Canadian Railroads > Research=CP's Operating Ratio not just about operating efficiency

Research paper by Canadian law firm McMillan,
presented at the Canadian Transportation Research Forum this past May, in Vancouver, B.C.

"While some of the reduction in CP’s operating ratio during Mr. Harrison’s tenure is properly attributable
to genuine improvements in railway operating efficiency,
much of it is the result of factors that are beyond management control,
including changes in fuel prices, or other contributing factors, such as freight rate increases,
which represent the exercise of market power more than any change in operating practice."


The six page study is a good read,

https://mcmillan.ca/webfiles/Operating-Ratio-as-a-Measure-of-Railway-Operating-Efficiency.pdf

You mean Hunter was not the Wizard we thought he was-tell me it aint so !

Mike Bannon
St Catharines, ON

That's a wonderful document, Marcus.  Thanks for posting it.

For those who haven't read it, there are two main conclusions as I understand it.  One is:  CP's cost of fuel dropped significantly between 2012 and 2016, while the fuel surcharge mostly stayed in place. The second is: CP's market control (a lesser form of monopoly) allowed it to impose charges which increased revenue, while the company was cutting expenses. The two combined to increase revenue and cut expenses.

CP became more efficient, storing older locomotives so newer more efficient locomotives pulled more, and more of the freight. Which drove down the amount of fuel necessary to pull a revenue ton mile.

I would observe that a broader analysis would consider the impat of tax savings on lines pulled up, gains on lines spun off, etc. And, the changed mix of commodities carried over the period. From highly profitable Bakken and Alberta crude oil to intermodal and coal. Many changes.

McMillan LLP is a widely respected Canadian law firm.  My guess is this research paper is a component of a shipper's claim for refunds on fuel surcharges. 

Rate changes are a conscious management decision, and can contribute to the operating efficiency by overloading the network.