aspect of CP's heavy haul operation, including installation of
BCI Engineering lateral force measurement gear on the sinuous, heavily-graded Mountain and Shuswap subdivisions between
Field and Kamloops.
This and the equally rugged section of the main line through northern Ontario have also benefited from what CP General
Manager-Technical Standards Mike Roney describes as a total friction management program that is "reducing the stress
state of the railway to lower costs and support a fluid operation."
This is being done in conjunction with the Portec Rail Group that includes Portec Rail Products, Inc., and its wholly owned
subsidiary, Kelsan Technologies, Portec Rail Products, Ltd., and Portec Rail's Railway Maintenance Products Division. It involves
application of KELTRACK® Top of Rail friction modifier using PROTECTOR® IV technology to control surface friction, upgrading
of all gauge face lubricators, applicator remote monitoring with Portec Rail Remote Performance Monitoring™ technology,
implementation of a bulk delivery system, and Portec Rail's assumption of upgrading and ongoing maintenance using CP workers. Portec
Rail has done this for about four years between the Sudbury area and Thunder Bay in northern Ontario. The 2008 program covered 450
miles with 150 lubricators between Field and Vancouver. Another 450 miles will be added next year between Calgary and Field, and on
the southern B.C. coal route, bringing the total up to 325 Top of Rail Applicators.
Says Roney, "We estimate the rail wear improvements will pay for the program within two years, and there will be a savings of
more than 1.3 million gallons of fuel in 2009 just from this year's work. We're expecting rail life savings to pay for the western
project within two years, and rail wear savings to escalate from $1 million in the first year to $3.5 million in the fifth."
Also under way in that rugged territory is the testing of two 132-car trains of Trinity Rail Leasing aluminum rotary dump
coal cars equipped with Wabtec stand-alone electronically controlled pneumatic brakes. The first set arrived in September
and another followed a month later, with both now in revenue service hauling export coal from southern B.C. to Vancouver.
Another test program is assessing the full slate of environmentally friendly, four-axle yard and road switchers. To date,
CP has purchased two National Railway Equipment 3GS-21B units and sampled EMD's GP22ECO and Railpower Technologies'
RP20BD. Still to be tested are units from MotivePower Inc., Progress Rail, Brandt Road Rail, and GE Transportation. The
eco-friendly test program will compare gensets and conventional engines, and will extend through the summer of 2009. CP
points out that prior environmental and fuel efficiency initiatives have cut emissions per revenue ton-mile by 24.1%
since 1990, while RTMs increased 37.4%. Three-quarters of its locomotive fleet is now equipped with automatic engine
start/stop technology to reduce emissions and fuel consumption.
The one major capital work on the books is CP's Alberta Industrial Heartland project, which is being driven by the expanding market
for byproducts from the province's booming tar sands development. Located in the Fort Saskatchewan area, 30 miles northeast of
Edmonton, this industrial zone is home to numerous existing and planned bitumen upgraders.
To tap it, CP plans to build 16 miles of new line on both sides of the North Saskatchewan River. Among the commodities that will flow
along this new industrial corridor will be inbound construction materials - including dimensional loads destined for the upgraders -
and outbound sulfur, petroleum coke, asphaltene, and various liquids and gases. CP has already invested $15 million in this
multi-year expansion project.
The DM&E Factor
If there is one truly headline-grabbing story at CP today, it's the DM&E acquisition. The transition and integration
is being spearheaded by CP's American-born and Milwaukee Road-trained engineering operations vice president,
Vern Graham. The $1.48 billion acquisition of the 2,500-mile, eight-state system won STB approval in
September without conditions other than those agreed to voluntarily by CP. The effective control date was 30 Oct 2008.
Greg Gormick
One of Canada's leading business writers, Greg Gormick's byline has appeared in numerous publications. He has also served in a
consulting capacity for such companies as the Toronto Transit Commission, CN, and CP.
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