BYLINE: Rob Ritchie

PresidentCanadian Pacific Railway

Canadian Pacific Railway begins the last year of the 20th century with a substantially improved cost structure and profitability, a rejuvenated infrastructure, and a service level that is turning heads in the industry and winning business from our competitors. Our key operating measures - on-time performance, train speeds, locomotive productivity and safety - are all at record levels, and customer satisfaction is climbing steadily. These operating improvements are translating into service efficiency and fluidity, which are critical to gains in the most time-sensitive markets, where there is solid growth potential.

We expect more improvement in 1999 and into the new millennium. Our strategy has been to slice costs out of the business quickly, invest in assets that are critical to service, and provide outstanding service to generate growth and create value for investors.

CPR’s capital investment in 1997-99 will exceed C$2·7bn, including a record spend of more than C$1bn in 1998. This is funded largely by cash flow and proceeds from divesting non-essential assets.

The most visible investment has been in AC-motored diesel locomotives. CPR is purchasing 263 locos with AC traction motors, self-steering wheelsets, advanced microprocessor controls and other features that produce superior performance. Of these, 210 had entered service by the end of 1998. In some trains, the haulage capacity of AC locos is almost twice that of conventional DC-motored units. They will give CPR the most modern fleet in Canada, improving services, making train handling safer, and effectively flattening the grades through the mountains. At the same time, maintenance costs will be lower and fuel consumption will decline. Including 83 acquired in 1995, CPR will have a fleet of 346 AC locos.

A second major area of investment is infrastructure, including freight yards and intermodal terminals. Trackbed has been strengthened, signals upgraded and sidings extended to allow for heavier, faster, longer trains. We now have the highest average train lengths in Canada. These investments are enabling us to take full advantage of the speed and capacity of our AC locos and large-capacity freight cars.

At the same time, we have modernised and upgraded several key freight yards, including Bensenville in Chicago, a major crossroads for US freight. In 1998, we opened a large intermodal terminal in Calgary, and our Vaughan intermodal terminal in Toronto was expanded by about two-thirds. In 1999 we will open a new intermodal terminal in Vancouver, and the expansion of our Lachine terminal in Montreal will be completed. Overall, these projects will increase our intermodal handling capacity at these four strategic locations by about 60%. The improvements will pay off in faster throughput and lower operating costs.

Our third major area of investment is information technology. Leading-edge computer software and hardware now being installed will cut costs and increase asset utilisation, particularly locos, track, yards and terminals. It will also ensure our Year 2000 compliance.

One IT initiative will save us more than C$30m a year when fully implemented during 1999. We are using SAP’s R-3 integrated business software to create a single cohesive data network, which will deliver highly reliable, real-time information with which to plan, track and manage all expenditures.

IT also plays a key role in our Service Excellence initiative, which is being implemented over 1998-2001. Service Excellence will introduce new or enhanced processes all along the transport chain, supported by a new generation of computer applications and platforms. This will create a high degree of control and reliability, and in so doing improve the efficiency of yards and terminals. As Service Excellence comes on stream, we plan to expand our proportion of scheduled services, running trains consistently on time in planned slots that optimise track capacity while meeting customer needs. Assets will be used more productively to maximise the benefits from our investment in locos, wagons, track and terminals.

Looking ahead, CPR will continue to manage costs stringently, improve our asset base and develop outstanding service packages that generate top-line growth. Service is the key to expanding into markets through inter-line agreements.

We will leverage improved service capability to generate growth in three key areas: the US Northeast, the Vancouver - Chicago corridor, and a roll-on/roll-off lorry trailer service.

Starting this year, agreements reached with Norfolk Southern and CSX as part of the Conrail takeover will give us access to some of the largest markets in the northeastern USA. CPR will be the first transcontinental railway to serve New York City, with access to the eastern shore of the Hudson and the port container terminal. CPR will also serve more of the New Jersey and Philadelphia markets, and service to and through Buffalo will also be improved.

An arrangement with NS will open a double-stack route through Pennsylvania to link Canada with the US south and southeast regions. In the Vancouver - Chicago corridor, CPR’s strength is its single-line service for trans-Pacific container traffic into Chicago and connections from there to the eastern USA.

Finally, the Iron Highway roll-on/roll-off piggyback service, introduced by CPR in the Montreal - Toronto market, will be expanded to the Toronto - Detroit corridor later this year. Iron Highway offers road haulage firms a reliable and fast alternative to congested highways.

In the bulk commodity sector, international markets are sending too many mixed signals to predict the impact of the Asian economic downturn on exports such as coal and grain. However, CPR expects to continue to capitalise on its outstanding service and reliability in the most time-sensitive markets.

On January 26 CPR announced an operating profit of C$720·7m for 1998, up from C$667·8m in 1997 and setting a third consecutive record. Total revenue fell from C$3·7m in 1997 to C$3·5m in 1998 following the sale of routes in the US grain belt.

CAPTION: CPR’s latest AC diesels heading this intermodal service wear the railway’s new livery launched in September 1997