CP refines its operating plan

September 25, 2015

Since E. Hunter Harrison became Canadian Pacific’s chief executive officer in mid-2012, he has strived to institute measures aimed at turning around what for years had been flagging financial and operational performance.

With assistance from his former CN right-hand man Keith Creel — who joined CP in early 2013 as president and chief operating officer — Harrison has guided efforts to reduce headcount, close nonessential hump yards, eliminate unneeded rolling stock, speed up and lengthen trains, shorten transit times, reassign assets and accelerate terminal throughput.

Some examples of that handiwork include the continued pursuit of a plan to trim about 4,500 employee and/or contractor positions by 2016 through job cuts and attrition (the workforce stood at 14,128 on June 30 versus 14,960 a year earlier); the realization of a goal in 2013 to reduce intermodal transit time between Toronto and Calgary, Alberta, by 20 hours; and the recent undertaking of an initiative to expand a dedicated train program for western Canada grain shippers.Website Insert Development Finance and Management copy

Harrison and Creel have sought to craft and implement an operating plan they believe can prompt higher productivity, greater asset utilization and lower expenses in any business environment. The operating model they continue to refine is designed to help CP adjust or optimize assets, control costs, and drive earnings and income growth regardless of fluctuations in traffic demand.

And their modeling essentially stayed true to form in the second quarter, when freight revenue slipped 2 percent to $1.6 billion (in Canadian dollars) and volume dipped 3 percent to 668,000 carloads. Despite that business downtick, CP logged its highest 2Q net income at $390 million and lowest 2Q operating ratio (OR) at 60.9 — which also now stands as its second-lowest quarterly ratio ever.

On a year-over-year basis, net income climbed 12 percent and the OR declined 4.2 points, while adjusted earnings jumped 16 percent to $2.45 per share, operating income increased 10 percent to $646 million and operating expenses decreased 8 percent to $1 billion.

A sharpened focus on productivity and asset management also was apparent in 2Q service metrics, which vastly improved compared with second-quarter 2014 levels. Velocity climbed 21 percent to 21.7 mph, terminal dwell time shrank 22 percent to 6.7 hours, locomotive productivity improved 13 percent to 189 gross ton-miles per available horsepower, total train miles decreased 7 percent to 8.65 million and train lengths increased 3 percent to an average of 6,991 feet.

“We moved trains faster, took out train miles and had fewer train starts, which lowered costs. Revenue was a little less in the quarter, but costs were a whole lot less,” says Creel.

Even in the face of a slowing economy, the commitment to provide the best service at the lowest cost is serving CP well, and figures to continue doing so, said Harrison in a press release issued July 21.

“The positive CP story is based on a business model that allows for flexibility — we are nimble, efficient and able to respond to the ever-changing economic climate,” said Harrison, who as of late August expected to soon return to his top post after spending about four weeks recovering from leg surgery and a bout of pneumonia.

Read Progressive Railroading’s Managing Editor Jeff Stagl’s full story by clicking here.


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