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CN Rail CFO warns of ‘softening’ economy, with consequences for railways

CN Rail CFO warns of ‘softening’ economy, with consequences for railways
Business
A Canadian National Railway Co. executive says a sputtering economy is contributing to weaker freight volumes after posting record revenues last quarter.

“In the short-term, is the economy softening? Absolutely,” said chief financial officer Ghislain Houle. “We are obviously seeing volumes weakening on a short-term basis.”

Traffic in the third quarter, which ends Sept. 30, is looking “flattish” compared to the same period last year, Houle said Wednesday, speaking at a transportation conference in Laguna Beach, Calif.

He cited an earlier outlook of high single-digit growth in revenue ton miles — a key industry metric — for 2019. “Obviously, that’s probably not in the cards as we speak.”

Weaker volumes of wheat, coal and lumber are partly to blame for CN’s more sluggish pace, Houle said, as a cold, wet spring hampered growing conditions, low natural gas prices weakened demand for coal-generated electrical power and the mountain pine beetle continued to exacerbate B.C.’s forestry sector downturn.

He told attendees to “stay tuned” on CN’s financial forecast of low double-digit growth in earnings per share for the year.

Houle stressed medium- and long-term growth potential at CN Rail, pointing to the Port of Prince Rupert, where container volume grew about 40 per cent to 26.7 million tonnes over the last two years as it has upgraded container and bulk terminals to increase capacity.

The expanded port at the northern B.C. terminal, where CN has laid track directly on the dock, offers shippers a swift route from Asia, avoiding the congestion of Vancouver and Los Angeles. Meanwhile, more grain is being stuffed into shipping containers and dropped on carriers bound for China.

Meanwhile the Port of Halifax’s Halterm container terminal — snapped up last month by Singapore-based port giant PSA International Pte Ltd. — is operating at one-fifth of its capacity, leaving room for growth, Houle said.

Announced in May, the PSA deal nonetheless beat out CN Rail’s joint bid for the largest container terminal in Eastern Canada, rattling chief executive’s Jean-Jacques Ruest’s plans to create “a Prince Rupert of the east” and pick up more non-rail assets.

Houle’s warnings of economic slowdown come after CN Rail announced in July that crude-by-rail and container traffic drove the company to its highest ever quarterly revenue, which rose nine per cent year over year to a record $3.96 billion in its second quarter.
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