Staff reductions at Canadian Pacific Railway Ltd. could be larger than expected, although chief executive officer Hunter Harrison has so far said little about layoffs.
Instead, in a series of town hall meetings with employees at locations across the country, from Calgary to Toronto, Mr. Harrison has indicated that the natural attrition of employees retiring and quitting could be greater as the railway becomes more efficient.
Last December, CP announced that it expects to lose 4,500 employee and contractor positions by 2016, and that is the guidance the company is still giving industry watchers. However, that number could easily fluctuate, company insiders say.
“We have talked about the various implications of the head count, and where that can be. And it might be even larger than I initially said. We’ve talked about that,” the CEO reiterated in an interview on Business News Network on Wednesday. Following the interview, he spoke to a number of CP employees in Toronto.
“That’s why I’m out here [talking to employees directly], because people want to know what we’re doing and why we’re doing it. And when they understand that, they can support the cause much better than if they are kind of left in the dark,” Mr. Harrison told BNN.
He added that most of the major rationalization of CP’s network, primarily its rail yards, has been implemented and that the railway is now working on myriad incremental steps to improve efficiency. By the end of the year, the company is shooting for an operating ratio, which measures expenses as a percentage of revenue, in the low 70s. The lower the ratio the better. The ratio for 2012 was in the low 80s.
As CP looks for new areas of growth, transporting crude oil by rail is a major factor, but questions loom, Mr. Harrison said. “How big that opportunity is, I think we’re still trying to determine.” He also cautioned that there are many variables, from uncertainty over regulatory approval for pipelines to fluctuating oil prices and environmental concerns.
“Clearly it’s going to be the driver in our growth, which we’ve talked about will probably be in the high single digits [in 2013]. But once again, I’m not sure that everything is going to fall exactly in place as some would suggest … This whole energy play is one that I think we need to proceed with cautiously,” he said.
Helping assess that strategy is the company’s new president and chief operating officer Keith Creel, a long-time protégé of Mr. Harrison from their days together at Illinois Central Railroad and then at Canadian National Railways Co.
Mr. Harrison described Mr. Creel as his clear heir apparent. “I think it’s pretty safe to say he was the leading candidate all along,” Mr. Harrison said.
Mr. Harrison officially poached Mr. Creel from CN this week, in a move that involved settling a legal fight between Mr. Harrison and CN, which he led from 2003 to 2009, over Mr. Harrison’s CN pension and a dispute over non-compete restrictions.
“Clearly, early on, people recognized his talents and his abilities and qualities he had and possessed. He stayed with us as we merged with Canadian National. He moved pretty well throughout Canada. I know he was in Winnipeg for a stint, Toronto for a stint, he had an office in Montreal. So he’s got a pretty great background,” Mr. Harrison told BNN.
Coming from a military background, having fought in the Persian Gulf War in the early 1990s, Mr. Creel, who is 45, has a son who has recently won a spot to study at the United States Military Academy at West Point and a daughter who is an equestrian, which is also one of Mr. Harrison’s passions. Both men began their railway careers in operations.
“Railroading is an operating business. Ninety per cent of our employees are operating employees,” Mr. Harrison said. “Now, having said that, one of the reasons for putting Keith in the president role and as COO is that he will also be in charge of sales and marketing. And that will be the first time directly that he will supervise that side of the business. So that will hopefully further round him out to be ready to take over when I walk out the door.”
Mr. Harrison foresees staying on as head of CP for another three or four years, as expected when he took the job last year to restructure the company. He added that he might like to sit on CP’s board of directors after that. “Yeah, that’s something I might like to do,” although he suggested a certain ambivalence about assuming the role of chairman when he leaves his current job.