(The Canadian Press distributed the following article by James Dalziel on November 11.)
TORONTO — If Canadian National Railway can renegotiate more union contracts to pay workers by the hour instead of distance travelled, it will be able to reduce its train and engine crew workforce by up to 35 per cent, CEO Hunter Harrison said Tuesday.
Over the past year, CN won a breakthrough on the hourly-pay issue with some of its U.S. unions, affecting 1,700 employees. The Montreal-based company is currently negotiating with several unions in Canada.
Labour contracts from the steam-engine era used to limit workers’ daily travel to as little as 100 miles (160 kilometres), though that cap has frequently been raised over the years.
“Now we can get 7,000 to 7,500 miles (up to 12,000 kilometres) a month from the same employees that were producing 4,000 to 4,500 miles (up to 7,200 kilometres) a month,” Harrison said Tuesday at a transportation conference.
“You can do the math and quickly tell that, over time, we can reduce the workforce – from a train and engine room standpoint – 30 to 35 per cent. That’s very, very important,” Harrison said.
His speech at the Smith Barney Citigroup was webcast from New York.
Canada’s largest railway is in negotiations with seven unions in Canada representing 13,000 workers – including 4,700 in the operating crews. The current three-year contracts expire at the end of this year.
In all of North America, CN has 22,350 employees, including white-collar workers.
Linked to the change in compensation, the new U.S. contracts drop old-time work rules that the company considered too restrictive.
“We granted job security for all our employees as a result,” Harrison said. “So that does put a time factor on (job cuts).”
Harrison said the changes are good for employees as well as CN.
“‘I’d be the first to tell you those people did not have a lot of quality of life,” he said. “They made a lot of money but they were on call seven days a week, 24 hours, did not know when they were going to work.
“That makes it hard to plan for family outings, that sort of thing. Now they have assigned days off, assigned times to go to work each day. They don’t have to sit by the telephone.”
Will Canadian unions go along with the new system?
“I’m not sure,” Harrison said. “It’s 50-50. Kind of a new learning experience for us. But this initiative is the biggest breakthrough we’ve had for some time.”
Harrison also told his audience his first 11 months as CEO, succeeding Paul Tellier when he left to become chief executive of Bombardier, was “certainly a challenge.”
Canadian grain shipments plummeted, the high-flying Canadian dollar added to costs and various other afflictions included a horrible winter and the B.C. forest fires.
Harrison told investors he expects CN to show four to five per cent growth next year and double-digit growth in earnings per share. He also said the company could be “more aggressive” in its dividends and may buy back some shares.
In response to a question, Harrison said he considers a major railway merger inevitable in North America, saying, “I don’t know when, but I would guess that in three to five years, someone is going to fire a shot.”
He added in his Tennessee drawl: ‘It’s a big step, but I would imagine someone in the U.S. will probably take us.”
In 2000, U.S. regulatory authorities blocked CN’s takeover bid for the Burlington Northern railway. But the next year, the Canadian-based firm made a successful $1.2-billion-US offer for Wisconsin Central Transportation Corp.
CN, which now does about half of its business in the United States, is one of three finalists chosen by the government of British Columbia in the sale of BC Rail. A decision is expected any day now.
On Oct. 21, Canadian National had egg on its face after a disclosure error forced it to release its third-quarter results a day ahead of schedule. But the railway posted a 10 per cent gain in profits despite lower revenue.
CN (TSX:CNR – news ) earned $294 million in the quarter ended Sept. 30, or $1.53 per share. That compared with profits of $168 million or $1.32 per share a year earlier.
On the Toronto stock market Tuesday, CN shares fell 81 cents to $79.24.