Canada’s Railway Tycoons

Antony — March 28, 2012

After watching the first installment of Atlas Shrugged with some libertarian friends, I was surprised that no-one had been following Canada’s very own corporate battle of railway tycoons, currently in progress.

A hedge fund called “Pershing Square Capital Management” has launched a proxy battle for control of CP Rail. This means that they are attempting to overrule CP’s current management by having their proposal voted on by the owners of the company (ie, the shareholders). Their plan involves turfing the current CEO, Fred Green, and replacing him with Hunter Harrison, former CEO of CP’s main competitor, CN Rail. Hunter Harrison is a legend in the railway industry who transformed CN Rail from one of the least efficient railways in North America following its de-nationalization, into the envy of its peers, with the lowest operating ratio in the industry. Harrison’s gruff, no-nonsense approach, however, is threatening to many.

The railway industry can be very inspiring, as it hearkens back to an era when ambitious capitalists built prosperity in our society through their unrelenting pursuit of profit. Although there is some government interference on the sector, North America’s freight railway network remains a bastion of free market efficiency, adding much-needed value to our economy. Also, for those who doubt the practicality of privatizing roads and highways, our railway network offers a good example of how a privately owned transportation system can easily overcome many oft-cited worries.

Comments

David says

Geoff is friend of mine and works at CP Rail. After emailing him this blog post he responded with the following:

“Hi David, I read the short article your friend wrote on the railway industry. To characterize Hunter Harrison as gruff and no nonsense is pretty mild. Harrison stripped the maintanance sectors down resulting in a perhaps more efficient railway but definitely a more dangerous one. Cn is often referred to as ‘crash national’ due to the frequency of derailments etc. One harrison anecdote that bears repeating is the story of when he was in vancouver staying downtown at his hotel, he looked across the water with his binoculars to see a locomotive in the yard that was not moving. He promptly called up the yard and fired the yard master over the phone. Later, it turned out that the locomotive was a cp engine and not a cn engine. The company tried to hire the yard master back but he refused because of the toxic work environment. Harrison created the worst relations between management and the union ever that still exist to this day.
To compare the inefficiencies/efficiencies at cp to cn is apples and oranges. Cn was a crown corporation. Thus it was much easier to pare it down to allow it to be competitive. The operating ratios (measurement of a railways productivity) of cp and cn will never be the same because the trackage of each are quite different. Most of cn’s track runs at grade where most of cp’s is variable and undulating. The inclement conditions of each railway are significant factors as well.
Finally, hunter Harrison is still under a non disclosure agreement with his ex employer cn that would preclude his working with another railroad at this time.
Pershing square capital is similar to Mitt Romney’s Bain capital management company. Both are notorious at picking up companies, stripping them of capital at the expense of the employees and selling them off piecemeal. “

— March 29, 2012

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