Comprising remarks made by Mike Franczak, Executive Vice-President and Chief Operating Officer
and Peter Edwards, Vice-President Human Resources and Industrial Relations
Address to Senate – May 31, 2012:
Mr. Speaker and honourable Senators, my name is Mike Franczak and I am the Chief Operating Officer of Canadian Pacific Railway. I am joined today by Peter Edwards, Vice-President of Human Resources and Industrial Relations.
During these important negotiations with the Teamsters Running Trades Employees and the Rail Traffic Controllers, I have been personally involved, directly at the negotiating table.
We do appreciate the invitation to appear before you today to discuss this important issue and urge you to move today to pass this Bill. The current strike is having a direct negative impact on the Canadian economy, our customers and employees as well as our company. Every hour matters and hence we ask you to act urgently.
Canadian Pacific operates a transcontinental railway in Canada and the
United States and provides logistics and supply chain expertise. We originate 10,000 shipments per day for 3,000 customers. With over 17,000 employees we operate a network of approximately 24,000 kilometers, serving the principal business centres of Canada from Montreal to Vancouver, as well as the Northeast and Midwest regions of the United States.
We transport bulk commodities, merchandise freight and intermodal traffic.
Bulk commodities include grain, coal, sulphur and fertilizers. Merchandise freight consists of finished vehicles and automotive parts, as well as forest and industrial and consumer products. Intermodal traffic consists largely of high-value, time-sensitive retail goods in overseas and domestic containers that can be transported by train, ship and truck.
Inner city passenger service in Vancouver, Toronto and Montreal also operate all or in part on Canadian Pacific. In a good faith move we allowed those operations to continue during this strike.
It is clear that Canadian Pacific is a core enabler of the Canadian economy; we ship commodities worth $135 mil every day.
I will now turn things over to Peter Edwards.
Thanks Mike. To begin, I would like to make it very clear that CP entered these negotiations in good faith and we continue to conduct ourselves in that manner. We have a long history at CP of collective bargaining. Work stoppages are clearly the exception not the norm. It has been 17 years and dozens of collective agreements since the Government has had to introduce legislation to end a work stoppage at CP. This was part of industry-wide back to work legislation. I should also point out that this is the third Teamsters strike at Canadian Pacific since 2003. No other unions have struck since that time.
These negotiations started in October 2011. Since then we have met 10 times for 55 days, in 5 cities across Canada. Over these seven months, CP has tabled numerous offers on the key issues. It should be noted that we made little headway in the early months and, for that reason, CP requested the services of the Federal Mediation and Conciliation Branch in March.
We made progress with the assistance of the federal mediators and conciliators and as the conciliation period drew to a close, we stood ready to extend the negotiations or agree to an arbitrated process. The Teamsters would not agree to either.
The key issue that remains is the future levels of defined benefit pension plans for active Teamsters employees. We had made progress on this issue with the Teamsters, however, there remained a gap between our positions. While we continued to negotiate on this issue the Teamsters struck.
CP faces a huge challenge related to the solvency of its defined benefit pension plan. We are not alone in having this challenge and like other large defined benefit plan sponsors we have taken direct action to address it. CP is a responsible pension plan sponsor. For example, in addition to the $229 million in annual current service costs, CP has paid $1.9 billion over the last three years towards funding solvency deficits. Despite this we still have a substantial deficit, which is expected to grow. The $1.9 billion payment is double our annual capital expenditures which generally are 20% of our revenue, the highest of any business sector. And yet the solvency liability continues to grow. This is not sustainable.
Plan design is the core issue. This problem has been compounded by current economic conditions including low long bond rates, volatile equity markets and increased longevity which will continue to increase the liability and require large funding amounts well into the future. This pension liability increases our cost of capital by affecting our credit rating, increases our stock volatility and our ability to compete in capital markets when compared to our railway peers.
The Teamsters’ have been saying we have been waiting for others to fix our problems. This is simply not true.
To reduce our future costs and exposure to volatile market conditions, we are doing everything we can to control our pension requirements including closing the plan to new non-union members, their only option now being a defined contribution plan.
The next necessary step in addressing the pension liability is by limiting the amount of overtime in the pension calculation and bringing our plan’s provisions closer in line with all other North American railways. Even with our proposed changes, our negotiating position results in a plan which is more generous than our main competitor.
This is the issue we are negotiating in good faith, a tough one that unfortunately we have been unable to resolve so far. I also want to make it clear that we have never attempted to reduce the benefits payable to current pensioners or the benefits employees have earned to date. Employees that are close to retirement would only be marginally impacted.
We do need, however, to address our multi-billion dollar future solvency liability. Currently, a top ranked CP locomotive engineer receives a maximum annual pension of almost $93,000 plus CPP and OAS. To put that number in perspective, the average Canadian working wage is $44,000 and, in 2009, the average private pension income for Canadians aged 55-64 was $26,500.
CP unionized wages and salaries are comparable to CN but in terms of pensions the gap is very wide. A Teamsters-represented employee at CN has a capped annual pension of $60,000, still well above the Canadian average. The difference between the maximum possible Canadian National pension and the Canadian Pacific Teamsters-represented maximum pension is therefore more than
$32,000 - or 50% higher at CP.
And compared to their American colleagues, a CP running trades employee with a maximum annual pension of $93,000 would receive more than four times the US Railroad Retirement Board pension.
Let me just highlight that just this week the Teamsters and CN announced that they had concluded a new collective agreement – one which perpetuates that $60,000 Cap. Our goal in the negotiations was to reduce this gap with our competitors not eliminate it.
Through-out the talks we also bargained on other matters including health spending accounts and work rule proposals. These too are important issues and our proposals exceed those of Canadian National.
That said and as acknowledged by Teamsters, the real issue here is an unsustainable defined benefit pension plan, one that jeopardizes the near-term and long term viability and competitiveness of our company.
Now let me turn it back to Mike to summarize the impacts this Teamsters’ strike is having on our economy and outline what we think the next step should be.
The impact of the Teamsters work stoppage to the Canadian economy is broad and affects many sectors that are critical to Canadian competiveness and participation in world trade. The strike is impacting everything from the movement of prairie grain for export, metallurgical coal to world markets and even food to the nation’s grocery stores. There have been many plants shut down across Canada including chemical production, grain processing, and manufacturing sectors. The number of our customers experiencing extreme stress increases substantially each continued day of the work stoppage and the Canadian global reputation for supply chain reliability diminishes. Currently we have impacted 64 auto distribution facilities. And with facility shutdowns come layoffs including over 2,000 other workers at CP alone.
With every hour of delay in restoring rail service, there is increasing damage to the Canadian economy. Once legislation is passed, it will take time to safely return to full service levels for all our customers.
For the foregoing reasons above we urge you to end this strike now.
The current work stoppage is having a direct negative impact on the Canadian economy, our customers as well as our employees and the near and long-term competitiveness of our company.
Once our employees return to work we remain committed to resolving the issues at the table. Every hour matters and we ask you to act with urgency.
We thank you for this opportunity