(The following article by Brent Jang was posted on the Globe and Mail website on February 23.)
TORONTO — In his four years at the throttle, Hunter Harrison has revolutionized how CN Rail does business, driving productivity, boosting the stock price by 150 per cent and making $56-million in 2005 for himself in his pursuit of a “precision railroad.”
Two years ago, Mr. Harrison published the term in a glossy book titled How We Work and Why, intended to be a Bible for Canadian National Railway Co. employees to follow and the source of inspiration at his so-called Hunter Camps.
At the two-day, motivational retreats for groups of managers and union leaders, the CN chief executive officer often opens the event by stressing the need to challenge conventional wisdom and being on alert to become more efficient.
Mr. Harrison, 62, can speak at the Hunter Camps for two hours without any text, personally preaching the importance of doggedly seeking to be more competitive and constantly looking for improvements.
But the two-week strike the railway has endured is rooted in employee complaints that the efficiency drive — now in its 12th year — may have gone too far.
At the very least, industry analysts believe that the labour tensions are a sign that gaining the competitive edge in 2007 and beyond may prove to be increasingly difficult.
“CN is an industry leader. This company wants to creates jobs, provide stability for our customers and our employees. We have to be competitive to stay in the game,” a CN director, who asked not to be named, said in an interview yesterday.
“The status quo is a very powerful agent, and change isn’t easy.”
Over the past four years, Mr. Harrison has focused on improving CN’s operating ratio, which is a key gauge of productivity that measures operating costs as a percentage of revenue. That ratio stood at 60.7 per cent at the end of last year, much better than any major North American railway.
The 2,800-member United Transportation Union, however, decided they had enough of the efficiency drive, walking off the job on Feb. 10 and expected to be ordered back to work next week by the federal government.
“You’ve got a work force at the limit of its patience. They figured they’ve lost so much that they had to draw a line,” said transportation consultant Greg Gormick. “Railroading generally is tough on marriages and families because the workers get called at all hours and you can get stuck away from home. It’s part of railroading, but Hunter Harrison wants to make it even tougher.”
For CN, the strike over wages and working conditions is the latest in a series of obstacles that the company has faced in the past couple of years. It has overcome high diesel bills, weathered hurricanes Katrina and Rita and withstood a series of high-profile derailments across Canada.
UTU spokesman Frank Wilner said the union believes that safety has been compromised as locomotives run faster with longer trains, but CN disputes that claim, countering that the number of CN main track derailments fell last year.
Since November, 1995, when Ottawa sold off the former Crown corporation, CN management has steadily streamlined the railway, turning around what was once a bloated and inefficient operation into the envy of the North American train industry.
“CN is on a quest for productivity,” said Barry Prentice, a University of Manitoba business professor.
Disagreements persist over issues such as pensions, lunch breaks and disciplinary measures. If there isn’t any deal reached through mediation, there could be an arbitrated settlement.
CN has concentrated on forming daily schedules for its rail cars, following “execution standards” for connections provided by specific districts. Having targets for arrivals and departures is geared toward reducing the “terminal dwell time” at rail yards, where employees get the trains ready to move.
Since 1998, CN also grew stronger by expanding its footprint across the continent. Its purchases have included Illinois Central Railroad, Wisconsin Central Transportation Corp., the rail and marine assets of Great Lakes Transportation LLC and the freight operations of BC Rail.
At Brampton, Ont., in 2003, CN began beefing up its terminal to speed up the processing of consumer goods that move in containers in an intermodal excellence (IMX) program.
“By providing predefined daily train capacity, slot, gate and equipment reservations, and day-of-the-week pricing, IMX has smoothed intermodal demand, made terminals more fluid and delivered a better product to the marketplace,” CN spokesman Mark Hallman said.
Then there’s the railway’s “SmartYard” project, in which a pilot project at MacMillan Yard in Toronto in 2005 has been broadened to other regions, introducing new computers to manage rail cars in freight yards and reducing congestion.
This year, CN will be extending sidings (tracks to the side of the main line) between Jasper, Alta., and Prince Rupert, B.C., meaning it can run more trains.
But all the changes mean that there’s too much stress on employees, who feel like they’re on a treadmill, said Rex Beatty, a former chief negotiator for the UTU, which represents striking workers.
Conductors feel pressured to meet a steady stream of deadlines, and when something goes wrong, as it invariably does somewhere across North America, managers are quick to pounce and investigate aggressively, Mr. Beatty said.
“It seems like harassment and intimidation,” he said in an interview. When workers see colleagues buckling under the threat of discipline, that casts a dark cloud over employee morale, Mr. Beatty asserted.
Ultimately, the seemingly never-ending cycle of the “precision railroad” is draining on employees, Mr. Beatty said.
Driven to succeed
CN chief executive officer Hunter Harrison’s relentless focus on making the railway more efficient and profitable may have reached a breaking point with the strike by members of the United Transportation Union.
Precision railroading
The railway has become an industry leader in productivity by setting detailed schedules and closely monitoring the amount of time trains spend in rail yards.
The Memphis connection
CN’s $1.5-billion capital budget in 2006 included $100-million (U.S.) for an upgrade and expansion to its major rail yard in Memphis, the company’s largest investment outside Canada.
Getting smart
Other upgrades include new computers to manage rail cars in freight yards, modelled on CN’s MacMillan Yard in Toronto, to create what the railway calls “smart yards.”
Diversification
CN has invested in a container terminal under construction at Prince Rupert, B.C., in partnership with the port authority and Maher Terminals, which is expected to be ready this year. Mr. Harrison said the Prince Rupert operation will open a new gateway for consumer goods from China headed for CN’s four major distribution centres: Memphis, Chicago, Toronto and Montreal.