News analysis
to quibble over semantics, the reality probably was not that CP was better, but that CN was worse.
CN had an excuse, though. It was a state-owned company. CN was turned over to a highly-regarded Canadian politician and former cabinet secretary in 1992 who engineered the railway’s privatisation in 1995. One legislator from the opposition party said: CN would be successful when pigs fly. Mr Paul Tellier, the former government official who initially headed the railway, commissioned a book telling how CN became profitable. It pointedly was titled: The Pig That Flew.
CN was expansionist. It first
acquired Illinois Central (IC), where Hunter Harrison happened to be president and CEO. IC accepted CN’s offer in 1998 and the deal was consummated in 1999. CN now was a rail network stretching from Halifax, on the Atlantic, west to Vancouver and Prince Rupert on the Pacific and south to the Gulf of Mexico in the United States. CN then tried to merge with Burlington Northern Santa Fe (BNSF) in 1999, but the transaction was derailed by the combined opposition of four Class I railways: CP, CSX, Norfolk Southern, and Union Pacific.
After Harrison became CN’s chief operating officer, he soon
began to make changes. What some called a scheduled railway, Harrison preferred to call a “disciplined” one. It was really quite simple. If a train was scheduled to depart a yard at a certain time, Harrison demanded that the appropriate motive power be fuelled and coupled and the crew ready for duty, otherwise supervisor heads might roll. It was not long before CN began to offer shippers freight wagon supply guarantees. It did not guarantee every request for wagons, but if planners knew when wagons were going to be available, they made the service commitment.
huge saving on operating expenses. A disciplined operation gets far greater use of its assets than a non- disciplined one. The operating ratio of expenses to revenue began to drop like a stone and soon was the lowest (lower is better) in the industry. Earnings increased, CN’s share price soared, and dividends to shareholders went up. Not everyone thought Harrison was the greatest railwayman of all time - and many still do not. Shippers resented the discipline that he imposed on them. Harrison reviewed the business it did with many shippers and
After Harrison became CN’s chief operating officer, he soon began to make changes. What some called a scheduled railway, Harrison preferred to call a “disciplined” one.
The idea was that if you knew where your equipment was supposed to be and when, you could guarantee it to the next shipper that wanted that wagon type. CN offered a penalty for failure to spot a guaranteed wagon when promised, and it exacted a penalty from shippers that asked for and accepted guaranteed wagons and then failed to load and release them when they were required to do so.
CN eventually was able to
return some 800 leased locomotives to their owners, a
arbitrarily changed the way their freight was handled each week according to the volume of business. Going back to the days of state ownership, CN had virtually given the store away, and the expense- reducing change was a shock to many.
Some CP workers dread the coming of a man few have ever met. Somehow, Harrison’s hard line with supervisors and customers had morphed into a reputation among many rail workers as a martinet. When Tellier retired, Harrison was the logical
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successor as president and chief executive. Harrison retired in 2009, and CN remained the best operated railway under Mr Claude Mongeau, the young former CN chief of strategic planning. When Ackman launched his assault on CP, he didn’t just call for Green to be replaced, but offered Harrison as the replacement. CN did not like that at all and filed a lawsuit in a US federal court seeking to negate Harrison’s pension and other financial provisions in his retirement agreement. Ackman committed to indemnify Harrison for any losses he might suffer. When CP finally named Harrison its new chief, CN pointedly offered its congratulations and simultaneously made clear that the lawsuit still was pending. CP is the third Class I Harrison has headed, and the fifth for which he has held officer rank. He started his career on the St Louis-San Francisco Railway (Frisco), became an operating vice- president of Burlington Northern after it acquired the Frisco, then moved to the top job at IC.
At 68, it is likely that Harrison will be at CP only long enough to begin a major change in the way the business is managed, before handing over to a younger executive to finish the job. IRJ
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info@vtg.com •
www.vtg.com IRJ August 2012
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