(The following story by Brent Jang appeared on the Globe and Mail website on December 17.)
TORONTO — Canadian Pacific Railway Ltd., a barometer for the broader economy, is pulling out all the stops to weather the recession as it slashes 600 union jobs, restricts air travel, suspends bonuses and ditches all six “flex days” for office staff.
The railway is allotting two-thirds of its corporate jet’s time slots to outside parties by subleasing the plane to others while also shrinking business travel budgets by half to save an average of $300,000 a month. CPR is relying on webcasts and telephone calls to replace many face-to-face meetings with customers and other stakeholders, opting to pare expenses for commercial airlines, taxis, hotels and meals.
Calgary-based CPR enjoyed a renaissance from 2004 until mid-2008 – a period of booming Asian trade as exports surged with rising commodity prices and made-in-China consumer goods poured into North America. But with China curbing its appetite for raw materials and North Americans scaling back purchases of merchandise, CPR is switching to cost-cutting mode.
“As a management team, we make choices for business reasons that we would rather not make for purely people reasons,” CPR chief executive officer Fred Green said in an internal message to staff. “They are not made lightly and they are not shortsighted. They may be unpopular, but when we turn things around like I know we will, it will be because of the decisions we have made today.”
Mr. Green held a town hall meeting yesterday with staff in Calgary, the latest in a series of gatherings that began on Friday. With the recession eroding what had been a boom in freight deliveries, he admitted in his message that “the coming months will not be easy ones for CP or for any other business out there.” He said his goal is to “get this winning franchise back on track” by “focusing on containing costs on all fronts, in tough ways.”
The freight carrier is chopping 600 jobs from its work force of 16,000 people, affecting members of the Teamsters Canada Rail Conference, the Teamsters’ maintenance of way employees division and the Canadian Auto Workers union representing skilled trade staff such as mechanics and electricians.
CPR had granted six paid “flex days” to 1,300 staff at its Gulf Canada Square headquarters in Calgary just 18 months ago, a move designed to help employees take time off to deal with personal matters and generally promote a balance of work and family life.
“I know it’s frustrating to deal with the hiring freeze, to think of the prospect of no bonus payment for this year, or to consider how to balance leisure and work with less time off. While these may be bitter pills to swallow, the harsh reality is that we’ve also made the extremely tough decision to lay off unionized staff,” Mr. Green said.
CPR’s cost-cutting campaign is titled Execution Excellence for Efficiency, or E3. It also features initiatives such as running longer trains and renegotiating fuel contracts with freight customers.
“We expect that the economic headwinds will continue into 2009 and, as a result, we will continue to be extremely diligent with respect to the day-to-day expense items that are within the control of each of us,” Mr. Green said. “Other than on-campus recruits, only very deep-specialty candidates will be hired from outside.”
In the third quarter, CPR had a 76-per-cent operating ratio – a key indicator of productivity that measures operating costs as a percentage of revenue. A lower operating ratio is better, and CPR has been trying to narrow the gap between it and Canadian National Railway Co., which posted an industry-leading ratio of 62.6 per cent in the quarter ended Sept. 30.