Rail Outlook 2015: CP's E. Hunter Harrison

E. Hunter Harrison, CEO, Canadian Pacific

What's your take on near-term business potential heading into 2015? What's your best-guess business forecast for next year and how can it come to fruition?

Over the past two-plus years since my team started work at CP, much of our focus has been on cost control. That will continue to be a focus for us. But now people have begun asking: What's the next step? How do you keep this thing going? My answer is that we grow our business. I expect 2015 will be a great year for growth at CP, as will 2016, 2017 and 2018.

Let me fill in the details a bit. Last year, we generated $6.13 billion in revenue. By 2018, we plan and we expect to grow revenue to $10 billion annually. How do we achieve that? We continue to keep costs tightly under rein and we continue to deliver excellent service in the meantime. It's a model that doesn't depend on outside factors to drive growth. If we keep running lean, we can win profitable business that, even a few years ago, we would've been losing money at.

We see our crude-by-rail business as a key driver of growth in coming years, with growth shifting from the Bakken region to western Canada. We also believe domestic intermodal is an area where we can bring a lot to the table. We've already seen growth in domestic container business simply by taking a close look at the schedules and eliminating time-wasting inefficiencies. Beyond these two areas, I see growth occurring across most of our lines of business.

I know there are critics out there who don't think we can do it. They also didn't think we could get CP's operating ratio to the mid-60s by 2016, but we did it two years early. We have the team, we have the network and the business is there. Now, we need to go out and get it.

What will be an important issue for your railroad in 2015 and what are the potential obstacles to growth?

The North American rail industry is exceptionally well-positioned to move the goods that support the economy for reasons Progressive Railroading readers know well. We're fuel-efficient. We're safe. We can grow our capacity on demand even as highways become more crowded.

But as an industry, we're getting pieces of this fundamentally wrong. There are players in this industry that continue to squabble over who gets the biggest piece of the pie, forcing interline business to be interchanged in all the wrong places. At CP, we've begun to look at ways to chart the best origin-to-destination routing, even to the point of, in a few cases, voluntarily giving our friends at the other railroads a bigger piece of the haul. Unfortunately, I don't see that approach being embraced at an industry level.

One solution to all this must be considered: pro-competitive mergers that create more single-line hauls and better service for customers. If this were to happen, I think we'd see a great shift of traffic away from Chicago toward outlying points. For us, the key piece of this is our ability to reach upstate New York from Canada. We'd love to be handling business to Buffalo or Albany and handing it to our friends that reach the major East Coast markets. Instead, we end up interchanging in Chicago even with the delays that entails.

I know some others in the industry think we need to spend billions to try and untangle Chicago. I believe there are better uses for our shareholders' money and better gateways for our customers' freight.

I understand the resistance people feel to change. I've spent my professional career challenging that, and thanks to the great teams I've worked with, we've had some success. People need to understand we're in an era of scarce capacity, and it is our responsibility to make the most of what we've got. We can't do that under the current scenario, where everybody gets somewhere but nobody gets everywhere. I think regulators and my fellow rail industry leaders should consider a fresh look at the idea of mergers.

Are seven Class I railroads, clustered in their own regions of the continent, the best arrangement? It's not good for competition, as most major markets are already down to two Class Is. It's not good for service, as it leaves us all dependent on our connections to deliver for our customers. Finally, it's not good for capacity, for the reasons I mentioned above. And in this age, capacity is fundamental.

I hear people saying the timing isn't right, but when will the timing be right? Yes, there will be challenges. We will deal with them and come out stronger. It's time we stopped leaning on all the old reasons why we can't, and instead start exploring the reasons and ways it can be done.