Inside Logistics

Shippers switching to CP as CN service deteriorates

Walter Spracklin, a financial analyst for RBC Dominion Securities, said disruptions have caused ``irreparable damage'' to shipper relationships


February 16, 2018
by Dan Healing THE CANADIAN PRESS

Service on Canadian National Railway Co. has deteriorated to the point that clients are switching their cargoes to rival Canadian Pacific Railway, Walter Spracklin, a financial analyst for RBC Dominion Securities, said Thursday.

But a spokesman for the Montreal-based company said many of the short-term service problems are weather related and the company is investing capital to address other longer term concerns.

Recent complaints about CN service by the CEO of energy services firm Halliburton, along with service disruptions on CN lines in areas such as the Port of Prince Rupert terminal in British Columbia, have raised questions among CN investors and caused “irreparable damage” to shipper relationships, Spracklin charged in a report.

Spracklin said weekly performance numbers show CN’s train speeds are down 17 per cent year-over-year compared with nine per cent for the railway group, and “dwell” – the time trains spend stopped at a terminal – is up a “staggering” 43 per cent compared to the group’s nine per cent.

“We highlight that CP has the capacity to handle the higher volume, and that they are negotiating new business away from CN – but on terms that are favourable to CP (to avoid experiencing similar ”digestion issues“),” he wrote in the report.

“We expect continued negative news flow on disruptions and disclosure of further customer shifts, which in our view will make CN’s premium valuation less appealing and as a result we expect further shifting from CN over to CP.”

CN spokesman Patrick Waldron responded that winter weather in Western Canada has been so severe it forced CN to run shorter trains about 75 per cent of the time, which means more trains are needed for the same volumes.

“This combined with increased volume levels across our business has resulted in congestion for all commodities and customers along our busy Chicago-to-Edmonton mainline corridor,” he said in an email.

“We are working with our customers to manage all traffic and clear backlogs for all of customers in the coming weeks.”

He said CN Rail is buying and leasing locomotives and hiring and training hundreds of new employees, adding CN’s $3.2-billion capital program in 2018 will address infrastructure pinch points and add capacity.

Waldron didn’t address the question of whether the railway is losing customers to rival railways.

Analyst Daniel Sherman of Edward Jones said in a report issued after the railway posted disappointing 2017 results that it appears to have expanded volume on its network beyond its capacity.

“We anticipate that management will catch capacity up to demand as we move through 2018,” the report said.