31 March 2006
The Long Haul
Canadian Pacific Railway doesn't want thanks for consummating confederation. What its new CEO wants
is a little respect for the rejuvenated hauler's best year ever.
The reception area at Canadian Pacific Railway's head office in Calgary is a bit like a museum diorama, a sampler of corporate history
befitting the line that united the fledgling Dominion of Canada from sea to sea in the 1880s. Stuffed upholstered armchairs and a gloomy
oriental rug evoke ancient boardrooms, while lustrous old waiting-room benches, rolltop cabinets, and a massive bronze
train bell recall the steam age. Sombre portraits of CPR titans George Stephen and William Cornelius Van Horne stare each other down.
Down the hall to the left of Van Horne, however, the executive offices have a very different feel, one that's more Microsoft campus
than Victorian establishment. The glass-walled offices of chief executive Robert Ritchie, chief financial officer Michael
Waites and president and chief operating officer Fred Green have functional wood workstations and are linked by a common room filled
with comfy leather chairs and coffee tables, a place to meet casually and solve problems.
"You can't get wrapped up in history, but you don't want to forget it," Green concedes when asked about the contrast between
tradition and reality. The 49-year-old may have a well-trimmed goatee, but that's about all he has in common
with railway legends like Van Horne. And Green has more reason than ever to appreciate the application of consultative modern management
to a venerable corporation. In February, CPR's board picked him as the 61-year-old Ritchie's replacement. He takes over
formally at the company's annual meeting in May.
The timing could hardly be better for both men. Ritchie leaves on a high and Green inherits an often underappreciated but now apparently
healthy railway franchise. The second-smallest of North America's seven Class 1 railways, CPR is coming off its best year
ever, with 2005 revenues up more than 12% to $4.4 billion, operating income breaking through the $1-billion mark for the
first time and net income up 31.5% to $543 million. In percentage growth at least, CPR outstripped the much larger Canadian National
Railway Co., the gold standard of the industry.
The accomplishment is partly due to several years of Ritchie-led, and Green-executed, efforts to invest in
track and rolling stock, cut costs and build the technology-based systems necessary to make CPR a fully "scheduled
railway" one where everything from car loadings to deliveries is designed to meet customer needs rather than fit an arbitrary
railway timetable. But the company also has benefited handsomely from the strong North American and global demand for its freight
hauling services. Thanks particularly to the booming Chinese economy, CPR's shipments of grain from the Prairies, and metallurgical coal
from Elk Valley in southeastern British Columbia, are booming, filling tracks leading into the port of Vancouver. Going the other way,
Asian shipments of finished goods in containers the line's intermodal traffic are flourishing.
The company's global container business, which operates through the port of Montreal, is humming too. Even its business in the United
States, channelled along the wholly owned Soo Line to Chicago and into the northeastern states along subsidiary Delaware & Hudson
Railway, is solid. "We talk a lot about China, but the reality is that we've built our business largely on the
north-south movement of freight and it continues to chug along," says Green.
For the most part, financial analysts like what they see. "CPR is regarded as a good railway, not in the same category as CN, but
it's well regarded as an operator," says Randy Cousins, a transportation analyst with BMO Nesbitt Burns in Toronto. Along with
other railroaders, the analysts say that there's no end to the good times in sight. Rail shipments are predicted to continue to be
strong at least this year and next. And thanks to its replenished rail network, one that appears ideally placed to serve the Asian (read
Chinese) demand that has exploded in the last year and a half, the Street expects CPR to rack up double-digit earnings
gains in 2006 and 2007. The line that was the weak link among the Class 1s in the 1980s and early '90s has been revived as a nimble
competitor, just in time to celebrate the 125th anniversary of the company's incorporation. As Green says, "It's a mighty franchise
and a wonderful time to be in the railroad business."
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