Canadian National Railway profit slipped in the second quarter on lower international intermodal business. The railway, Canada’s largest, said that traffic figures took a hit from weakened demand, but business was also curbed by challenges at Port Metro Vancouver.
GCT — the operator at Vancouver’s Deltaport terminal where extensive construction is underway in order to expand rail handling capacity — said it’s working with CN to provide relief during the temporary capacity crunch. GCT executives said they are moving freight through alternative facilities and that though construction has limited the terminal’s total capacity, CN’s business in the second quarter never breached that limit, nor was CN dwell time ever threatened.
“We carried all the freight,” Stephen Edwards, president and CEO of GCT, told JOC.com. “To do so, instead of doing 100 percent of that on dock, we did some of that using off-dock.”
CN reported Monday a 3.16 percent year-over-year decrease in profit to C$858 million, or $651 million. Revenue fell 9 percent year-over-year to C$2.84 billion, or $2.15 billion, in the same period, as total freight volume, both intermodal and carloads, decreased 12 percent.
“We continue to see a difficult economic environment in the second quarter affecting several sectors of our business and continuing to put downward pressure on volumes and revenues,” said CN Chief Executive Luc Jobin, during a conference call with investors and analysts on Monday afternoon.
Total intermodal volume in the second quarter fell 7 percent year-over-year and related revenue was down 4 percent to C$2.84 billion. Revenue from the railway’s domestic intermodal business was up 4 percent, driven by gains from CN’s door-to-door full-load trucking service CNTL.
Meanwhile, revenue derived from the railway’s international intermodal segment was down 3 percent year-over-year, CN reported.
Like every other publicly traded Class I railroad this earnings season, CN attributed the majority of that volume decline to “difficult economic circumstances.” For months now, U.S. exports have been hurt by the strong U.S. dollar and the sluggish Canadian economy.
“CN continued to face a very challenging volume environment in the second quarter and maintained strong discipline in realigning resources to keep them in line with reduced freight demand,” Jobin said.
International volume and related revenue were also impacted by the ongoing construction at Vancouver’s Deltaport terminal, where CN has a significant presence.
The facility, Deltaport’s largest, is now in the second phase of the so-called Deltaport Terminal Road and Rail Improvement Project, expected to be completed next year. The project includes rail track changes and additional container handling equipment within the existing terminal’s footprint that should increase its rail handling capacity some 50 percent, according to GCT.
“The Port of Vancouver had a disappointing quarter on intermodal where available terminal rail capacity was negatively impacted by the construction expansion of Deltaport,” Jean-Jacques Ruest, CN’s chief marketing officer and executive vice president, told investors and analysts Monday.
Ruest later clarifed his remarks on a conference call with JOC.com and GCT’s Edwards Wednesday morning, saying its sales team was told to be judicious in selling cargo through the terminal.
“We held back. We did not go out and beat the bush to get more, knowing that we were already using some of our reserve,” Ruest said.
Construction isn't constraining capacity at the port since alternative capacity has been found through other CN and GCT operations nearby, Edwards said.
“We supplemented that with the CN through the use of the CN intermodal ramp,” Edwards said. “We’re further supplementing that now in quarter three.”
GCT and CN have been working together to relieve some of the difficulties they now face amid the ongoing construction at Deltaport, moving a fraction of cargo through CN’s intermodal ramp and preparing to move additional cargo through the nearby Vanterm during the upcoming peak season.
“It’s not about setting records on volume, it’s about creating service that will eventually set the record on volume,” Ruest said. “We know we have a lot of capacity coming next year and all of our eyes are on that.”
The other ports CN serves outside of Vancouver fared better and show signs of future growth in terms of intermodal traffic in the second quarter, Ruest said.
Ruest added that CN is also actively renewing old business contracts and signing on new business and said that the railway’s international intermodal share will likely be a net gain by 2017. Nevertheless, between Vancouver and Prince Rupert, Ruest said that CN’s international business will continue to face headwinds in the months ahead.
“Broadly, you would think the market would slowly improve. But it's not going to be gangbusters for anybody on the West Coast,” Ruest said.