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CP ranks as the least efficient of North America’s Big Six railways, with operating costs equalling 82.4 per cent of its revenue in the first nine months of 2011. (Jack Kuiphoff/Canadian Pacific Railway/Jack Kuiphoff/Canadian Pacific Railway)
CP ranks as the least efficient of North America’s Big Six railways, with operating costs equalling 82.4 per cent of its revenue in the first nine months of 2011. (Jack Kuiphoff/Canadian Pacific Railway/Jack Kuiphoff/Canadian Pacific Railway)

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Using the industry’s standard measure of performance, the operating ratio, CP has been unable to keep up with its competitors. The railway ranks as the least efficient of North America’s Big Six railways with operating costs equalling 82.4 per cent of its revenue in the first nine months of 2011. At industry-leading CN, operating costs were 63.1 per cent of revenue.

Like many of his predecessors, Mr. Green is a CP lifer; he joined the company in 1978. Carrying a commerce degree from Concordia University, he distinguished himself as a methodical executive with an affinity for managing complex projects. He was promoted to the management fast track at CP in 1996 after he impressed the railway’s top executives with his steady management of the company’s colossal migration from its historic head office in Montreal to a new home in Calgary.

“He is good with details,” said Anne Golden, CEO of the Conference Board of Canada, where Mr. Green is a director. “He reads all our reports, is totally engaged and has detailed questions and constructive suggestions about our work.”

On the public stage, however, Mr. Green is sometimes challenged when communicating his message. His preference for buzzwords such as “asset velocity” and railway “fluidity” has been known to mystify listeners on CP’s quarterly conference calls. When he met with an angry group of CP staff amid the global financial crisis of early 2009 to explain hundreds of job cuts, workers were infuriated when he retorted “suck it up, buttercup” to an employee complaining about extra weekend shifts.

“Fred Green isn’t personable,” said Tom Murphy, a local union president with the Canadian Auto Workers, who attributed the CEO’s harsh response at the session to frustration with unruly employees. “He won’t come over and greet you and say, ‘Hi, how’s it going?’”

Unlike its competitors, CP has been slow to innovate. The delay is partly explained by its former life as a subsidiary of Canadian Pacific Ltd., a massive hotel, shipping, rail, mining and energy conglomerate that was broken up in 2001. The railway was seldom blessed with large increases in capital budgets, and the complex process of being spun off from its parent preoccupied management for years.

Now that CP is finally modernizing its train network, it is shouldering billions of dollars in capital expenses at a time when the global economy is faltering. Complicating matters, the company has had to borrow $1.3-billion to replenish a shortfall in its pension plan. The heavy costs have suppressed CP’s profit and stock price, leaving it vulnerable to activists such as Mr. Ackman. When his Pershing Square funds began acquiring CP stock in September, its share price had fallen to a two-year low of $44.74 on the New York Stock Exchange.

Making converts of critics

Although some analysts have publicly questioned the scale of CP’s investment in more than 90 new locomotives and 1,100 additional staff in an uncertain economic climate, Mr. Green has placed a priority on improving service at a railway notorious for train delays and broken promises.

Mr. Green believes improved service, train speeds and capacity are essential to securing lucrative long-term contracts with potash, grain, mining and pulp companies transporting an increasing share of their output to booming economies in China and Southeast Asia, according to company insiders.

“It is very hard to create value for shareholders if you don’t create value for customers. He is really, really focused on delivering to clients,” said one person close to Mr. Green who declined to be identified.

Improving service at CP is no easy task. The railway is more vulnerable than competitors to adverse weather and slower train speeds because its tracks climb through steep Rocky Mountain grades and flood-prone Prairies. The company’s first-quarter profit slid 67 per cent after winter avalanches slammed its operations. Things went from bad to worse in the spring when unusually harsh flooding submerged some of its tracks from the Prairies to Chicago for 23 days.

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