Canadian Pacific: New 'rapid change agenda' includes job cuts, headquarters relocation, DM&E line divestiture and mid-60s operating ratio

Yesterday, Canadian Pacific President and Chief Executive Officer E. Hunter Harrison outlined a plan aimed at greatly improving service performance, increasing efficiency, reducing costs and growing business over the next few years.

"The organization is driving to a culture of intense focus on operations. Service will be what drives this organization, by providing a premium, reliable product offering through a lower cost operation," said Harrison in a prepared statement. "We have initiated a rapid change agenda and have made tremendous progress in my first 160 days, and we are only getting started."

The plan calls for:
• eliminating 4,500 employee and/or contractor positions by 2016 through job and contractor reductions and attrition, including 1,700 positions that are expected to be eliminated by year's end (the Class I currently employs 19,500, including contractors);
• pursuing a new longer sidings program to improve asset utilization, increase train length and velocity, and save more than 14,500 crew starts;
• exploring options to maximize the value of existing and anticipated surplus real estate holdings;
• relocating the corporate headquarters in downtown Calgary, Alberta, to new office space at CP-owned Ogden Yard in the city by 2014;
• reviewing options for the Delaware & Hudson in the U.S. Northeast while maintaining options for continued growth in the energy business; and
• seeking expressions of interest for the 660-mile portion of the former Dakota, Minnesota & Eastern Railroad Corp. (DM&E) line west of Tracy, Minn., through South Dakota, Nebraska and Wyoming.

"The reduced number of assets and the decentralized decision making within the organization will allow us to appropriately size to any changes in market conditions," said Harrison.

CP has operated the 660-mile line and associated branch lines since it assumed operational control of the DM&E in 2008. A number of grain, ethanol, clay and merchandise shippers are served along the route.

"There is a strong long-term franchise here for an operator willing to maintain high-quality service and explore growth opportunities with existing and future customers," said Harrison. "CP has successfully built many partnerships with short line and Class I railroads throughout its system and we look forward to assessing the ways interested parties could work together with us to deliver quality service to customers on the west end of the DM&E through an innovative partnership."

CP also set the following financial goals for the next few years: compound annual revenue growth of 4 percent to 7 percent off the 2012 base; a full-year operating ratio in the mid-60s in 2016; cash flow before dividends of $900 million to $1.4 billion in 2016; and annual capital spending in the range of $1 billion to $1.1 billion through 2016.

"I have always maintained that by focusing on the best possible service, along with appropriate cost containment, the operating ratio will take care of itself," said Harrison. "CP is no different; we already see the service and related bottom line benefits of our early actions."