CSR Case Study: Canadian Pacific Railway Re-engaging with communities FINAL DRAFT Prepared for: Interdepartmental Working Group on Corporate Social Responsibility (CSR) Corporate Social Responsibility: Lessons Learned Final CPR Case Study 1 Corporate Overview Canadian Pacific Railway (CPR) is Canada’s second largest Class 1 railway1, and North America’s sixth largest. Headquartered in Calgary, Alberta, the railway provides freight transportation services to businesses and consumers over a 22 000-kilometre network in Canada and the USA. Its mainline network serves major Canadian ports and cities from Vancouver to Montreal, and key centres in the US Midwest and Northeast. CPR serves virtually every major industry, from the resource-based industries of the West, to manufacturing and consumer markets in central Canada and the northern USA. Main commodities include grain, coal, lumber and potash, as well as manufactured products such as cars, household appliances, food and furniture. CPR’s main competitors are other nearby railways, motor carriers and to a lesser extent marine carriers. Established in 1881 to extend the country’s railway system from the east to the west coast, Canadian Pacific Railway is Canada’s oldest continuously operating railway. The company soon developed into the country’s first conglomerate, owning its own chain of hotels, shipping fleets that included the world class Empress passenger liners, Great Lakes steamships and ferries on both coasts, the nation’s largest trucking company and an international airline. As well, the company owned total or controlling interest in large enterprises involved in real estate, mining and smelting, forest products and coal. During most of this period, CP and its main competitor Canadian National (CN) provided both freight and passenger services to most points in Canada. In 1977, both companies left the passenger rail service, when the federal government set up VIA Rail to amalgamate the companies’ intercity and remote passenger services. In October 2001, CPR became a publicly traded company as part of a major restructuring of its parent company Canadian Pacific in which its five major businesses in rail, shipping, oil, mining and hotels were spun off. CPR’s revenues in 2001 were $3.7 billion and it employed 15 840 people in North America. 2 Business Context Railways are the backbone of Canada’s transportation system, providing the most economical method of moving containers and bulk commodities over great distances, and playing a crucial role in the country’s export sector. They also played a crucial role in the country’s expansion from east to west, and were a major factor in British Columbia joining Canadian Confederation in 1871. For the first half 1 According to Transport Canada’s 1999 annual report, entitled Transportation in Canada 1999, Class 1 railways are generally defined to include CN and CP (in the case of freight railways) and VIA Rail (in the case of passenger railways). They have considerably higher revenues than the next class of carriers, Class 2 railways which are regional railways (usually provincial, such as B.C. Rail) or short line railways (which usually consist of a former branch line of a Class 1 carrier). As the name would suggest, short line railways operate over limited segments of track. 2 / 19 Corporate Social Responsibility: Lessons Learned Final CPR Case Study of the 20th century, railway remained the main means of communication between the east and west and the primary mover of people and goods across the country. Rail began to see its share of the total transportation market decline following World War II, with the advent of good transcontinental and inter-provincial road infrastructures and inter-city trucking. Trucks now dominate many areas where rail once prevailed, particularly intercity movements of non-bulk traffic over distances less than 1300 kilometres2. However, rail has maintained its dominance as a long-distance carrier of forest products and bulk commodities such as iron ore, coal, grain and potash. As an extension of the country’s manufacturing and natural resources sectors, railways contribute approximately $10 billion annually to the Canadian economy. In 2000, Canadian railways transported some 300 million tonnes, equivalent to approximately 60 percent of surface goods by volume and provided direct employment to 41 000 people and indirectly to another 50 000. Many rail employees work for locally operated and managed regional short-line railways, providing significant employment in rural centres throughout the country. With the exception of passenger rail, Canadian railways are for-profit, privately held companies, which along with US freight railways, which distinguishes them from the rest of the world where railways are, for the most part publicly owned, entities. CN and CPR dominate the Canadian rail freight business, handling 71 percent of the country’s freight traffic in 2000. In 1996, changes in the regulatory environment allowed CN and CPR to devolve major portions of their systems to short-line and regional operators in order to concentrate on their main east-west and north-south lines to the USA. Today, some 75 companies are involved in the rail freight businesses, two-thirds of which were established as separate entities in the last 15 years. New forms of intermodal transport services are emerging at shipper locations without rail sidings and for shipments that are small or time sensitive, which are allowing the railways to recapture traffic previously lost to road transport. These new forms include terminals where truck trailers are transported by rail, effectively combining the efficiency of rail transport with the flexibility of road transport. The railways have arranged with major shippers to locate warehouses and distribution centres within or adjacent to intermodal terminals thus reducing the need for highway haulage. In recent years, CPR has made such arrangements with Sears, Canadian Tire and Consolidated Fastfrate and signed two high-profile contracts (one with The Bay and one with DaimlerChrysler) to transfer short- to medium-distance highway traffic to its Expressway intermodal service. Both CN and CPR have seen their share of intermodal traffic increase in recent years to the point where it is now the industry’s largest line of business3. 2 Hackston, David and Charles Schwier. March 2002. Railway Industry Profile. Research and Traffic Group, Industry Canada. 3 Bill Rowat. 2002. Rail’s Intermodal Services: An Innovative Business and Public Policy Solution. Presentation at Canada’s Railways: Building on the Blue Print Canadian Transportation Agency Meeting, March 7, 2002, Hull, Quebec. (http://www.railcan.ca/en/pre_pub/Presentations/default.htm) 3 / 19 Corporate Social Responsibility: Lessons Learned Final CPR Case Study Key environmental issues for the transportation industry in general relate to air pollution, accidents, climate change, noise and vibration. Compared to other modes of transportation, however, by rail has significant environmental advantages, particularly in terms of greenhouse gas (GHG) emissions. Railway also provides an alternative to the pervasive and rapidly increasing problems of pollution, congestion, land use and massive infrastructure costs associated with road transport. As a means of transporting goods and people, rail stands to benefit as Canada implements is obligations under the Kyoto accord, which commits the country to reducing its greenhouse gas (GHG) emissions to 6 percent below 1990 levels. It is estimated that transportation activities account for 27 percent of Canada’s GHG emissions and that, in a business-as-usual scenario, will increase 50 percent by 2020. Although rail currently carries approximately 60 percent of surface goods by volume in Canada, its contribution to total GHG emissions is low at 4 percent. In its Options Paper, the Transportation Climate Change Task Force notes that the GHG emissions associated with rail is less than 20 grams per tonne-kilometre, while that for trucking was more than 100 grams. Good financial performance of the industry over the last decade has allowed the Canadian railway industry to invest in new locomotives, new lightweight cars with greater cubic and weight capacity, information systems, intermodal terminals, track and signal improvements to improve efficiencies. It is possible that with further innovation and improvement, rail could reduce its emission below 1990 levels by 2010. These new investments are positioning the industry well to accommodate traffic growth and to become an important player in Canada’s strategy to address climate change4. Emission of smog-causing nitrogen oxides (NOX) are also a concern. Canadian railways have signed a memorandum of understanding with Environment Canada that provides for a maximum NOX emission of 115 kilotonnes per year. If railway traffic grows due to diversion from other more emission-intensive modes, the permissible emission limits might be increased. The latest estimates of industry fuel consumption and emissions (October 2000) indicate that the railways are meeting their commitments. Other externalities associated with railways consist of noise and air pollution from gaseous and particulate matter. The external costs of noise include reduced value of land and property which has become a particularly pressing issue for the industry as poor communications with municipal planning authorities have resulted in residential and commercial properties being developed in close proximity