Trump tariff may place knots in Canadian railroads' lumber traffic

Canadian National is North America's largest forest products hauler
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A Canadian National train with lumber near the front rounds a bend at Clemina, British Columbia.
Canadian National website
A long-simmering trade dispute over Canadian lumber boiled over on Monday as the U.S. slapped tariffs on softwood imports — a move likely to hurt the volume of forest products Canadian National and Canadian Pacific trains haul across the border.

The U.S. Commerce Department hit Canadian lumber exporters with a retroactive tariff on the lumber used to build homes. The tariff varies by company and province — and is highest for producers in British Columbia — but generally falls in the 20-percent range.

At issue: Logging on government-owned land, which the U.S. says amounts to an unfair subsidy that allows Canadian lumber to be sold at lower prices. Canadian officials disagree and have vowed to fight the tariffs.

“It is an issue we are following closely,” CN representative Patrick Waldron says.

Executives from CN and CP did not address possible lumber tariffs during their respective earnings calls over the past two weeks. But they did address trade issues during their fourth-quarter earnings calls in January.

CN CEO Luc Jobin said there was a lot of uncertainty around the Trump administration’s trade proposals, but that the railroad and its customers expected the North American Free Trade Agreement to survive. CP CEO Keith Creel agreed, while noting that CP is not as exposed to lumber as CN.

Indeed, CN is the largest hauler of forest products in North America, and about 10 percent of its revenue is related to the U.S. housing market. Lumber is the largest segment of CN’s forest products traffic. Last year CN hauled 440,000 carloads of forest products, which produced $1.7 billion in revenue.

CP, by contrast, handled 66,000 carloads of forest products last year, representing 5 percent of its revenue. Nearly a third of the railway’s $275 million in forest products revenue is related to lumber.

At an investor conference after the November presidential election, CN Chief Financial Officer Ghislain Houle said that if Canadian lumber producers face quotas from the U.S., they could potentially expand markets in Asia. Either way CN would still be involved in shipping forest products, he said.

But CN’s length of haul would decline, as the ports of Vancouver and Prince Rupert, B.C. are far closer to lumber mills than markets in the U.S.

Larry Gross, a transportation analyst with FTR, says lumber and wood products represent just 2.5 percent of all North American carloads.

“Only a portion of that crosses the border and much of that volume will keep flowing in any event,” Gross says. "So I think it will be pretty minor, although obviously more important for some rails and routes than others.”

British Columbia is the largest producer of softwood in Canada, according to the BC Lumber Trade Council. The province exports $4.6 billion worth of lumber to the U.S. annually. About half of the province’s production is exported to the U.S., with 35 percent bound for Asia and the balance sold in Canada.

“These duties are unwarranted, and this determination is completely without merit,” says Susan Yurkovich, president of the BC Lumber Trade Council. “The allegations made by the U.S. lumber lobby are the same arguments they made in prior rounds of litigation, all of which were rejected and overturned by independent NAFTA panels. This new trade action is driven by the same protectionist lumber lobby in the U.S. whose sole purpose is to create artificial supply constraints on lumber and drive prices up for their benefit, at the expense of American consumers.”

A CP representative did not immediately return an email seeking comment.

NEWSWIRETrains News Wire

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