Canadian rail freight volumes pick up

Canada's two major railroad companies are seeing a steady pick-up in freight volumes, reflecting growing demand for commodities, such as potash, iron ore, coal and copper, from fast-growing economies such as China, India and Brazil, reported Dow Jones Newswires.

"We're seeing a slow, steady recovery," said Robert Noorigan, vice-president of investor relations at Canadian National Railway. (CN).

CN, Canada's largest rail hauler, and rival Canadian Pacific Railway (CP) offer a window into the economic health of Canada and its major trading partners.

So far in the third quarter, CN volumes are up about 19 percent, while revenues per tonne mile, defined as the revenue earned on the movement of a tonne of freight over one mile, is up 11 percent, Noorigan said.

Montreal-based CN is moving "a lot of" iron ore, while its international intermodal business, which involves more than one mode of transport, "is doing quite well," he said.

"If I look at the trend clearly, this is a lot more fun than it was in 2008," he said.

CP freight volumes are up 14 percent this year, said chief financial officer Kathryn McQuade. Intermodal is up 45 percent, while export coal is up almost 30 percent and export potash is up 200 percent after the potash markets stalled in 2009, she said.

She said it's too early to say what impact, if any, the possible breakup of Canpotex, the Canadian export potash cartel, will have on CP if Australian mining giant BHP Billiton (BHP) succeeds in buying Potash Corp of Saskatchewan Inc (POT). BHP, which made a hostile bid for Potash last month, said that it would honour existing Canpotex contracts if its bid is successful, but that it eventually hopes to sell through its own channels.

McQuade said CP's bullish on potash.

"You're going to see more volumes being pushed through and that's great for us," she said. "I don't care if I take it to (the ports in) Washington or Vancouver as long as we get the haul."

Canpotex, which typically handles more than a quarter of the world's potash exports, wasn't been able to secure a contract with China last year, and this year has only been able to get small, short-term contracts.

"CP has potential. But, there's some exposure on the potash side," said Dahlman Rose transportation analyst Jason Siedl, who has a hold on the stock. "I think they've done some good things at CP, but we're waiting to get a better look at when some of the (potash) traffic is going to come to the network, or get a better entry point" on the stock.

The outlook is less bright for the grain harvest.

Freight volumes for grain is "running strong right now," up five percent from 2009, as farmers take advantage of higher commodity prices, said CP's McQuade. But cool weather is delaying the Canadian harvest and the final yield and quality is uncertain, she said. The impact on CP won't be felt until the fourth quarter or early 2011.

CN's Noorigan said the crop in Canada "actually might not be as bad as originally anticipated". Compared to 2008, grain is up "very modestly" more in the US than in Canada, he said.

He said CN's seeing some lumber mills in British Columbia reopening on demand from Japan, and pulp exports to Asia "are doing well".

According to the Association of American Railroads (AAR), carloads in Canada were up 17.4 percent last month, compared to August 2009, and were higher in 14 of the 19 commodity groups. The biggest gains were in metallic ores, up 42 percent, and chemicals, up 16 percent. Canadian railroads averaged 51,206 intermodal units a week in August, the highest-ever non-seasonally adjusted weekly average. That's up 23 percent from August 2009, the AAR said.
(Source:www.cargonewsasia.com)