A quarter of its workforce to be on the block by 2016
CALGARY, Alberta—Canadian Pacific says it will eliminate about a quarter of its workforce by 2016 and expects to cut about 1,700 of those jobs by year-end as the struggling railroad works to bring down its operating costs.
The Calgary-based company said the reductions will be achieved through job cuts, attrition and reducing contractors as part of its restructuring plan.
It expects about one-third of the 4,500 targeted to be eliminated by the end of 2012. Currently, the railway has 19,500 employees and contractors operating in six provinces and 13 US states.
“We do not want to lose good people. When you’ve got talent, you protect it,” CEO Hunter Harrison said at the company’s annual investor conference, his first since taking the helm of the storied railway 160 days ago.
“We’ve said to people this: If you’re willing to be cross-trained in another discipline, if you’re mobile as far as being able to move, we’ve got work for you and hopefully they will be able to take advantage of that.”
The railway is “fortunate” to have a high attrition rate of eight-to-nine percent, given its older workforce. Over the course of his four-year plan, Harrison said there’s potential for 5,700 people to leave the organization and not be replaced.
The cuts are part of a plan to increase annual revenue growth between four and seven per cent from 2012 levels as well as reduce its full-year operating ratio—a closely watched measure of how much revenue is required to run the business—to the mid-60s range by 2016.
Harrison said reaching that target is “doable”.
“Every day at work, I gain more confidence. In fact I reach over sometimes and start to change the number and they take the pencil out of my hand,” he said.
The strategic moves are the latest for the railway since a new board of directors installed Harrison as its chief executive officer in the summer following a bitter proxy fight with the company’s largest shareholder.
Pershing Square Capital pushed for Harrison to replace then-CEO Fred Green, saying the veteran railroader and one-time boss at rival Canadian National Railway Co had what it takes to bring CP from 2011′s operating ratio of 81.3 to 65 in four years.
CP said it will also explore options including the potential to sell surplus real estate, as well as the Delaware and Hudson line in the US northeast. The railroad company also announced it’s seeking potential buyers for a part of its DM&E line that stretches about 1,000km across several states in the US midwest.
It will move its current corporate headquarters in downtown Calgary to new office space at its Ogden Yard, about 10km away, by 2014.
In addition to shaving some $18 million annually off CP’s operating costs, the move will also have benefits when it comes to corporate culture, said Harrison.
“I’m not sure that I’ve always agreed that railroaders should be downtown in glass towers,” said Harrison.
“I think it has a cultural impact on the organization to move out to what was or is kind of a supplemental industry yard. They can look out the window and see a railroad, which I think is good—that we don’t forget what this business is about.”
Another plan to bring down costs includes building longer sidings, connector tracks used to load and unload cars, which it says will allow it to move the same or increased volumes with fewer trains.
The news follows an announcement that CP has deferred plans to extend one of its lines into a coal-producing area known as Powder River Basin. In the weeks following Harrison’s arrival, a number of executives left and were replaced with Harrison supporters.
About seven employees at the vice-president level and above have left already and Harrison said he does not see having to fill those positions.
“That has allowed us to take the layers out, to take bureaucracy out of the organization,” said Harrison.
“One of my evaluations initially was that we were clearly, in my view, top heavy. We had too many non-union officer, managers, supervisors, leaders up to the range of 28 to 30 per cent. That’s far too much.”
Harrison is the Tennessee-born retired CEO of CN and is credited with turning the Montreal-based company into the most efficient major railway in North America.