(The Canadian Press circulated the following article by Judy Monchuk on May 8.)
CALGARY — Rising fuel prices which have hampered the trucking industry are a potential boon to train transport, the new CEO of Canadian Pacific Railway (TSX:CP) said Friday.
“We can move the equivalent of 200 trucks on one train,” said Fred Green, president and the new chief executive of the Calgary-based freight carrier.
The big freight hauler is forecasting five to eight per cent growth in 2006, largely on the major track expansion completed on its western leg during 2005.
That has allowed the company to increase its capacity by 12 per cent, but Mr. Green said other efficiencies have the potential to boost that further. This means tougher competition with long-haul truckers.
“We’re not sure how much more capacity we have: we know it’s more than 12 (per cent),” said Mr. Green, who was president and chief operating officer before taking over the firm’s top job.
“As we started to use that capacity, we were able to run the railway much more efficiently.”
Train speeds were up 17 per cent in the first quarter ending March 31, which creates more capacity without physical investment.
Outgoing CEO Rob Ritchie, who ran the company for 11 years, told the annual shareholders meeting that the track expansion, which came in on time and on budget despite record levels of traffic, is already paying dividends.
Canadian Pacific Railway described 2005 as the busiest and most successful year in its 125-year history. It said strong revenue growth propelled its annual profit to a record $543 million, up 32 per cent from 2004.
Capital investments for 2006 are forecast between $810 million and $825 million, while free cash flow is expected to exceed $200 million.
Mr. Green said the company is well positioned to meet bulk export growth in either North American or Asian-Pacific markets. The Vancouver gateway is poised for import-export.
Although shipments of potash and coal have been soft in recent months, Mr. Green said he sees good opportunities in the medium term. He noted the potash industry is in the middle of 2.6 million tonnes of production expansion that is expected to come on-stream late in 2006 and early in 2007.
“They’ve gone out and acquired railcars to move this export product,” said Mr. Green.
“They’ve gone out and expanded the two facilities at Portland and Vancouver. I would assess that the medium-term opportunity is tremendous for our company in moving this potash.”
Contract deliberations between China and Russia over who pays what for fertilizer are expected to be resolved within a month, said Mr. Green.
“When that does, the floodgates of potash out of Canada destined to those Asian Pacific companies will begin to flow,” he said.
Production problems at Elk Valley Coal in British Columbia, a major exporter to Asian steelmakers, are expected to turn around by the end of 2006, said Mr. Green.
“While this year may be softer than anticipated, we’d be very surprised if they didn’t get their production and sales volumes up so that 2007 will be a pretty robust year for coal export,” he said.
CP Rail executives recently met with officials in the Conservative government of Prime Minister Stephen Harper and expressed concerns that truckers are given a competitive advantage. Mr. Ritchie believes the industry is “on the threshold of an important change in the competitive landscape.”
“We will need to see continuing progress in the public policy arena,” said Mr. Ritchie, noting that railways pay property tax on right-of-ways, while the publicly funded highways are tax-exempt.
“Call me an optimist, but I believe that we are starting to see recognition by those driving public policy that not only does rail pay its own way, but it can also relieve a significant burden from the highway network, returning it to the motorist who pays for the vast majority of this infrastructure.”