CP Rail to eliminate 4,500 positions by 2016 as part of restructuring

CALGARY – Canadian Pacific (TSX:CP) says it will eliminate some 4,500 jobs by 2016 and expects more than a third of those cuts to come by year-end as the struggling railroad works to bring down its operating costs.

The Calgary-based company said Tuesday the reductions will be achieved through job cuts, attrition and reducing contractors as part of its restructuring plan.

It expects 1,700 positions to be eliminated by the end of the year. In total, the reductions will amount to the elimination of about a quarter of some 19,500 employees and contractors operating in six provices and 13 U.S. states.

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.

The strategic moves are the latest for the railway since a new board of directors installed Hunter 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 had what it takes to bring CP from 2011’s operating ratio of 81.3 to 65 by 2015.

“Momentum is building at Canadian Pacific and the organization is driving to a culture of intense focus on operations,” Harrison said in a statement Tuesday.

“Service will be what drives this organization, by providing a premium, reliable product offering through a lower cost operation …We have initiated a rapid change agenda and have made tremendous progress in my first 160 days, and we are only getting started.”

CP said Tuesday it will also explore options including the potential to sell surplus real estate, as well as the Delaware and Hudson line in the U.S. Northeast. The railroad company also announced it’s seeking potential buyers for a U.S. line that stretches about 1,000 kilometres across several states in the U.S. Midwest.

It will move its current corporate headquarters in downtown Calgary to new office space at its Ogden Yard, on the outskirts of the city, by 2014.

Another plan to bring down costs includes building longer sidings, which connect tracks and are used to load and unload cars, which it says will allow it to move the same or increased volumes with fewer trains.

In the weeks following Harrison’s arrival, a number of executives left and were replaced with Harrison supporters.

“We now have a leadership team that understands the urgency of making change and improving the culture of this organization,” Harrison said.

“CP has many talented railroaders who want to win. Together we are squarely focused on improved service and becoming the low-cost carrier. This will allow us to continue to grow with our customers.”

Harrison is an American-born retired CEO of Canadian National Railway (TSX:CNR) and is credited with turning the Montreal-based company into the most efficient major railway in North America.

The news follows an announcement Monday that CP has deferred plans to extend one of its lines into a coal-producing area known as Powder River Basin.

Harrison and other Canadian Pacific executives are expected to reveal more details of its strategic plans at an investor conference in New York. The event started Tuesday and continues Wednesday.

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