Costs crackdown irks CP customers
By Scott Deveau, Financial Post November 23, 2010
Only about 35% of the 70 rail customers surveyed said CP’s service was “good” or “excellent” this year, compared to nearly 60% a year ago.
Photograph by: Peter J. Thompson/National Post, Peter J. Thompson/National Post
Canadian Pacific Railway Ltd.’s efforts to improve efficiency are running afoul of some of its customers, and adding to the troubles created earlier this year by substantial flooding in the West.
CP has traditionally run at a sizeable cost disadvantage to its larger rival, Canadian National Railway Co. But Canada’s No. 2 railway has undertaken a series of initiatives this year — from lengthening its trains to charging for services that were once free — aimed at lowering its operating ratio to the low 70s within the next five years under its new chief operating officer, Ed Harris, a former top executive at CN.
While those efforts have gained traction in recent months, they have also rubbed some customers the wrong way, and there has been a significant negative shift in the past year in the perception of the service it provides, according to a new survey of shippers conducted by RBC Capital Markets.
Only about 35% of the 70 rail customers surveyed said CP’s service was “good” or “excellent” this year, compared with nearly 60% a year ago. By contrast, CN, which has undertaken efforts to improve its own service this year, increased the percentage of customers that said it provided “good” or “excellent” service by about 10 percentage points to 54%.
“Anecdotally, shippers highlighted consistency, terminal dwell, and poor internal systems as the biggest problems [with CP],” said Walter Spracklin, RBC Capital Markets analyst, in his report.
The most glaring example is the Canadian Wheat Board, which has shifted about 8% of its business this year to CN as a result of poor service from CP, said Rick Steinke, CWB vice-president of logistics.
Mr. Steinke said in an interview that the issues arose after a section of CP’s mainline was wiped out by floods in Alberta and Saskatchewan in June. The railway has yet to recover, he said.
After the flooding, CP was sending about 4,000 fewer rail cars than were ordered per week to the CWB. While a 200-to-300-car shortfall might be considered acceptable, Mr. Steinke said CP is still delivering about 2,000 to 2,500 fewer cars than are ordered on average per week.
As a result, the CWB has moved as much business as it can to CN, Mr. Steinke said.
CP chief executive Fred Green said both the RBC survey and the ongoing Freight Service Review neglect to take into consideration the impact the entire supply chain has on the service the railways provide. In grain, for example, he said CP’s fleet is fully deployed, but about 1,500 rail cars carrying grain remain parked because one of the unloading facilities is down this week.
“When this sort of thing occurs, we work directly with our respective supply chain partners while they recover — the best way for the supply chain to work, co-operatively,” he said in an email response.
Not all of the perceived service deficiencies are as dramatic as the CWB, however. Mr. Spracklin said at least some of the negative sentiment is tied to CP charging for services it once offered for free, and will actually help bolster its bottom line once the initial sticker shock wears off.