(The following story by John D. Boyd appeared on The Journal of Commerce website on June 3, 2010.)
WASHINGTON, D.C. — Canadian Pacific Railway says it may gain as much as $960 million in new business in the next five years and expects to realize significant cost savings through improved productivity, according to analysts at the railroad’s annual investor meeting.
The savings may amount to nearly $100 million in cost savings and could drive the railroad’s operating ratio, which was 81.6 percent last year, down close to 70 percent.
After executives of Canada’s second-largest railroad made special presentations June 2 to analysts at CP headquarters in Calgary, Alberta, Lee Klaskow of Longbow Research raised his estimates for CP earnings this year and next.
Part of the optimism comes from better-than-expected freight volume CP is hauling in the current quarter, Klaskow said, “coupled with improved operational efficiencies from the company’s various productivity initiatives.”
Analyst William J. Greene of Morgan Stanley Research said CP’s commodity export flow to Asian markets is growing fast, and it has revenue-adding initiatives under way that could add $1 billion to its top line over 5 years. “Turnaround stories take time and it’s too soon to give credit for efficiencies not yet realized,” said Greene, “but CP is a story worth watching.”
He said the biggest change at CP may be the carrier’s “renewed focus on operating efficiencies and network fluidity” that it underscored when it recently hired former Canadian National Railway executive Ed Harris as chief operating officer.
CN is known for running a low-cost, high-profit railroad, and Greene said operating margins could jump at CP “if Harris can deliver anything close to the efficiency of competitor CN.”
Both carriers operate major east-west rail networks across Canada. Inside the U.S., CN owns a premier north-south rail corridor that parallels the Mississippi River, and extensive tracks around Chicago. CP owns a sizable regional rail subsidiary in the northern Great Plains.
Some efficiency moves included those other railroads are implementing, such as running longer and heavier trains to boost the average revenue load per train move and reduce the wear frequency on the track network. Klaskow said future gains could come from automating inspections of track and rolling stock, and further additions to train lengths.