Canadian National expects traffic slowdown to continue

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NASHVILLE, Tenn. — Canadian National continues to cut costs in the face of rapidly weakening freight demand across virtually all types of traffic.

On a revenue ton mile basis, CN’s volume has slumped 12% to 13% over the past two weeks amid a traffic downturn that is affecting the entire rail industry, Janet Drysdale, vice president of financial planning, told an investor conference on Wednesday.

CN handled record grain volume in Western Canadian in October. But winter has arrived early in the Prairies, meaning any grain left in the ground is now covered by snow and will not be harvested until spring.

Until the snow arrived, CN was expecting to continue to set grain records in November and December, says James Cairns, senior vice president of rail centric supply chain.

Also down sharply for CN: U.S. coal volumes, Alberta crude oil traffic, frac sand shipments to Western Canada, and forest products traffic from British Columbia.

Crude remains a volatile commodity, Cairns says, due to government curtailments in Alberta and changing price spreads that make rail moves uneconomic. CN now expects the Alberta government to privatize crude oil contracts by the end of the month, with the first new crude shipments beginning to move in January.

The traditional fall intermodal peak failed to materialize this year, Drysdale says, as retail inventories remain high due to the impact of last year’s race to beat tariffs.

CN has furloughed train crews, will return all 25 remaining leased locomotives by the end of the month, and is returning, selling, or scrapping nearly 5,000 freight cars, Drysdale says.

CN faces the prospect of a strike by conductors represented by Teamsters Canada, who voted to walk off the job as early as Nov. 19. Negotiations continue, however.

Although CN is encouraged by recent trade developments, including positive steps on the ongoing U.S.-China trade dispute, the railway expects the soft freight environment to continue into 2020, Drysdale says.

One of the few bright spots for CN is the Port of Prince Rupert, British Columbia, which is seeing strong growth in coal, propane, and plastics exports, as well as double-digit growth in intermodal volume.

CN remains optimistic about medium- and long-term growth prospects thanks to structural advantages that include its three-coast network, its bypass around Chicago congestion via the former Elgin, Joliet & Eastern, and being the sole railroad to serve Prince Rupert, the fastest growing port in North America.

Looking longer term, CN sees positive trends for the export of Canadian coal and propane, as well as frac sand shipments to Western Canada.

The CN executives spoke at the Stephens Nashville Investment Conference.

NEWSWIRETrains News Wire

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