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So said CN CEO JJ Ruest at the company’s annual general meeting, which was held last week in its Montreal headquarters to celebrate the 100th anniversary of its founding. Projected growth is expected to come from deepening rail-centric supply chains in both the consumer products and commodities sectors.
The key to that growth is crude oil shipments by rail, which have seen short-term softness due to declining spreads between Western Canada Select (WCS) oil and West Texas Intermediate (WTI) crude. Experts say that the “sweet spot” for petroleum by rail shipments is when Canadian products (currently between US$10 and US$12 per barrel cheaper than U.S. alternatives) sell at a US$15 per barrel discount. The good news for CN is that continued difficulties in bringing pipeline capacity onstream mean that the mid-term outlook is decidedly bullish. Volumes are expected to ramp up during the second half of the year, Ruest said.
CN also hopes to benefit from a new resource export business in the middle of the current quarter. This includes supply deals with the Vista mine to ship thermal coal and an agreement to deliver Alberta propane to Prince Rupert, where product will then be shipped to Asia. CN is also profiting from continued growth in the hydraulic fracking sector, by partnering to secure frack sands volumes in the northeastern U.S. and western Canada markets. Lumber and grain shipments also are expected to remain solid.
Motor vehicles sector stalling?
CN’s big worry on the consumer products front remains a sluggish motor vehicles sector. Original equipment manufacturer production backlogs are expected to generate “solid” traffic growth in the second quarter. A vehicle and parts shipments contract renewal with Ford will also help, as will new automotive sector import business. However, reports of large inventories of unsold motor vehicles on North American lots raise questions about future demand, as effects from last year’s Federal Reserve interest rate hikes make their way through the financial system. That said, a relatively weak Canadian dollar (at US$0.75) should continue to support exports on CN’s North-South routes.
Infrastructure-wise, CN’s biggest challenge remains network capacity issues. According to Ruest, these are gradually being addressed by record multi-year CAPEX investments to restore fluidity to the network and handle growing volumes. Projects range from yard expansions, to new added sidings and track section doublings slated to create more areas where trains can meet and safely pass.
This article first appeared on www.railwayage.com
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