(Dow Jones Newswires circulated the following story by Monica Gutschi on April 17, 2009.)
TORONTO Employees at Canadian Pacific Railway Ltd. (CP) are bracing for another round of job losses as the Calgary-based rail scrambles to slash costs in line with the dramatic drop in freight volumes.
The workforce reductions will likely be unveiled April 23, when CP Rail reports its first-quarter earnings, widely expected to be about 40% lower than a year earlier.
Mike LoVecchio, a spokesman for CP Rail, declned comment on any potential job losses, but said "that's a discussion that you will hear more on on the 23rd."
The railroad has already placed 10% of its 16,000 employees on layoff, parked 350 locomotives, or 30% of the fleet, and stored 15,000 rail cars, or 25% of the fleet.
But with the decline in freight volumes accelerating weekly, many observers believe the company will cut even deeper. According to the Association of American Railroads, total carloads moved by CP Rail fell by 26% last week, the steepest drop yet and the worst among North America's Class 1 railroads.
Management has already laid the groundwork, with both Chief Executive Fred Green and Chief Financial Officer Kathryn McQuade, in speeches at investor conferences, warning that jobs and capital expenditures will be reduced if volumes don't recover. The capital budget for 2009 was already set 20% below last year.
Analysts note that March volumes were lower than February and January, and April looks even worse. CP Rail's volumes fell by 18% in the first quarter, with the declines accelerating in the last weeks of the month.
While the situation is much the same at other railroads, CP Rail has been particularly hard-hit because of its much larger exposure to fertilizers and coal. Potash volumes fell by about 70% in the first quarter, while coal - which represents 13% of sales - fell by more than 25%. Intermodal traffic, which is down 27% as shipments to and from Asia slump, is another 30% of sales.
"Overall, we have seen an acceleration of volume declines among commodities over the last four weeks," Longbow Research said in a note Friday.
More importantly, coal and potash are high-margin commodities and Salman Partners says that means revenue ton miles, or RTMs, will be even worse than the carload data suggest.
In a recent presentation, McQuade noted that 30-40% of any drop in revenue can be offset by cost reductions. The company has set up a committee to analyze ways to cut expenses and nothing appears too picayune: bottled water has been curtailed, employees were asked to print their own tax forms, company matching contributions to the employee share-purchase plan have been suspended. CP Rail is also running much longer trains, has shut down numerous car-repair shops around the country, and is rerouting trains to shorter routes.
"We must control what we can control and that ultimately is our cost structure," LoVecchio said.
CP has also moved to bolster its cash position, selling the majority of its stake in the Detroit Tunnel and raising C$511 million in a common share offering in February.
