New CP Rail chief puts mergers on hold

TORONTO The new chief executive of Canadian Pacific Railway Ltd. is stepping away from his predecessor’s drive for industry consolidation — but only for the time being.

Keith Creel, who replaced Hunter Harrison in CP’s corner office on Jan. 31, is largely following in Harrison’s footsteps with an ongoing focus on service improvements, more efficient operations and top-line growth.

But Harrison also spent much of his four-and-a-half years at CP attempting a series of mergers, first with Florida-based CSX Corp. and later with Virginia-based Norfolk Southern Corp. Both of those failed due to opposition from various stakeholders, but Harrison maintained that consolidation will eventually be necessary.

Creel reiterated that view Thursday, but said he’s focused on other opportunities first. “I would say it’s not a priority at the moment,” he told a Barclays investor conference in Miami. “We’ve got plenty of opportunities we’re focused on to drive earnings growth.”

In the long run, however, Creel said his view is the same as Harrison’s. “I’ve always said this and I will always say this: There’s only so many railroads that are going to be built. You’re not going to build new ones, and if you believe that we’re going to have population growth and you believe that they’re going to consume goods, then you have to believe that more freight’s going to go to the railways because the public highways can’t handle it all,” he said. “So if you’re going to have growth, consolidation will have to occur ...”

Harrison made significant strides in his time at CP, most notably with the railway’s operating ratio, which measures expenses as a percentage of revenue and fell to 58.6 per cent in 2016 from 81 per cent in 2011. “It’s been a record transformation,” Creel said. “The next part of the story is to grow the top line even more.”

To do this, Creel is focused on taking market share from the trucking industry, a feat that will only be possible if CP has “a trucklike service offering,” with reliability and low costs, he said.

Perhaps the biggest opportunity is in domestic intermodal shipments, which are usually consumer goods that are transferred from one form of transportation to another, such as from ships to rail.