Canadian Pacific Railway plans to run faster and longer trains, cut roughly 4,500 positions and possibly sell rail lines in the U.S., as the railroad works to hits an operating ratio in the mid-60s in 2016.
The relocation of its headquarter from downtown Calgary to CP-owned Ogden Yard and the recent decision not to extend its Dakota, Minnesota & Eastern Railroad network into Power River Basin — a result of the sluggish coal market — are part of initiative. The bold plans are part of new President and CEO E. Hunter Harrison’s aim to lift the least-profitable North American railroad, which has an operating ratio of 74.1 percent in the third and most recent quarter.
By 2016, CP also wants to boost annual revenue 4 to 7 percent from the 2012 base and gain cash flow before dividends of up to $1.4 billion.
“We now have a leadership team that understands the urgency of making change and improving the culture of this organization,” Harrison said. “We will continue to drive our service offering while focusing on taking unproductive costs out of the business. We see a strong earnings profile and solid free cash flow picture emerging."
The smaller of the two major Canadian railroads plans to cut 1,700 position by the end of the year and reduce another 2,800 employee and contractor positions by 2016 through job reductions, natural attrition and use of fewer contractors.
CP plans to spend between $1 billion and $1.1 billion annually over the coming years. Part of that investment will go toward improving sidings, allowing CP to move the same or more freight but with 4 percent fewer crew starts.
In addition to looking at selling some of it real estate, CP is seeking expressions of interest for a 660-mile portion of the former Dakota, Minnesota & Eastern, west of Tracy, Minn. The railroad is also looking at potentially selling the Delaware & Hudson line in the U.S. Northeast.
Harrison said in the last five months the railroad has already sped up intermodal and merchandise service; closed four hump-switching yards and three intermodal terminals; and removed 195 locomotives and 3,200 leased railcars from service, as a result of faster train service and network velocity.