(The following article by Grant Robertson appeared in the Calgary Herald on May 28.)
CALGARY — Canadian Pacific Railway Ltd. went against the grain of the struggling forestry sector Tuesday, announcing a major purchase of lumber cars the company said are needed to keep up with strong demand for wood shipments.
The 600 freight cars — which are being built in Nova Scotia by the U.S.-based Greenbrier Companies — will be added to the railway’s fleet at a rate of 45 a week, as soon as they are completed.
The cost of the deal was not disclosed. CPR said demand for wood shipments has been “robust,” even as sawmills in Canada and the U.S. announce widespread layoffs and plant closures.
“Lumber manufacturers desperately need more car capacity,” CPR chief executive Rob Ritchie said in a statement.
“We are moving quickly to meet their demand with the highest capacity cars available.”
CPR’s fleet of lumber cars will grow to nearly 2,650 cars with the deal, the largest number in its history.
The railway said the expansion of its lumber capacity isn’t related to recently announced plans to bid for BC Rail, the British Columbia-owned line that’s been put up for sale by the province.
The bulk of BC Rail’s revenues are drawn from lumber shipments.
CPR spokesman Len Cocolicchio said most of the demand for the new cars will originate in British Columbia and Alberta, but they will be used across North America.
The deal comes a week after several North American forestry giants — including Doman Industries, Weyerhaeuser Co., Abitibi Consolidated and Tembec — announced mill closures and layoffs due to an industry-wide slump.
Lumber prices are at 11-year lows, hurting the margins at mills.
Meanwhile, 27 per cent duties on softwood lumber shipments to the U.S., along with a 12 per cent rise in the Canadian dollar since January, have crippled exports.
The World Trade Organization ruled Tuesday the United States is unjustified in placing steep duties on softwood lumber because it fears the Canadian industry is being subsidized.
However, the ruling is not binding and does not force the U.S. to remove the penalties, suggesting export relief for Canadian mills may be a long way off.
Despite the sector’s problems, CPR said it needs to acquire the new rail cars as fast as it can.
“We don’t describe it as a rush order — although we’re taking them as quickly as we can,” Cocolicchio said.
“We haven’t seen a slowdown in the sector. The sector’s been very strong.”
Rail car manufacturers have been overloaded with demand for freight cars in the past year.
In the past month alone, Oregon-based Greenbrier has received orders for 2,800 rail cars, valued at $130 million US — in addition to another 2,800 units announced in April.
The company said its combined North American and European backlog has been pushed to a record 10,200 cars, representing more than half a billion dollars in business.
The cars purchased by CPR are lighter and more efficient than older lumber units and have a carrying capacity of 128,700 kilograms.
CPR plans to replace 300 older, leased freight cars in its fleet as the new ones are added.
The railway’s forest products business grew two per cent in 2002 — rising from $354 million in 2001 to $360 million last year.
A slow first quarter in 2003, however, saw lumber revenues drop five per cent, to $87 million, compared to $92 million in the first three months of last year.