Canadian Railroads > CP to move most of Calgary HOffce-gears up to cut costs

from a Thomson-Reuters News Release today:

Canadian Pacific Railway Ltd. plans to relocate much of its head office from downtown Calgary, union officials and a source close to the company said, under a restructuring plan that its new chief executive officer will detail to investors in early December.

Hunter Harrison told U.S. union leaders and a Canadian union president that Canada’s second-biggest railway will move employees out of its glass-towered headquarters as part of an ambitious cost-cutting plan.

Mr. Harrison, a hard-driving, 50-year veteran of the rail industry, was appointed CEO in June to turn around the underperforming railway after a bruising proxy battle ousted his predecessor, as well as the previous chairman and several directors. He is the hand-picked choice of CP’s biggest shareholder, Bill Ackman’s Pershing Square Capital Management, which launched the proxy fight.

One union official said the head office move was to a nearby Calgary rail yard that CP owns. Details are expected Dec 4 and 5, along with an announcement of further job cuts, when Mr. Harrison outlines his plan to improve efficiency at CP.

“They’re moving the headquarters to Ogden, which just makes sense,” said Bill Brehl, president of the Teamsters Canada Rail Conference Maintenance of Way union.

“We’re a railroad. What were we doing downtown hanging out with the oil barons? Our place is to be in a rail yard,” said Mr. Brehl, who was told of the plan by Mr. Harrison.

Mr. Brehl said the company will rebuild the century-old Ogden yard, constructing offices there. CP decided last year to close the Ogden repair shop, built in 1912 on land southeast of Calgary’s city centre. It moved locomotive and train car repair elsewhere.

A CP spokesman declined to comment when asked to confirm the move.

A source close to the company, who asked not to be identified, said CP will maintain a reduced downtown presence consisting of a boardroom and small number of offices.

The change aims to trim the cost of operations over the long term, the source said. “Downtown is very expensive. There is a lot of real estate around the yards,” the source said.

James Nelson, general chairman of the United Transportation Union, said he attended a meeting in Chicago with other U.S. labour leaders in late September where Mr. Harrison said CP would save $19-million (U.S.) annually from the move.

Downtown Calgary, Canada’s oil industry capital, is the nation’s second-most expensive office market, behind Toronto, according to a July, 2012, report by global research firm CBRE.

CP shifted its head office to Calgary from Montreal in 1996, in a company-wide reorganization that eliminated 1,450 jobs.

Mr. Harrison, the former CEO of CP’s bigger rival, Canadian National Railway Co., has promised to dramatically improve CP’s operating ratio from 74.1 percent in the most recent quarter to 65 percent by 2016.

Operating ratio, a closely watched efficiency gauge in the rails, measures the share of operating revenue used for operating costs. The higher the ratio, the less efficient the operation, and CP’s is the highest of North America’s big railways.

As part of the cost-cutting plan, Mr. Harrison told analysts and investors last month that 5 to 10 per cent of the company’s headcount would be eliminated, with a focus on management positions and jobs in the Calgary headquarters. CP had about 14,500 employees at the end of the third quarter.

Mr. Harrison told U.S. union officials in late-September that CP was looking at closing costly hump yards, which are used to sort cars, in parts of Canada and Bensenville, Ill., Mr. Nelson said.

At the same meeting, Mr. Harrison also said that CP planned to sell the 587-kilometre section of its DM&E rail line west of Pierre, S.D., Mr. Nelson said.

Smart move in my opinion. Ogden's land will need significant restoration costs so it makes sense to put their own office building on it. This will be a good step for building up Satellite commercial centres in the mainly centralised Calgary. Ogden grew up around the CPR so there is s slight element of historical ties to the move though I doubt this is paramount in the decision. There is good arterial connections to other parts of Calgary though Deerfoot Trail (freeway) doesn't have the best access to Ogden Road. Maybe CP will give up some space for another LRT connect to Calgary's SE area. I think Glenmore Trail is going to feel the brunt of this change.

Rick

In some real estate deals, the departing tenant is paid to vacate their space early.

For tenants with long term, older capped leases, this can be a substantial payment to get them out. The landlord can rent the empty space to a tenant willing to pay a lot more.

Didn't CPR move to Calgary during a lull in one of the previous oil booms? That's when there's lot of cheap space in an overbuilt economy.

There has been a bit of talk about that being the case ie. leaving Gulf Canada Square (is it still called that?) to the wealthy Oil Co.'s.

The main question becomes one over the static display locomotive out front. I wouldn't be surprised to see it stay where it is with there being significant ties between Calgary's birth and the arrival of the CPR.

Rick

This would be a plus on both the corporate level and for employees. Not only is downtown office space pricey, but Calgary also has by far the highest downtown parking rates in the country.

rschonfelder Wrote:
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> The main question becomes one over the static
> display locomotive out front. I wouldn't be
> surprised to see it stay where it is with there
> being significant ties between Calgary's birth and
> the arrival of the CPR.
>
> Rick

CP 29, a much rebuilt 1880's 4-4-0 was part of the Exporail collection. Sister locomotive 144 remains at the Exporail museum near Montreal.

CP 29 has the distinction of being the last CP steam locomotive to operate prior to the preservation movement. She operated in the spring of 1961 on a railfan excursion from Montreal to St.Lin QC. Shortly thereafter, a decision was made by the CP executive not to operate any more steam excursions.

CP 29 was lent from the Exporail collection to the Salem and Hillsborough tourist railway near Moncton NB. The S&H had a shop fire which destroyed most of their locomotives, and badly damaged CP 29.

CP cosmetically restored 29 for display outside the Gulf Canada building in Calgary. I don't know if Exporail retained ownership of CP 29.

A logical place for it to be displayed would be at Heritage Park in Calgary.

DPKrause Wrote:
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> This would be a plus on both the corporate level
> and for employees. Not only is downtown office
> space pricey, but Calgary also has by far the
> highest downtown parking rates in the country.

Don't Calgarians use public transportation to get to work?

If most CPR employees commuted on public transportation to get to the office, the move will increase commuting costs for the office workers. If most CPR employees drove to work, then the move would be seen as beneficial, I suppose.

Rule G has a good point. That's one way of getting rid of staff, I presume.

Something similar is happening in Winnipeg, all the office staff are being moved from downtown to an industrial park with poor transit service; the lease is apparently very cheap. With over 90 thousand square feet of space it is rumored that some Calgary jobs are moving to Winnipeg.