(Dow Jones Newswires circulated the following story by Caroline Van Hasselt on September 8, 2010.)
TORONTO — Canada’s two major railroad companies are seeing a steady pickup in freight volumes, reflecting growing demand for commodities, such as potash, iron ore, coal and copper, from fast-growing economies such as China, India and Brazil.
“We’re seeing a slow, steady recovery,” says Robert Noorigan, vice president of investor relations at Canadian National Railway Co. (CNI).
CN, Canada’s largest rail hauler, and rival Canadian Pacific Railway Ltd. (CP) offer a window into the economic health of Canada and its major trading partners. Executives from both companies provided progress reports at the third annual Dahlman Rose & Co. global transportation conference in New York Wednesday.
So far in the third quarter, CN volumes are up about 19%, while revenues per ton mile, defined as the revenue earned on the movement of a ton of freight over one mile, is up 11%, Noorigan said. Montreal-based CN is moving “a lot of” iron ore, while its international intermodal business, which involves more than one mode of transport, “is doing quite well,” he says.
“If I look at the trend clearly, this is a lot more fun than it was in 2008,” he says.
CP freight volumes are up 14% this year, says Chief Financial Officer Kathryn McQuade.
Intermodal is up 45%, while export coal is up almost 30% and export potash is up 200% after the potash markets stalled in 2009, she said.
She said it’s too early to say what impact, if any, the possible breakup of the Canpotex Ltd., the Canadian export potash cartel, will have on CP if Australian mining giant BHP Billiton Ltd. (BHP.AU) succeeds in buying Potash Corp. of Saskatchewan Inc. (POT). BHP, which made a hostile bid for Potash last month, has said that it will honor existing Canpotex contracts if its bid is successful, but that it eventually hopes to sell through its own channels.
McQuade says CP’s bullish on potash.
“You’re going to see more volumes being pushed through and that’s great for us,” she says. “I don’t care if I take it to (the ports in) Washington or Vancouver as long as we get the haul.”
Canpotex, which typically handles more than a quarter of the world’s potash exports, wasn’t been able to secure a contract with China last year, and this year has only been able to get small, short-term contracts.
“CP has potential. But, there’s some exposure on the potash side,” says Dahlman Rose transportation analyst Jason Siedl, who has a hold on the stock. “I think they’ve done some good things at CP, but we’re waiting to get a better look at when some of the (potash) traffic is going to come to the network, or get a better entry point” on the stock.
In New York, CP closed 17 cents higher to $61.98, while Canadian National Railway rose 45 cents to $64.24.
The outlook is less bright for the grain harvest.
Freight volumes for grain is “running strong right now,” up 5% from 2009, as farmers take advantage of higher commodity prices, says CP’s McQuade. But, cool weather is delaying the Canadian harvest and the final yield and quality is uncertain, she says. The impact on CP won’t be felt until the fourth quarter or early 2011.
CN’s Noorigan said the crop in Canada “actually might not be as bad as originally anticipated.” Compared to 2008, grain is up “very modestly” more in the U.S. than in Canada, he says.
He says CN’s seeing some lumber mills in British Columbia reopening on demand from Japan, and pulp exports to Asia “are doing well.”
According to the Association of American Railroads, carloads in Canada were up 17.4% last month, compared to August 2009, and were higher in 14 of the 19 commodity groups. The biggest gains were in metallic ores, up 42%, and chemicals, up 16%. Canadian railroads averaged 51,206 intermodal units a week in August, the highest-ever non-seasonally adjusted weekly average. That’s up 23% from August 2009, the AAR said.