CP CEO: 'Almighty dollar' to blame for slow switch to newer oil tank cars

CALGARY – Canadian Pacific Railway Ltd. (TSX:CP) CEO Hunter Harrison says the “almighty dollar” is holding up badly needed changes to rail safety.

In a passionate speech to the Calgary Chamber of Commerce on Tuesday, the plain-spoken, Memphis-born railway veteran said the time for study is over — older-model DOT-111 tank cars used to haul crude oil among other things must removed from North American tracks immediately.

The ubiquitous DOT-111 cars — considered the workhorse of the rail industry — have long been criticized for having hulls that are too weak to withstand the force of a crash. They’re the type that barrelled into downtown Lac Megantic, Que., last summer, leading to a fiery wreck that claimed 47 lives.

“Nobody quibbles that they’re more dangerous, that they’re not equipped to haul this commodity,” said Harrison, who has raised concerns over those vessels in the past.

“So what should we do with them? Stop them tomorrow. Don’t wait to study. We know the facts.”

“You know what it comes down to? And I hate to tell you this — the almighty dollar. Who’s going to pay for this?”

Later, Harrison told reporters he’s not pointing fingers at any specific government agency or industry player for dragging their feet.

“I’m just saying that too many of us get influenced by what the impact’s going to be to our organization or our department … by the dollar impact. And if you can remove the dollar impact, the cost factor, these things will be done quickly.”

A government-commissioned report released Friday said there are about 228,000 DOT-111 cars in service throughout North America, with about 92,000 of them carrying flammable liquids.

The rail industry introduced voluntary standards for stronger tank cars in October 2011. Since then, about 26,000 of the reinforced models have been put into service and that’s expected to rise to 52,500 next year.

The working group that penned the report — including representatives from industry, labour and municipal governments — said “regulators, industry, car builders and shippers can go further.”

It said retrofitting or retiring older DOT-111 tanks cars needs to be a priority and is recommending a speedy study on how quickly a retrofit of the older cars could be performed.

Longer term, the group said Transport Canada needs to review new calls by the American Association of Railroads “requiring an even higher standard of design safety of DOT-111 new-build tank cars.”

For his part, Harrison said he’s comfortable with the newer models.

Harrison said the power his company has over this issue is limited, as it doesn’t own the cars that move along its network. Plus, as a “common carrier,” the railway is required by law to move whatever goods its customers want in whichever vessels are government approved.

“We do not have a right to turn it down. He have to haul it,” he said. “I’d do something tomorrow if I could.”

Canadian Pacific is, however, trying to dissuade its customers from using pre-2011 DOT-111 cars by slapping a $325 surcharge on each one.

Harrison said the crude-by-rail business doesn’t get him too enthused — even though it’s expected to grow as pipeline projects get mired in delays.

“CP’s success is not tied in any way to crude. It’s less than five per cent of our revenues and it’s one of the lowest-margin businesses we have before we take into account all we’re talking about today,” he said, referring to the increased safety scrutiny.

“I don’t get real excited, necessarily, about getting crude. I’m excited about moving lumber and paper and other stuff that railroads were built on. We’ve got to haul the crude. I’m going to do as good a job as we can do, as safely as we can do, but I’m not going out there lobbying to get rules changed and make it easier for crude. That’s not my game.”

On Monday, New Brunswick-based Irving Oil said it would converted all of its own rail cars at its Saint John refinery to the post-2011 standards by April 30 and will ask that its suppliers do the same by year end — a move that Harrison lauded.

“I think it was a good signal. I think they stood up for what they believed in and I was proud to see them do it,” he said.

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