Canadian rail traffic has been much stronger than U.S. volume this year, but growth is weakening and crude oil traffic, while up, did not materialize as expected.
The Canadian railways expect the Alberta government to privatize the crude by rail contracts the prior government signed with the railways earlier this year. When that happens — possibly in just a few weeks — it will open the crude oil spigot and volumes should pick up in November and December.
CP’s third-quarter crude volume is running between 27,000 and 28,000 carloads, up from 25,000 in the second quarter, Chief Marketing Officer John Brooks says. If the Alberta contracts are privatized, fourth quarter volumes could hit 30,000 carloads.
CN’s crude volume is up 60% this year, Chief Financial Officer Ghislain Houle says, but that’s below what was expected. CN is collecting penalties from the take-or-pay contracts it has with the Alberta government and oil producers.
CP is seeing softness in traffic segments that are affected by tariffs as well as those that are more truck-competitive, Brooks told an investor conference last week.
The general feeling among CP’s retail customers is that the economy in the U.S. and Canada is stronger than what you’d expect based on the rhetoric, Brooks says. The expectation is that there will still be a fall shipping peak, but one that’s not as strong as prior years.
That’s partly due to the impact of tariffs. Last year retailers stocked up on goods from China to avoid tariffs and their inventory levels remain higher than normal.
Soybean traffic is a casualty of the U.S.-China trade war. Normally CP would haul 60 to 70 unit trains per month of soybeans from the Midwest for export to China via Pacific Northwest ports, Brooks says. Now, thanks to the impact of the trade war, CP is moving just 15 trains of soybeans per month.
Eventually those beans will have to move somewhere, Brooks says, and China’s announcement this week that it would resume buying some U.S. soybeans can only help.
CN’s volumes are weaker than expected largely due to the impact of the slowing economy, weakening industrial production, and the U.S.-China trade war, Houle told the investor conference.
While Houle noted that the North American economy is at the end of an expansion cycle, he says the railway does not expect the economy to dip into a recession.
Brooks and Houle spoke Sept. 25 at the CIBC Eastern Institutional Investor Conference.
CN’s problem as well is lack of capacity in Western Canada.
But really there is no evidence of any recession except the need for one with the upcoming election? Yeah right.