Adapting to change

From the October 2020 print edition

Originally serving Canada from East to West, our two historic railways, Canadian National and Canadian Pacific, both expanded into the US several years ago through acquisitions and are also important North-South lines. Being two of only seven North American Class 1 railroads (as they are called in the US), they play a major role in getting products to market in all directions – domestically within Canada and internationally with the US, southbound and northbound.

Photo by Louis Moncouyoux on Unsplash

The pandemic hit mid-March, just when business was getting back to normal with the lifting of the rail blockades that affected rail transportation in Canada at the beginning of the year. Covid-19 has affected all industries and like everyone, our railways must adapt. We’ll first look at the impact in Canada, then on their operations to and from the US. This market is crucial for Canada as, year after year, three quarters of our exports go to the US and about 60 per cent of our imports come from there.

Canadian National had a good 2019, with revenue up four per cent. But 2020 didn’t begin that well and revenues were flat in the first quarter, compared to 2019. Of course, second quarter results were adversely impacted by the pandemic, with revenues down 19 per cent due to lower volumes across most commodity groups and lower fuel surcharge rates. These were partly offset by increased shipments of grain, higher coal exports via West Coast ports and freight rate increases. RTMs, measuring the relative weight and distance of freight transported by CN, declined 18 per cent from the same period last year and freight revenue per RTM decreased by one per cent.

By contrast, 2019 saw Canadian Pacific’s revenues increase by seven per cent, in spite of the economic uncertainties caused by geopolitical challenges, like Trump’s trade war with China and others. Following a record first quarter, where revenues were up 16 per cent, they were down 9.4 per cent in the second quarter, unsurprisingly, as automotive, metals, container, oil and coal revenues all decreased due to auto plants, factories and retailers shutting down. These negatives were partly offset by increases in grain, potash, fertilizer and forest products, with grain up eight per cent year-over-year.

Car loadings
The latest statistics on Canadian railways car loadings for July have just been released. In spite of the rebound in trade with the US, railway car loadings remained below pre-pandemic levels in July, falling short of a full recovery. The volume of freight transported by Canadian railways posted year-over-year declines for the fifth consecutive month since the start of the pandemic. Overall, 29.7 million tonnes of freight were carried in July, a decrease of 11.8 per cent compared with July 2019, with the low demand for raw minerals and hydrocarbon contributing the most to this decline.

Loadings of fuel oils and crude petroleum saw the largest decline in July, dropping 67.1 per cent compared with the same period in 2019, in spite of stronger crude oil exports. Similarly, coal loadings dipped 23 per cent and fuel oils, crude petroleum and coal products accounted for over half of the total drop in tonnage. Gasoline and aviation fuel loadings saw a decline of 55.4 per cent, reflecting the weaker demand for these fuels during summer travel.

Automobile and mini-van railcar loadings fell 29.7 per cent in July but motor vehicle parts and accessories saw a 12.8 per cent increase, with other transportation equipment parts on the rise as well, signalling that assembly plants were ramping up production as the economy began to re-open. Following the economic slowdown, loadings of essential commodities like agriculture and food products were up and this trend continued in July, with large year-over-year increases in car loadings of wheat (+34 per cent), canola (+82.3 per cent) and other cereal grains (+69.8 per cent). Potash loadings also increased in July (+9.9 per cent).

Internationally, March saw our exports fall 4.7 per cent and imports decline 3.5 per cent. The big plunge happened in April with exports down 29.7 per cent and imports down 25.1 per cent. Following these historic declines, exports increased 6.7 per cent in May but imports decreased a further 3.9 per cent.

The rebound took place in June, where overall exports were up 17.1 per cent and overall imports up 21.8 per cent. The good news is that our exports to the US alone increased 21.8 per cent and imports by 28 per cent in June. The positive trend continued in July, with our exports to the US up 15.1 per cent and our imports 16.2 per cent.

As we saw in the car loadings figures above, these have not yet fully benefitted our railways. Trucks carried the majority of this increased trade and railways will benefit as well, with some delay, as the types of products they carry have a longer cycle and are slower moving. In the short term, we will be very attentive to the evolution of the post-pandemic recovery and the US election outcome. The latter may produce more harmony or more “trade wars,” with substantial impacts on Canada either way.

In the short to medium term, we will have to take climate change seriously, as evidenced by the wildfires in California and Oregon, and act on it collectively. Meantime, railways will continue to play an essential role in transporting energy, minerals, agricultural products, automotive as well as containers loaded with finished goods across the continent, in a cost-effective and eco-friendly way.

Christian Siviere is president at Solimpex.