Canadian Pacific Railway steam locomotive number 29 at their Gulf Canada Square headquarters in Calgary - Date/Photographer unknown.

26 November 2012

Head Office Move Not the Only Announcement Expected from CP Rail

Calgary Alberta - Canadian Pacific Railway Ltd.'s plan to move much of its head office out of downtown Calgary will likely be just one small plank of an ambitious restructuring plan expected to be announced by CEO Hunter Harrison next week.
 
Last week, union officials said CP will move the vast majority of its downtown headquarters to the nearby Ogden rail yard, which CP owns. James Nelson, general chairperson of the United Transportation Union, said the move is expected to save the railroad $19 million annually.
 
While the plan may be an effective cost-cutting measure, Bob Schulz, professor of strategic management at the Haskayne School of Business, said it's likely to be a source of frustration for many CP employees.
 
"It's going to cause some chaos for people in terms of how to get there," he said. "They're not necessarily taking into account the number of people who take the transit system downtown, from all different parts of the city."
 
CP has not yet confirmed the move, but Harrison is expected to reveal further details at an investor day in New York City on 4 Dec 2012.
 
However, the Ogden move isn't the only thing Harrison is likely to comment on. The railroad veteran and former CEO of Canadian National Railway, who took over the helm of CP in late June, after a bitter proxy fight, is expected to release details of his plan to turn the company around and improve operating efficiency. Harrison has stated he believes he can reduce CP's operating ratio, which measures operating costs as a percentage of revenue and is an important gauge of railroad efficiency, to 65 percent within four years. During the last quarter, the first under Harrison's leadership, CP's operating efficiency fell from 75.8 percent to 74.1 percent.
 
Brian Yarbrough, an analyst with Edward Jones, said the head office move is interesting, but what investors really want to hear from Harrison is a detailed strategy on efficiency.
 
"The expectations are pretty high at this point," Yarbrough said. "I think what people are looking for is for him to lay out how we're going to get there. He's talked about it in generalities, said, I think I can get there, but he hasn't laid out concrete plans."
 
While job cuts are expected to be part of the plan, Yarbrough said most of those will likely be accomplished through attrition.
 
Bill Brehl, president of the Teamsters Canada Rail Conference Maintenance of Way union, said he doesn't expect any significant layoffs for front-line workers.
 
"If anything, I'm suspecting they're going to build our group higher to improve the maintenance and cut down on derailments," Brehl said.
 
Brehl, who said 4 Dec 2012 would be "a significant day" for the company, added that he has been happy with Harrison's leadership so far.
 
"We would rather work with CP Rail as a partner than as an adversary," Brehl said. "For years, under (former CEO) Fred Green, it was a battle. Since Hunter's come in, it hasn't been, and that's been nice."
 
The only outstanding labour issue for CP is with the 4,800 running trades workers, the locomotive engineers, conductors, and others who walked off the job in May before Ottawa forced them back to work. Harrison indicated during a conference call with analysts in October that he expected that to be resolved by an arbitrator in the new year.
 
CP is already showing signs of improvement under Harrison's leadership. For the period ending 30 Sep 2012, net income was up 20 percent from third quarter 2011. CP's stock price has jumped 20 percent since June.
 
Amanda Stephenson.