CPR trims expenses, reveals 'efficiency' plan
Published: October 20th 2008
Source: Globe & Mail
Fred Green, Canadian Pacific Railway Ltd.'s chief executive officer, has
unveiled an efficiency drive that he asserts will help insulate the
freight carrier from the global financial crisis.
To weather the economic storm, CPR plans to run longer trains, introduce locomotives that provide power at the rear, and recoup most of its fuel costs from customers, Mr. Green said in an internal memo that seeks to calm the nerves of employees.
CPR has also instituted a hiring freeze, trimmed staff travel budgets and restricted discretionary expenses as part of the campaign titled Execution Excellence for Efficiency, or E3.
"During times like this, it's critical that we remain focused on our game plan," he said.
"There is nothing happening externally that should take your focus away from doing your job as well as you can. Arguably it is more important than ever that we each perform our task as well as possible. It is also essential that we behave in a frugal manner on every dollar and seek means to improve every process."
The softening economy is evident in Calgary-based CPR's lower third-quarter shipments of forest products and automobiles, he said, but "the grain crop in both Canada and the U.S. is robust, and bodes well for rail shipments."
Mr. Green, who will release CPR's 2009 outlook to institutional investors in Toronto on Nov. 12, said the company needs to run leaner "in a highly volatile and evolving business environment."
CPR is striving to narrow the gap with larger rival Canadian National Railway Co., which has a better operating ratio - a key indicator of productivity that measures operating costs as a percentage of revenue. CPR's second-quarter operating ratio worsened to 79.4 per cent. A lower number is better, and CPR trailed Montreal-based CN's operating ratio of 66.3 per cent.
CN will release its third-quarter results tomorrow and CPR will follow suit on Oct. 28.
"Much of the worry and concern that exists today is due to the possibility or reality that some companies may not be able to secure refinancing of long-term debt or have access to shorter-term credit," Mr. Green said in his memo. "CPR is very well-positioned in this regard. We issued $1-billion of debt in May, 2008, at rates of approximately 6 per cent and do not have an immediate need to go to the debt markets. In 2009, we have only $200-million in long-term debt coming due."
In July, Mr. Green asked Brock Winter, CPR's senior vice-president of operations, to guide the efficiency drive alongside Jane O'Hagan, vice-president of strategy and external affairs. Mr. Winter said longer trains with repositioned locomotives will produce several benefits, including freeing up slots for other rail traffic, shaving unit costs by carrying more cargo on each trip and improving fuel consumption.