CP changing tracks to win over customers

‘TOP-LINE GROWTH’

ALLISON LAMPERT AND ROD NICKEL •

chief executive 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 secondlargest 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.

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 head count 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 federal 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 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 approach.”

CP’s new direction is seeing some results, with CP’s once heavily criticized grainhandling 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

which recently announced three major customers, and concerns from existing shippers that cutbacks reduced the availability of locomotives and workers. wants to change the labour relations at CP,” said Doug Finnson of the Teamsters Canada Rail Conference. “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

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 praised Harrison, now chief executive of 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. “Once you’ve achieved operational excellence, then you focus on value creation.”

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 CHS.

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, Lautenschlager said.