(The Montreal Gazette posted the following article by Nicholas Van Praet on its website on October 23.)
MONTREAL — Canadian Pacific Railway says it is worried the rise of the Canadian dollar could curtail shipping activity and hurt its business.
The loonie hit its highest level in nearly a decade yesterday and closed at 76.69 cents U.S. on North American currency markets. It has risen 20 per cent this year, ripping into the profits of Canadian companies that ship their products south of the border, many of them by rail.
“What we’re concerned about is … if (the dollar) gets too strong, you run into potentially a situation where the shippers can start to see trouble selling their products abroad and to the United States,” said Mike Waites, chief financial officer of Canadian Pacific Railway.
“Right now, we’re not seeing the shippers suffering from that, but it’s a concern that we have going forward,” Waites said after a speech to the Canadian Railway Club in Montreal.
Every one penny Canadian increase against the U.S. dollar shaves CP Rail’s operating income by about $3 million, Waites said.
CP reports its earnings in Canadian dollars. Much of the company’s debt is U.S. dollar-denominated, but it does not use hedging agreements to shield itself against currency fluctuations. That could change, however. Waites said he would not rule out taking forward positions on the Canadian dollar.
“We certainly do that, for example, on crude prices. We would be unhappy if (the loonie) posted significant growth beyond where it is today and you’d probably see us take some actions.”
Waites would not say what level the dollar could hit before a major impact is felt on shippers. “I still think at this point it’s still manageable, but I wouldn’t like to see it continuing strengthening much beyond this.”
On Tuesday, Canadian National Railway Co. said the increase in the dollar cost it $14 million in the most recent quarter.
CP reports results next week.
Yesterday, several Canadian business associations complained that the currency’s ascent has become a major drag on the country’s industrial economy.
In his speech, Waites repeated a long-standing demand by railway executives for governments to eliminate fuel and property taxes levied on railways. If they refuse, he said, they should boost public-private sector partnerships so railways can handle shipping growth volume.
CP pays $160 million a year in property and fuel taxes, Waites said. He criticized the government of Premier Jean Charest for reducing the refundable tax credits that reimbursed a portion of the property taxes railways pay. The province made the change in its budget in June.
“Reducing the tax credit is a step backwards,” Waites said.