Binkley on Strahl and railroads

Alex Binkley is a foremost political and economic analyst, whose website is www.alex.binkley.com. Readers will be aware that his columns in True North Perspective have foreseen political and economic developments in Canada. This week in ... 

The Binkley Report

Former MP Chuck Strahl's rail warning is aimed

at his former Tory colleagues and CP shareholders

By Alex Binkley
True North Perspective

He may be out of elected politics, but former cabinet minister Chuck Strahl has delivered a pointed message for Canadian Pacific (CP) shareholders and his former political colleagues.

In a commentary for the Globe and Mail that was picked up by Canadian Press, Strahl warned the contest for management control of CP is losing sight of the carrier’s importance to shippers and the country.

US activist investor Bill Ackman is trying to replace Fred Green, the current CP president and CEO with former CN boss Hunter Harrison. Most of the media coverage of the scrap between Ackman and the CP board of directors has focused on railway’s financial performance in comparison to CN’s under Harrison.

Virtually nothing has been said in the media about what the railway’s customers think of the showdown. Hopefully Strahl’s missive will bring some sorely-needed attention to this aspect.

In his stints as agriculture and transport minister, Strahl got an earful from angry shippers. They’d convinced Lawrence Cannon, the first Harper transport minister, to start the rail freight service review, which delivered a stinging critique of the railways. The government’s goal is to encourage the railways and shippers to reach voluntary service agreements and back that up with a law that would require them.

This summer, Ottawa is to get a report from former Alberta cabinet minister Jim Dinning on his attempts to develop model service agreements. Most shipper groups aren’t impressed with what they’ve seen from him so far.

Which makes Strahl’s commentary all the more timely.

He says that Ackman’s focus on share value fails “to consider the impact of management style.” That will “inevitably lead us back to more acrimony, more regulations, and eventually more burdens, less profit and less service.”

Railways require “a leadership group that responds to the Main Street needs of its stakeholders.”

While Green has had shortcomings in this regard, Harrison is well known for his lack of concern for shippers. All that ever mattered was making CN run on a schedule that suited itself and the customers would just have to adjust while paying ever increasing freight rates.

“The old adage that a customer comes first applies to pretty much any successful business in any free market,” Strahl noted. “But in a federally regulated industry like Canada’s railroads, there have been moments in times past when customers wondered if they were the last thing on the railroads’ minds.”

Shippers need “an effective, efficient, consistent, and reliable rail transportation system in order to remain competitive and to prosper in those same domestic, continental, and international markets. And it was really the shippers’ concerns that forced the government’s hand and started the review process.

“Why did they push so hard to have this review? The answer is straightforward. While railroaders today generally understand that their long-term success is in large part related to how effectively they respond to their stakeholders’ interests, it was a different world only a few years ago. Key players — customers, regulators, provincial and federal legislators, safety boards and shippers — were often presented with take-it-or-leave-it options by the railroads. That attitude harkens back to a different era, and shippers were understandably furious.”

Strahl notes major CP customers have been lining up to support the current CP managers. By implication, they’re also saying they don’t want a return to the belligerence of the Harrison era.

“It’s a completely different atmosphere than when I was agriculture minister, where we heard a constant stream of complaints from farmers, shippers, provincial governments and MPs related to railroads operating practices,” Strahl recalled.

He tried to contact Harrison to discuss the situation. “That call remains unreturned to this day. While a minister not getting his call returned no doubt puts the smile on the face of some, it speaks to a single-minded approach in an environment where collaboration is essential for success. No railroad or chief executive would – or should – get away with thumbing his nose at key stakeholders nowadays.”

CN’s attitude has changed diametrically under Claude Mongeau, the new president and CEO, who unlike his predecessor, has been spotted in Ottawa.

Strahl’s successor Denis Lebel speaks about the rail service issue in vague generalities. It seems to have no importance to him.

However, Agriculture Minister Gerry Ritz is determined the rail service legislation will be brought in. The railways claim the government doesn’t need to pass the legislation because they’ve shown they can do better, he notes.

“My response to them is that’s great and we’ll never have to use that tool in the tool kit. But I assured them that it will be there.”

Strahl’s column should be required reading for everyone in the Harper government, which looks at every issue in terms of jobs. Well, good rail service is vital to jobs right across the economy.

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