Canadian Railroads Experiencing Slowing Freight Revenues

While CN revenues grew by 1.0% to C$1,927 million, net income fell by 4.0% to C$311 million. One factor in declining revenues was the stronger Canadian dollar relative to the US dollar. CN explains that conversion of the railroad’s US dollar-denominated revenues and expenses reduced first quarter 2008 net income by C$35 million.

Reasons for lower revenues included the fact that, “CN experienced some of the worst winter weather in decades during the first quarter of this year,” according to E. Hunter Harrison, president and CEO. “Extreme cold and snow affected us system-wide—particularly in Western Canada—delaying trains and putting crews, cars and locomotives out of cycle. In January we took the unprecedented step of suspending most operations in the West for almost two days to ensure the safety of our employees. All these factors depressed traffic volumes and increased costs.”

While Forest Product revenues were off 20% and Automotives down 12%, five commodity groups carried by CN posted improvements: Intermodal +12%, Coal +11%, Grain and Fertilizers +10%, Petroleum and Chemicals +5% and Metals and Minerals +4%.

Factors playing a part in improvements in CN’s first quarter 2008 revenues include freight rate increases, which incorporated higher fuel surcharge revenues as a result of applicable fuel prices and the overall improvements in its traffic mix.

“While we believe the US economy may currently be in a recession, we expect a gradual recovery during the second half of the year, and that the global economy will grow at a moderate pace throughout the year,” claims Harrison. “CN sees growth opportunities in the container trade over the Port of Prince Rupert, increased resource demand, and increased shipments of commodities associated with oil and gas development in Western Canada, including pipes, machinery and equipment, and condensate.”

Total revenues for CP climbed to $1.15 billion in the quarter, up from $1.12 billion for the same period last year. However, income declined from $123 million in 2007 to $116 million this year. As with CN, costs for fuel and the strengthening of the Canadian dollar against the US took a toll on revenues.

Fred Green, CP president and CEO, also sees weather during the quarter as playing havoc with earnings. “We had a difficult winter with prolonged cold spells and record snowfall which affected the entire supply chain and resulted in very tough operating conditions throughout the central and eastern parts of our network,” he said. “Although our busy Western corridor remained fluid, the winter weather had a significant impact on our overall ability to move traffic efficiently."

Economic conditions in the US played a part in the lessening of CP revenues, according to the railroad. In particular, there were decreases in shipments of Forest Products -19% and Automotives -12%. However, the railroad cites 10% growth in freight revenues overall. Grain, Coal and Sulfur and Fertilizers all saw growth in the 6 to 7% range. Industrial and Consumer Products revenues increased 10% year over year. Intermodal revenues were up 4%.

Looking ahead, Mike Lambert, CP’s CFO, says, “We anticipate the continuing effects of a slowing North American economy on our business. Although demand remains strong for our bulk portfolio, we expect to see an impact on our intermodal business, and further deterioration of our merchandise business. We also expect high fuel prices, including the price of WTI [West Texas Intermediate Crude Oil] and refining margins, will continue.”

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish