(The following article by David Finlayson was posted on the Edmonton Journal website on May 26.)
EDMONTON — CN plans to close more shops and cut staff as it continues “wringing” more out of its efficiency plan over the next five years, CEO E. Hunter Harrison said Tuesday.
The moves would help CN reach annual revenues of $8 billion by 2009 and earnings per share growth of up to 12 per cent a year, Harrison told the annual investors conference in Toronto.
Harrison said the month-long strike by the 5,000 Canadian Autoworkers’ members earlier this year — where management performed union jobs — showed the company could get by with fewer staff, especially at intermodal terminals.
“I imagine in the next 18 months we will see a 400 to 450 reduction in jobs,” he said, adding even more could go over the next five years.
He also said the railway could cut costs and improve cash flow by consolidating two or three train yards into a major gateway similar to Montreal.
CN will also continue the “war on bureaucracy,” which has already realized about $60 million in savings, he said.
Harrison said CN has become North America’s lowest-cost railway by sticking to the operating plan he introduced when he joined the company from Illinois Central in 1999.
Moving to scheduled service meant they were able to take 40 per cent of the locomotives out of the fleet, and significantly speed up delivery times, he said.
It used to take seven to nine days to deliver a shipment from Edmonton to Chicago. Now they deliver lumber from Prince George to Chicago — 1,400 kilometres farther — in less than four days, he added.
“That gives you some indication of the order of magnitude that scheduled railroading has done for us.”
Harrison said the current quarter is going very well, with a huge demand for B.C. lumber in the U.S.
He also said there’s a huge opportunity for the port of Prince Rupert to be a major player in the Asian market. CN is already shipping iron ore from the U.S. midwest through the northern B.C. port, which is several days closer to Asia than southern terminals.
CN is the sole railway operator at Prince Rupert, which makes it more attractive than Delta Vancouver port, he said.
“Shared facilities like Delta Vancouver don’t work. We want to be able to control our own destiny.”
CN’s also aiming to get its operating efficiency ratio to less than 65 per cent, which means it spends 65 cents to make a dollar. It already has the lowest ratio among North American railways, at 69 per cent. And if everything falls into place, it could get as low as the 62.5 per cent at his former company, Illinois Central, Harrison said.
He sees five-per-cent-a-year top-line growth, and two- to three-per-cent pricing gains in the next five years. CN can also grow 20-25 per cent without any increase in infrastructure, he added.
“We have a strong franchise, the rail industry’s best profit margin, and a solid record of growing shareholder value.
“Our goal is to extract even greater benefits from our innovative scheduled railroading practices, and to accelerate our relentless drive to push change and innovation throughout the organization,” he said.
Harrison doesn’t believe there will be open access to Canada’s existing railroads any time soon.
“I don’t think it’s likely. But if it did happen, it wouldn’t bother me. We are the low-cost carrier in North America by 10 or 11 points.
“The strong do better, the weak get eaten alive.”
CN shares closed at $51.48 on the Toronto Stock Exchange Tuesday, up 63 cents.