Not a lot of people would commiserate much if they heard the classic melancholy song “It’s not easy being green” being sung by Fred Green.
But that’s effectively what CP Rail’s chief executive officer was doing in its first quarter 2011 financial results, which it released two days ago.
Here’s Fred from the news release about the results:
“Since the new year, multiple severe weather events have caused significant disruptions to train operations across our network. Slower train speeds have reduced productivity and asset velocity thereby constraining network capacity and limiting our ability to meet market demands,” said Fred Green, President and Chief Executive Officer. “The impact of avalanche disruptions are just one factor that increased fivefold this year in our busiest corridor through the mountains causing very inefficient stop-start operations.”
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“We have been increasing resources to meet strong demand and improve service reliability,” Mr. Green added. “With moderating weather CP is seeing fluidity return to the network and our operating metrics are showing improvement. Our two- to four-year target of delivering a low 70s operating ratio remains unchanged.”
Pretty much everyone in the prairie grain system has a hate-on for CP this winter because of its poor performance. While some organizations have complained publicly and relatively politely, such as the Canadian Wheat Board, others have complained privately, and reportedly with much outrage and fury.
CP blames the weather but there is much chatter about CP not having enough engines and hopper cars available to move the crop, after assessing its likely size wrong last summer, and just simply being unprepared to do the job it has a responsibility to do well. It is, after all, a quasi-monopoly and a lot of industries rely upon it.
I imagine one of the people most outraged by CP’s performance this winter is Claude Mongeau, CN’s boss. CN looks great in comparison to CP this year – check out their relative share performance for the last few months to see how investors view the two companies – but Mongeau’s recent call to the prairie grain industry to have a lot more trust in rail companies like his and to not demand tough regulatory oversight is likely to be ignored in the light of CP’s performance this winter. Talk about bad timing for Claude’s call!
This raises and issue I wondered about in this space recently: Was the wheat board’s decision to pay for part of a fleet of lakers for the Great Lakes a response to some sort of market failure in the grain transportation system? I was at a CWB regional director’s meeting last week in Stonewall, and this topic was talked about. According to Bill Toews, the eastern Manitoba director, a healthy laker fleet is necessary to ensure that the railways don’t gouge farmers on eastbound shipments.
I don’t know if the board needed to buy lakers itself in order to offer sufficient competition to the rail companies. Toews was up-front about his desire to see the board take positions in parts of the system in order to give farmers a seat at the table and more influence on the opaque system, so he thought the purchase was a good idea just on the merits of the business case alone. People who don’t think the board should be expanding beyond its present scope probably wouldn’t feel that is a sufficient justification for the purchase, since there might have been other ways of ensuring they were purchased, such as long-term contracts with shipping companies and other shippers on the lakes. That’s an essentially ideological matter that there is no easy resolution for.
But CP’s performance has Fred Green singing the blues in his company’s financial results, probably has Claude Mongeau wailing an unhappy tune, but is giving people who want serious regulatory oversight the excuse to cheerfully whistle. And the biggest relief is probably being felt at the wheat board, where its laker purchase could have blown up in its face, but with poor rail performance the number one story throughout the grain industry, its argument that it needs the ships to keep the railways honest seems fortuitously well-timed.
