Canadian Pacific Railway shippers worried that E. Hunter Harrison would immediately push for tighter scheduling can take solace in recent comments by the railroad's new CEO and president.
Asked by an analyst whether he’d push precision railroading like he did as head of rival Canadian National Railway, Harrison said he would use the previous railroad improvement strategy and fine-tune certain elements. Harrison told investors during a second quarter earnings conference call that he plans to push for faster trains and more efficient terminals.
But that doesn’t mean shippers won’t eventually have to arrange more of their shipments on the railroad’s clock, instead of going by their own preferences. Harrison’s push to make improvements to infrastructure efficiency is his way of testing his staff to see if they are ready for the next phase of productivity advances, said Tom Finkbiner, senior chairman for the Intermodal Transportation Institute.
“If he finds he gets pushback, he will change people,” Finkbiner said.
With his infrastructure improvements made and a staff on-board, Harrison will then likely push shippers for tighter scheduling, like he did at CN and Illinois Central Railroad, which was acquired by Canada's largest railroad in 1997. Harrison admitted that CP employees’ opinions of him were mixed, and “there’s some people out there that see me as the big bad wolf.”
In terms of boosting profitability, investors should not expect “to see the needle jump next quarter of 5 or 6 points, probably, but I do thing that there will be — over time there will be a pretty sustained improvement" in the operating ratio, Harrison said, according to a Seeking Alpha transcript.
The championing of Harrison to take over CP was key to activist investor William Ackman’s successful takeover of management of the railroad board. Ackman said he wants to reduce the railroad’s operating ratio, which was 82.5 percent in the second quarter, to 65 percent by 2015.
“We’re running some (speed) trial tests as we speak to improve transcontinentally, our intermodal operation,” Harrison said. “I will spend a great deal of time looking at terminals, and that’s kind of one of my strength, (and) hopefully something that I can bring to the team.”
He said the terminal complexes haven’t changed much since the 1960s, and some facilities aren’t handling enough volume to be kept on the network. "We're probably going to see fewer terminals and maybe smaller and configured in different ways," Harrison said.
He said also was looking at moving underutilized sidings to reduce capital costs. The Memphis native, who took over the railroad in early July, said he was impressed with the railroad employees and said the company is “way ahead of the competition as far as train dynamics and handling trains over mountains.” Harrison said he had positive meetings with five or six of the railroad’s largest shippers and likened the tone to a "big love-in."
The company’s operating ratio and volume suffered from a nine-day strike in May, after railroad management and the Teamsters Canada Rail Conference failed to reach a contract, largely because of a plan to cut pensions. Railroad operations restarted after the government passed a back-to-work bill on May 31, and an arbitrator was named last month.
The “union was either unable or unwilling to come further in the pension discussions,” Harrison said, and the TCRC, which consists of 4,800 CP union engineers, conductors and traffic controllers, rejected a proposal for mediation or arbitration to avoid a strike. The average union pension is about $73,000 annually, according to the Globe and Mail.
“I’ve had some success with labor, but it’s the hard, the change is hard, and it takes times,” he said. “I think we all know as we look at the situation in North America with pensions, something’s got to change.”
An earlier version of this story incorrectly stated Harrison expected to see a 5 to 6 point jump in the operating ratio.