CN will begin hauling Teck coal from Kamloops, British Columbia, to port terminals in Vancouver and Prince Rupert, B.C., in April 2021, the companies announced on Wednesday.
CP will continue to carry the coal from Teck’s four CP-served mines in southern British Columbia to interchange with CN at Kamloops.
But CP’s length of haul will be reduced by a third and it will take a 1% hit to overall revenue in 2021, the railway says. Last year Canadian metallurgical coal represented 90% of CP’s $673 million in coal revenue.
Metallurgical coal is a specific grade of coal sought after for use in making steel.
The Teck contract will be worth between $160 million and $250 million annually, CN CEO JJ Ruest told an investor conference on Wednesday. That’s up from $25 million-worth of Teck coal that CN handles today.
The contract shifted to CN as Teck looked to change its export supply chain, Ruest says.
CP currently sends Teck coal to the Neptune and Westshore terminals in Vancouver. Teck will expand its Neptune Terminal on the CN-served line on the North Shore and make more use of the Ridley Terminal at Prince Rupert, B.C., which will be expanded under new private ownership.
Teck’s agreement with CN runs from April 2021 to December 2026, and will enable Teck to significantly increase volumes through Neptune. The agreement also provides for investments by CN of more than $125 million to enhance rail infrastructure and support increased volumes to Neptune.
“This agreement and the associated infrastructure investment will provide us with rail capacity to match the major upgrades underway now at Neptune Terminals,” Teck CEO Don Lindsay, said in a statement. “We expect this will lower our total transportation costs and improve overall rail and terminal performance.”
Teck remains an important customer for CP, CEO Keith Creel told an investor conference on Wednesday.
Creel said he was not losing sleep over the loss of the 10-year Teck deal, saying he was not a fan of long-term contracts. CP will look to fill the capacity void left by Teck’s departure.
Creel warned that Kamloops can’t currently handle the tonnage that will be interchanged.
“There is a significant amount of work required to ensure that the interchange at Kamloops is capable of accommodating the additional interchange volume in April 2021, and CP expects that all stakeholders will do their part,” Creel said in a statement. “We will be working hard between now and Q1 2021, and beyond, to protect our fluidity through Kamloops for all shippers dependent on this critical corridor.”
Ruest and Creel spoke at the Credit Suisse seventh annual Industrials Conference in Palm Beach, Fla.
“If only CP still had the Kettle Valley Railway route, then they probably couldn’t be beat…”
Uh….no. Like so many other railroads not around, the route across Southern BC is not there anymore as a through route for a reason. Not only was it circuitous, but curvy and featured numerous numerous very stiff grades. Not something that could support heavy unit trains like coal.
At first this seems like a trivial rate/haul division exercise as the two Vancouver endpoints, the already-mostly-shared-Thompson river route, and the originating mines are the same as before, but CN’s ace in the hole might be exclusive access to the Ridley Terminal at Prince Rupert, B.C., possibly a day’s sailing distance closer to the Asian markets than Vancouver. To get to Prince Rupert though, CN will likely have to spend to upgrade that line to balance new coal with the container traffic.
If only CP still had the Kettle Valley Railway route, then they probably couldn’t be beat…
Creel said he was not losing sleep over the loss of the 10-year Teck deal, saying he was not a fan of long-term contracts.
Next day signs 10 year deal with KCS to haul crude oil.
Huge gain by CN. They are smart and CP is stupid.