Cold, snow in West chill CN’s Q1 grain handle

Suffering congestion from “extreme cold and heavy snow in Western Canada” in its first fiscal quarter, Canadian National Railway (CN) has prescribed itself “capacity enhancements” on the Prairies.

The company on Monday reported net income of $555 million on $2.466 billion in revenues in its first quarter (Q1) ending March 31, down from $775 million on $2.346 billion in the year-earlier Q1.

That increase in gross revenue included a one per cent rise in the company’s grain and fertilizer segment for the quarter, to $401 million. However, with Q1 carloads of grain and fertilizer down one per cent at 142,000, the company’s revenue per carload is up two per cent at $2,824.

“CN faced a number of operational challenges in the first quarter, including extreme cold and heavy snow in Western Canada, which hampered operations, congested the network and constrained volume growth,” CN CEO Claude Mongeau said in Monday’s release.

“We’ve turned the corner since then, improving train velocity and reducing freight car dwell times in yards across the network to restore the service level expected by our customers.”

Furthermore, he said, to “improve network resilience,” Montreal-based CN has now added several “capacity enhancement projects in its Edmonton-Winnipeg corridor” to its capital spending plan for 2013.

Those projects, among others, will boost CN’s 2013 capital spend to $2 billion, up $100 million from its original spending plan, the company said Monday.

CN said its five per cent increase in gross Q1 revenues was due mainly to “freight rate increases and higher freight volumes, due in part to growth in the North American and Asian economies, partly offset by operational challenges that constrained volumes.”

Where grain and fertilizer revenue was up one per cent in Q1, all of the company’s other business segments — except coal — booked higher percentage increases in revenue, led by petroleum and chemicals (up 17 per cent), followed by intermodal (up seven per cent), metals and minerals (up three per cent) and forest products and automotive (both up two per cent).

Q1 operating expenses across the network were up nine per cent, due mainly to higher labour costs, increased fuel costs and “operational challenges including harsher winter conditions in Western Canada.”

“At the end of it all, service was not where it needed to be, and we are going to be working hard to recover,” Mongeau was quoted by Reuters’ Susan Taylor as saying on a conference call with market analysts Monday.

“The outlier impact this year is something we don’t want to repeat in the future, and so we are preparing ourselves to have stronger service into next year.”

Related story:
CN’s grain handle up slightly in record 2012, Jan. 25, 2013


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