(The Calgary Herald posted the following article by Grant Robertson on its website on April 30.)
CALGARY — Coming off a record year for profits in 2002, Canadian Pacific Railway Ltd. could look to cut more jobs as the company steps up efforts to rein in costs.
CPR chief executive Rob Ritchie suggested Monday that the railway — which announced 300 layoffs last month — may not be finished trimming its workforce of about 16,000 people.
In a speech to shareholders at the annual meeting in Vancouver, Ritchie said “a minimum of 300 positions” will be eliminated in 2003.
“And there is a no-exceptions assault underway on discretionary expenses in every area of the business.”
After the meeting, Ritchie said Calgary-based CPR has no specific target for its workforce cuts, but will “continue to look at areas where we can improve.”
Canada’s second-largest railway earned a record $857 million operating income in 2002, but is scaling back costs after a tough first quarter.
Growing fuel bills and adverse winter weather, which caused train delays and derailments, contributed to rising costs and saw profits drop by 25 per cent between January and March.
“Obviously, the first-quarter results have put us in a pretty deep hole,” Ritchie told the meeting.
“Our job will be to recover as much of the first-quarter deterioration as possible, but to recover all of it is going to be difficult.”
The higher expenses come at a time when the railway would otherwise be riding a strong period for shipping.
Even though Prairie droughts have sapped grain shipments, other commodities, such as consumer goods and auto parts, have been robust.
CPR plans to boost its capital spending to more than $700 million in 2003, from $560 million last year, even though it is cutting costs elsewhere.
Industry watchers say CPR has no choice but to continue spending on infrastructure, despite trimming jobs.
The purchase of 41 new locomotives, track upgrades and the expansion of intermodal terminals — where shipments are transferred from trucks to trains — are key competitive additions, said Barry Prentice, director of the University of Manitoba’s Transport Institute.
“That’s what you have to do if you’re going to maintain a railway,” Prentice said.
“Things are maybe not as rosy as (CPR) would like them to be, but that doesn’t mean you don’t need to make those investments.”
CPR cut $50 million in costs from its balance sheet in 2002, allowing it to notch record operating income, despite poor crops and dwindling coal exports that dropped revenues by $200 million.
High fuel prices have also taken a toll on the company.
Ritchie told analysts last week that the railway likely won’t reach its goal of lowering operating costs to 73 per cent of revenue by 2004 due to rising diesel expenses.
The railway had a best-ever operating ratio of 76.6 per cent in 2002. However, that number — a key measure of efficiency in the industry — deteriorated to 86.5 per cent in the first quarter because of the fuel price spike.
As a benchmark, Montreal-based Canadian National Railway Co. turned in an operating ratio of 69.4 per cent last year, the best in North America.
CPR’s shares fell 33 cents on the Toronto stock exchange Monday to close at $32.52.