(The Canadian Press distributed the following article by James Stevenson on June 19.)
CALGARY — Canadian Pacific Railway unveiled plans to cut 520 more jobs and restructure its northeastern U.S. network yesterday — the same day its rail traffic controllers went on strike across the country. Canada’s second-largest railway, behind Canadian National, also said it would take a one-time hit of $152 million against its second-quarter earnings to pay for the job cuts and writedowns of underperforming assets.
“We’re faced with significant hurdles that were unanticipated . . . and many of them are outside our control,” president Rob Ritchie told analysts.
The railway said yesterday it now plans to eliminate 820 jobs, up from 300 announced earlier this year. This involves cutting 370 jobs in 2003, 330 in 2004 and 120 in 2005.
About 85 per cent of the layoffs will take place in Canada. And nearly 55 per cent involve administrative staff, with the rest at freight-yard operations.
The job cuts came hours after more than 200 rail traffic controllers, mainly based in Calgary and Montreal, began walking the picket lines over wage and benefits disputes.
Jim Ruddick, chairperson of the Rail Canada Traffic Controllers, said the railroad “will have great difficulty in maintaining their operation for any length of time.”
But Ritchie said the dispute should not stop any trains.
“We’ve replaced approximately 240 people with 130 to 150 management types who came out of the dispatchers’ ranks,” he said.
The union said there were no plans to meet with management to discuss issues, which include attempts to get wage parity with CN rail traffic controllers.
While the company did not indicate the layoffs were linked to the strike, Ruddick was concerned about the overall impact of the job cuts on railway safety.
“Safety does become an issue when you keep reducing certain departments.”
A “large part” of the administrative staff cuts will take place in Calgary, with Toronto also likely affected, while cuts to the operations staff will be “dispersed” throughout the company, Ritchie said.
CPR’s workforce totalled 15,860 at the end of 2002.
“I do not take any pleasure in reducing head count and I am well aware of the impact that this has on individuals,” Ritchie said.
He called the job cuts “a reaffirmation of our commitment to grow this business profitably and to ensure the long-term viability of this company.”
Ritchie said high fuel costs, low grain shipments hit by U.S. tariffs, reduced pulp and paper activity and a “dramatically” rising Canadian dollar have all factored in the decision to reduce the workforce.
A higher Canadian dollar erodes the value of a major part of CPR’s income that is earned in U.S. dollars. Last week, Canadian National Railway (TSX:CNR) said it lost $50 million in revenue because of the higher loonie, which is up more than 15 per cent this year against the U.S. greenback.
The Calgary-based railway also said it will write down its investment in its northeastern U.S. network — operated as the Delaware & Hudson Railway — by $75 million after tax to more accurately reflect their current value.
The D&H railway was purchased in 1991. The company is now in talks with “a variety of partners” to discuss how to improve the shipping lines based in the northeastern United States.
Ritchie said it’s “possible” those talks could result in sale of the D&H but CPR would prefer to maintain a presence in that area.
“We believe our northeastern U.S. network has additional earnings potential and we are prepared to take the measures necessary to make it a success,” Ritchie said.
Ritchie wouldn’t comment on expectations for the current second quarter, financial details of which will be released July 23. The company’s first-quarter earnings dipped 25 per cent to $102 million.
The company will take an after-tax charge of $71 million to cover costs, such as severance payments, associated with the latest job cuts.
CPR said some of the cuts reflect efficiencies “generated by new information technology introduced in administrative functions and freight-yard operations.”
There are also lower maintenance requirements for new high-efficiency locomotives and freight cars.
On the Toronto stock market, Canadian Pacific Railway shares (TSX:CP) climbed 85 cents to close at $31.10. The 52-week high is $37.98, the low $26.93.