(The Canadian Press distributed the following article by James Stevenson on June 20.)
CALGARY — Canadian Pacific Railway is hoping an apparent end to Western Canada’s drought, combined with stable demand for coal and automobiles, will prevent further layoffs at the country’s second largest railway.
“We’re hoping for a significant up-tick in grain, and we’re not seeing a big deterioration in other commodities like autos,” CP Rail president Rob Ritchie said in an interview with The Canadian Press. “Lumber’s also strong, so we’re still hanging in there.” CP Rail announced Wednesday that it now plans to cut 820 jobs over the next three years to help trim operating expenses that have spiralled due in part to high fuel costs and a rapidly rising Canadian dollar.
Ritchie said the cuts to workforce and trimming non-vital functions of the business were necessary in the current hard-to-read economic climate.
“The economy’s tough, so we must protect the cash position of this company,” Ritchie said from his Calgary office.
“We need the money to reinvest or else you’re going to start to take away from the health of the network – and a railway can never let that happen.”
But Calgary-based CP Rail, the smallest of the six remaining major North American railroads, may need to cut further if revenues continue to slide.
“If the economy goes into meltdown, we’re going to have to do more but we don’t suspect that,” said Ritchie.
The railroad said Thursday that it’s working “very hard” to get yields up since fuel costs have doubled within the last year and fuel surcharges aren’t enough to cover all fuel expenses.
“Fuel’s affected everybody and it looks like it’s going to stay up, so let’s get the prices up.”
Railroad analyst Rossa O’Reilly with CIBC World Markets in Toronto said Thursday that CP Rail’s job cutting is becoming standard practice in the continually belt-tightening railway industry.
“Whenever they’re finding they’re being squeezed in terms of profits, they look for ways to become more efficient and to reduce costs,” he said.
“And of course the ways to do that are to try and do the same job more effectively with fewer resources of all kinds – labour and other assets.”
O’Reilly said he believed the cost cutting would work for CP Rail, though he expected the company will post lower second-quarter results when they’re released July 23.
CIBC is predicting earnings of 50-55 cents compared to 70 cents for the same quarter last year. The railroad managed to post a slight first-quarter increase in revenues, but suffered a nine per cent increase in operating expenses, largely due to high fuel costs.
CP Rail also announced Wednesday that cutting expenses would involve restructuring its Delaware & Hudson railway in the northeastern United States.
Ritchie said Thursday he doesn’t want to sell the financially-troublesome railway since it provides a valuable “footprint” in the densely populated eastern seaboard region of the United States.
But he said keeping the Delaware & Hudson would involve re-thinking strategic partnerships with other American railways.
“Obviously, CP has to put a little water in its wine,” said Ritchie.
“We probably were looking for too much, trying to get too high a rate or too much control to realize those goals.”
At the same time as it grapples with the job cuts and tough second-quarter results looming, CP Rail is also in the middle of a labour dispute after its rail traffic controllers walked out on strike early Wednesday morning.
Ritchie said he was keen to have the traffic controllers back. But he would not discuss details of the company’s position on the controllers’ demands for wage parity with their counterparts who work for CN Rail, Canada’s largest railway.
“We were very sincere about trying to get an agreement. We don’t want this (strike). We want the people who are working these desks to come back. I’m sure they want to come back.”
The Brotherhood of Locomotive Engineer Rail Canada Traffic Controllers said in a release that they were “extremely disappointed” in CP Rail’s response and called on the railway’s other unions to increase their vigilance over safety issues during the strike.