(The following article by James Stevenson was circulated by the Canadian Press on February 23.)
CALGARY — Canadian Pacific Railway’s (TSX:CP) incoming chief executive Fred Green will continue with efforts to make Canada’s second largest railroad the “most fluid railway” in North America, but doesn’t expect any radical changes.
Green has been with Calgary-based CPR for 28 years and is viewed as a driving force behind the railroad’s quest for better operational efficiencies in the face of unprecedented growth.
In May, he will take over the chief executive’s job from Rob Ritchie, who has run the storied railroad for the past 11 years.
Along with changes at the top, CPR is trimming about 15 per cent or 400 supervisory and management jobs from head office. But Green stops short of calling it a changing of the guard.
“I think what we’ve got is a very substantial change in what is occurring in the North American transportation business,” Green said in an interview Thursday.
“The demand for the services that the railways offer has grown at a time when the capacity to provide them has shrunk over the course of the last decade.”
Green says the railways have taken business away from the trucking industry as it struggles with disproportionately high fuel increases and a lack of drivers.
At the same time, trade with China and other Asian countries has soared.
CPR has upgraded its locomotive fleet in recent years and just finished a $160-million expansion of its western Canadian network to improve access to the burgeoning Port of Vancouver.
“I believe we have positioned this franchise to leverage the opportunity that is arriving out of this change.”
Last month, the railroad unveiled record annual profits in 2005 of $543 million – a gain of 32 per cent – in what Ritchie called the railway’s “busiest and most successful year.”
Analyst Ted Larkin, with Orion Securities in Toronto, said Thursday that he expects Green’s leadership at CPR will be a continuation of the railroad’s performance enhancements in recent years.
“I don’t look for anything radical whatsoever. I think it’s steady as she goes.”
Another subtle change being orchestrated by Green is to move three assistant vice-presidents away from head office – the first devolution of power since 1996 when it centralized all of its regional offices to a new Calgary head office.
Green defended the move, saying managers in Toronto and Minneapolis will be able to “respond more quickly and make the rights kinds of decisions within the context of the master plan that they know and understand.”
“They’re not going to go out and end up creating competing fiefdoms which would make us overall less efficient.”
CPR’s operating ratio – a key measure of productivity in the railroad sector that measures operating costs as a percentage of revenue – has always been behind that of Montreal-based Canadian National Railway Co. (TSX:CNR), the largest railway in the country.
Green said Thursday that while CPR is not trying to be identical to CN, “there may still be opportunity to close the gap between ourselves and any competitor, in this case the most direct one is CN.”
CPR’s operating ratio improved by two percentage points in 2005 and Green hopes to see a similar improvement this year.
On the Toronto Stock Exchange Thursday, CPR stock dropped $1.24 or two per cent to $59.25, giving back all the gains achieved Wednesday when Green’s appointment was announced.