CN’s capacity problems echo BNSF’s woes of 2013 to 2014

Both railroads had to play catch-up after unexpected traffic surges
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Southeast of Melville, Saskatchewan, crews in March prepared the ground for a new section of double track.
Canadian National
Capacity-related service issues plaguing Canadian National today are similar to what BNSF Railway went through on its Northern Transcon in 2013 to 2014, when it, too, was swamped by a wave of traffic that was not anticipated.

BNSF was responsible for half of the entire industry’s traffic growth in 2013. And much of that new traffic was concentrated in the Dakotas, where the Bakken crude oil boom was under way and grain, coal, and intermodal shipments surged well beyond the growth that was forecast.

The result: BNSF coagulated across its Northern Transcon. It was short of crews, power, and, most of all, track capacity. The “polar vortex” winter of 2013-2014 brought extreme cold and snow to the upper Midwest. A combination of the weather and traffic growth gridlocked Chicago and prompted the Surface Transportation Board to hold hearings on rail service.

Under immense pressure from regulators and shippers, BNSF in 2014 purchased 600 locomotives, added 7,500 freight cars, and hired 7,000 new employees. It spent $1 billion on the Northern Transcon to add 55 miles of double-track, build 10 new sidings, extend 11 others, and add 72 miles of centralized traffic control.

CN finds itself in a similar fix today on its spine between Chicago, Winnipeg, Manitoba, and Edmonton, Alberta. In the second half of last year, traffic surged by 20 percent or more across its western corridor amid growth in intermodal, frac sand, and grain traffic.

CN was left short of crews, power, and track capacity. Sidings have been plugged with crewless trains, average train speeds are down, and cars are spending more time in yards. Extreme winter cold forced CN to curtail train length, further exacerbating capacity constraints by requiring traffic to move on more trains, which gobbled up locomotives and crews.

Help is on the way. CN has outlined plans to spend $250 million this spring and summer to build new tracks and yard capacity in western Canada.

It will add five stretches of double track in eastern Alberta and Saskatchewan, plus a 12-mile section of double track between Spruce Grove and Carvel, Alberta, west of Edmonton. On the line to Prince Rupert, British Columbia, four new sidings will go in, along with two siding extensions. The Edmonton to Vancouver, B.C., corridor will receive a siding extension north of Kamloops. Also on tap: New yard capacity in Edmonton and Manitoba.

CN has leased 130 locomotives. And this year it will take delivery of the first 60 units of a 200-locomotive order from General Electric. It’s also adding crews as quickly as they can be hired and trained, with 400 new conductors qualified this year.
At CN’s investor day last June — held just before CN’s traffic began to surge — executives outlined the railway’s history of making the capacity upgrades necessary to keep the railroad fluid amid robust traffic growth across Western Canada.

From 2000 to 2016, CN spent $850 million on 188 new long sidings, long siding extensions, and stretches of double track all across its system. More than 150 of those projects were on the high-density corridor linking Chicago, Winnipeg, and Edmonton with the ports of Vancouver and Prince Rupert.

Some $467 million was spent on track capacity projects between 2010 and 2017, when CN’s traffic grew at twice the rate of the industry average. And the bulk of that — $350 million — was spent in the three-year 2013 to 2015 period.

But only $6 million was spent on new track capacity in 2016, and CN spent $10 million in the first half of 2017 amid the two-year freight recession that prompted traffic downturns across the industry.

For years, CN has consistently spent a higher percentage of its revenue on capital projects than the rest of the Class I railroads.

Industry analysts say it is incredibly difficult for railroads to accurately predict traffic growth. And when they get it wrong it’s impossible to get capacity expansions in the ground or new crews trained and qualified in time to avoid service problems.

“Forecasting traffic in the railroad industry is an inexact science,” says Todd Tranausky, a senior analyst at FTR Transportation Intelligence.

Railroads depend on customer forecasts as well as views of the projected underlying economic demand that drives rail shipments, he notes. “It’s probably one of the most difficult things to do in business,” Tranausky says.

The task is made more difficult when decisions have to be made regarding whether to spend millions on track capacity that will last for decades.

CN’s volume increases in the second half of last year were twice as much as forecast and five times higher than the growth in the rest of the industry, says independent analyst Anthony B. Hatch of ABH Consulting.

Capacity shortages like what CN is experiencing now will happen from time to time, Hatch says, because demand planning is imperfect. CN, shippers, and ports bear some of the blame for getting the forecast wrong last year, he says.

“Demand planning is awful – everywhere,” Hatch says. “But only railroads have to match that with 30- to 50-year assets that take a long time and a lot of money.”

Hatch says CN should be able to dig out of its current congestion problems.

“CN has a well-deserved, hard-built reputation for service, and this too shall pass,” he says.
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