Driving the digital railway to export development

The North American rail industry traces its roots to export promotion and development with a long understanding that supply chain collaboration enables long-term export growth. We are strategically positioned to create value and benefit from Asian trade with exports of natural resources, agriculture and energy and imports into the North American consumer. The development of traditional and new sectors within these markets creates significant inbound and outbound rail opportunities.

I believe there are a number of conditions necessary for export development. Creating and sustaining efficient global supply chains will be essential in maintaining North America’s competiveness. North America’s railroads control some of these circumstances, including innovation, productivity, and service reliability.

Investments in traditional rail assets are just a part of the need. I am particularly excited at the evolution of technology in our industry, which enhances safety and helps deliver improved service reliability and productivity, while providing the customer with efficient supply chains and better inventory management.

The adoption of new field technologies that include asset health monitoring will enable us to predict and correct failures on a planned basis before they occur. Mobility and GPS technologies will improve field employee productivity and continue to enhance shipment visibility. Investments in fuel technologies not only reduce costs, but lower emissions as well as improve train handling.

Canadian Pacific is actively deploying and testing diagnostic tools that can detect defects before the point of failure, transforming reactive repairs to proactive maintenance. By focusing on repairs instead of looking for defects, technology can make the workforce even more productive. We can turn finders into fixers. It’s yet another way we can create capacity and speed up asset velocity.

Canadian Pacific is also aggressively moving to lengthen our trains. Long trains have many benefits, which include lower lateral forces and friction, which in turn reduces fuel consumption, decreases wheel and rail wear, reduces the impact on other parts of the road bed such as ties and fasteners, and all this in turn, lowers capital maintenance.

Long trains allow us to enhance locomotive and labor productivity by reducing train starts and better matching the haulage capacity of the locomotives to train weights. Coupled with better adhesion characteristics, these trains operate more smoothly and more safely, which will impact causality costs going forward. And they help us respond to volume variability without adding extra train starts or leaving business behind. In short, long trains help create capacity for growth.

In April, Canadian Pacific launched a 10-year agreement with Teck Coal Limited to move its coal volumes for export. The agreement provides both companies with certainty and the ability to plan and invest for the future.

The fundamentals of the metallurgical coal markets are verystrong. To realize this growth opportunity, the full supply chain must be prepared to respond. Collaboratively, each member of this world-class supply chain is investing—producers, terminals, and transporters.

Canadian Pacific’s investment is anchored in our long train strategy, with a design objective of 152-car coal trains in 2013, each operating at over 21,000 tons, allowing us to handle up to 18% more volume with every train start. We plan to invest $75 million to $100 million in our western corridor, which handles about 40% of our traffic.

Canada’s resources for export also include potash. Canada’s rich reserves are being further developed by existing operators as well as new entrances. We expect demand for export potash to remain strong, and we are investing millions on our north line through Saskatchewan and Alberta to support the growth in these markets as well as to improve the fluidity on our main line for transcontinental trains.

Similarily, export of agricultural products should continue to expand as global demand climbs with higher populations. North American farmers are the most productive producers and our grain franchise is 60% Canadian and 40% U.S. CP continues to invest and expand on lines to support this growth.

Canadian Pacific is the only Class I with direct connections to North America’s three emerging energy developments: the Bakken Oil Reserve in North Dakota and Saskatchewan; the Industrial Heartland serving the Alberta Oil Sands; and the Marcellus shale gas discovery. We’re investing approximately $90 million over a multi-year timeframe on U.S. Midwest track structure, with significant capacity expansion plans under way on our routes in North Dakota and Minnesota to support the growth we are seeing in our North/South business. On top of main line capacity, we have plans to increase capacity along our Newtown subdivision in North Dakota, which has become a strategic feeder line in the heart of the Bakken.

Will we see Bakken shipments destined for export? It is too early to know. The fundamental advantage of shipping Bakken oil by rail, however, also applies to the export market so it is really a question of supply chain capabilities. Certainly, energy is a key market for CP and we are working with the energy industry to further develop shipping opportunities.

In 2011, and as we move forward into 2012, there is still much that can and must be done to continue our steady march to achieving our stated goals. Regulatory stability will be critical, however. Available technologies can drive the industry to new levels of performance. But, unfortunately with the 2015 PTC mandate, development of the best technologies that create the highest benefits will be slowed as the industry implements a regulatory mandate.

Last year’s 30th anniversary of the Staggers Rail Act is a reminder that opportunity and regulation can co-exist. But our ability to reinvest in our infrastructure and emerging technologies will continue to depend on a stable regulatory environment that allows railroads to earn fair returns for reinvestment.

It is an exciting time for this company and all of those we work with. The cornerstone of CP’s success will be an unrelenting focus on safety of our operations and the quality of our service.