MONTREAL/WINNIPEG May 9 Canadian Pacific
Railway Ltd CEO Keith Creel is an operations specialist
like his predecessor, but the new leader is taking a vastly
different approach to steering the company known for its red
locomotives emblazoned with "CP."
After nearly five years of cost-cutting to boost efficiency
under former CEO Hunter Harrison, Creel is switching Canada's
second-largest railroad company into growth mode as volumes
improve. Creel recently told analysts he is trying to heal
"ruffled feathers" among his own employees, while meeting with
existing and prospective customers in a bid to expand.
"As we go forward, my focus ... is top-line growth and
that's exactly what my mandate is for my team," Creel said
during a recent quarterly call.
Within weeks of taking the helm of CP, Creel appointed John
Brooks as the railroad's first chief marketing officer since
2014, to help focus on customers and profitable growth.
Part of CP's strategy is to expand sales staff, even as
overall headcount remains flat this year, Brooks said. And CP
also hired a former trucking executive to steer business off the
highway and onto its rail cars.
"A big part of our future is making sure that not only the
marketing and sales people, but also that our senior leadership,
our operating leadership, are out in front of the customers,"
Brooks told Reuters in an interview.
The timing of the changes is significant. The Canadian
government is planning new legislation that is expected to
include penalty provisions for poor railway service, although
its introduction has been delayed. Such penalties would give
shippers, who often complain they are at the mercy of Canada's
two big railroads, more clout in demanding adequate service.
Railway movement of commodities is especially crucial in
Canada, one of the world's biggest wheat exporters, because they
must be transported over vast distances to ocean ports.
"When you're trying to cut costs you need to have someone
like Hunter Harrison," said a fund manager from one of CP's
major institutional investors, who spoke on condition of
anonymity because he was not authorized to talk to the media.
"But when you want to attract customers, you need a softer
CP's new direction is seeing some results, with CP's once
heavily criticized grain-handling performance beginning to show
signs of improvement this spring, said Wade Sobkowich, executive
director of Western Grain Elevator Association, whose members
include Cargill Ltd and Viterra Inc.
CP has become more regular with delivering cars to grain
delivery points on time, according to data compiled by Ag
Transport Coalition, which is made up of farm groups that
monitor railway performance.
But CP still faces the challenge of fierce competition from
rival Canadian National Railway Co, the country's
largest railroad, which recently announced three major
customers, and concerns from existing shippers that cutbacks
reduced the availability of locomotives and workers.
"It just seems like they've starved their system so much ...
I really do get the sense that their employees are stretched
right to the limit," said Kevin Price, senior trader in Canada
for Singapore-based Agrocorp, which ships crops from the Pacific
"THERE'S NOWHERE TO GO BUT UP"
As Harrison's protege at CP, workers often joked that Creel
- a former U.S. Army officer who served in the Persian Gulf War
- ran Canada's No. 2 railroad like the military, a union member
But Creel, who had contact with customers as CP's former
chief operating officer, is seen as more outgoing and
collaborative than the blunt Tennessee native, Harrison, who was
recruited by activist investors in 2012 to overhaul CP's once
"(Creel) is saying that he wants to change the labor
relations at CP," said Doug Finnson of the Teamsters Canada Rail
Conference, which represents locomotive engineers and
conductors. "There's nowhere to go but up."
CP spokesman Marty Cej by email echoed recent comments from
Harrison that service improved over the last four years, adding
that the railroad always tries to improve "service, lower dwell
times and increase velocity." He pointed to a major rail
infrastructure project undertaken by the company to service the
new mine of its client K+S AG's Potash Canada.
Harrison told Reuters that any customers lost during his
tenure were by "design," because the price was not right.
"At some of those levels of margins and returns we couldn't
be a player," he said in an interview. "I cannot remember a
customer that I sat down with in Canada that had any specific
complaint about CP's service."
Investors and analysts have praised Harrison, now chief
executive of CSX Corp, for transforming CP and
delivering some of its biggest annual profits, which drove its
shares to an all-time high in 2014. It is a feat Harrison also
accomplished at the helm of CN where he previously worked with
Creel before leaving that railroad in 2009.
But his tenure at both railroads generated friction with
workers and complaints over service, and Creel's early moves at
CP mimic CN's transition after Harrison's departure, from
cost-cutter to customer-pleaser.
"You can only squeeze so much juice out of a lemon," said
Laurent Giguere, national transportation sector leader for KPMG
in Canada, by phone from Montreal in reference to cost-cutting.
"Once you've achieved operational excellence, then you focus on
Some large customers have already felt the personal touch.
Since his appointment, Creel has spoken with U.S. farm
cooperative CHS Inc, which has grappled with longer
waits to move loaded cars from CP than other railways, said
Brock Lautenschlager, director of ag business rail services at
Those delays, measured as "dwell times," have been a result
of CP keeping loaded trains at origin longer to manage
congestion at Pacific Northwest port terminals or poor weather,
Three investors in CP said improving customer service will
be key to growth.
"Clearly the upside will come from keeping customers and
attracting new ones," said Joshua Duitz, a portfolio manager for
Alpine Funds in New York State, who holds CP shares within four
funds valued at about $1.5 billion.
(Editing by Denny Thomas, Edward Tobin and Lisa Shumaker)