CN hurt by plummeting oil shipments, may miss growth forecasts
Amid a plunge in shipments of oil and frac sand by rail, Canadian National Railway Co. (CNR.TO 1.66%) is casting doubt on its forecasts for growth in its energy-related shipments.
Luc Jobin, CN’s chief financial officer, said unless energy-related shipments pick up in the second half of the year, meeting the 2015 forecast of 257,000 carloads will be “challenging” after a drop in oil prices that has prompted producers to slash production and staff.
“It’s softer than we expected,” Mr. Jobin said at an investors’ conference in Boston on Thursday.
CN is not altering its guidance for an increase in energy shipments of 40,000 carloads over last year’s 217,000, but Mr. Jobin said the company will need to see rising volumes in the third and fourth quarters if it is to hit the target, which was lowered in April.
CN’s Calgary-based counterpart, Canadian Pacific Railway Ltd., has said “for now” it is sticking to its energy-products guidance.
Railway stocks have tumbled this year amid the slowdown in crude shipments and tepid growth in other lines. Total overall traffic carried by CN and CP this year on their North American networks is up by 5 per cent compared with the same period last year, according to the Association of American Railroads.
The Dow Jones transportation average has fallen by 6 per cent, while CN’s share price is down 8 per cent. CP’s stock price has fallen 4 per cent.
Fadi Chamoun, a Bank of Montreal equities analyst, said several factors are reducing shipping volumes and weighing on railway stocks, including moderating U.S. economic growth; lower demand for coal shipments amid cheap natural gas; weak global demand for export coal; and low oil prices.
CN’s shipments of petroleum products have fallen by 26 per cent in the first five weeks of the latest quarter, Royal Bank of Canada analyst Walter Spracklin said.
The decline in prices that has capped energy production and slowed the amount of crude on the rails comes as regulators in Canada and the United States announce new rules designed to reduce the frequency and seriousness of explosions after oil-train derailments.
The countries recently harmonized their 2025 phase-out of older, puncture-prone tank cars that carry oil and ethanol. Unlike Canada, however, the United States will require upgraded braking systems by 2023 on trains carrying flammable liquids.
The rules come after the 2013 explosion of an oil train in Lac-Mégantic, Que., that killed 47 people. This year, there have been five oil-train fires in Canada and the United States, including two involving CN.
CN’s Mr. Jobin said the company supports the move to better tank cars, but opposes the requirement that locomotives and unit trains be fitted with electronically controlled brakes because of the “complexity and cost” involved.
He said the braking systems would have “little impact” on the outcome of a derailment and that he hopes future talks with the U.S. Department of Transportation will result in changes.
At Calgary’s CP, the railway tested electronic brakes on two coal trains in British Columbia for four years beginning in 2008 before abandoning the technology because it was unreliable.
“They had mechanical delays more often than conventional brakes and the delays lasted longer,” a company spokesman said.
Meanwhile, the American Petroleum Institute went to court this week to block the U.S. rules on hauling flammable liquids by rail.
The group, whose members include Canadian oil producers Cenovus Energy Inc. and Talisman Energy Inc., said in a petition to the U.S. Court of Appeals that the new tank-car and brake rules are “an abuse of discretion, or otherwise not in accordance with law.”
Luc Jobin, CN’s chief financial officer, said unless energy-related shipments pick up in the second half of the year, meeting the 2015 forecast of 257,000 carloads will be “challenging” after a drop in oil prices that has prompted producers to slash production and staff.
“It’s softer than we expected,” Mr. Jobin said at an investors’ conference in Boston on Thursday.
CN is not altering its guidance for an increase in energy shipments of 40,000 carloads over last year’s 217,000, but Mr. Jobin said the company will need to see rising volumes in the third and fourth quarters if it is to hit the target, which was lowered in April.
CN’s Calgary-based counterpart, Canadian Pacific Railway Ltd., has said “for now” it is sticking to its energy-products guidance.
Railway stocks have tumbled this year amid the slowdown in crude shipments and tepid growth in other lines. Total overall traffic carried by CN and CP this year on their North American networks is up by 5 per cent compared with the same period last year, according to the Association of American Railroads.
The Dow Jones transportation average has fallen by 6 per cent, while CN’s share price is down 8 per cent. CP’s stock price has fallen 4 per cent.
Fadi Chamoun, a Bank of Montreal equities analyst, said several factors are reducing shipping volumes and weighing on railway stocks, including moderating U.S. economic growth; lower demand for coal shipments amid cheap natural gas; weak global demand for export coal; and low oil prices.
CN’s shipments of petroleum products have fallen by 26 per cent in the first five weeks of the latest quarter, Royal Bank of Canada analyst Walter Spracklin said.
The decline in prices that has capped energy production and slowed the amount of crude on the rails comes as regulators in Canada and the United States announce new rules designed to reduce the frequency and seriousness of explosions after oil-train derailments.
The countries recently harmonized their 2025 phase-out of older, puncture-prone tank cars that carry oil and ethanol. Unlike Canada, however, the United States will require upgraded braking systems by 2023 on trains carrying flammable liquids.
The rules come after the 2013 explosion of an oil train in Lac-Mégantic, Que., that killed 47 people. This year, there have been five oil-train fires in Canada and the United States, including two involving CN.
CN’s Mr. Jobin said the company supports the move to better tank cars, but opposes the requirement that locomotives and unit trains be fitted with electronically controlled brakes because of the “complexity and cost” involved.
He said the braking systems would have “little impact” on the outcome of a derailment and that he hopes future talks with the U.S. Department of Transportation will result in changes.
At Calgary’s CP, the railway tested electronic brakes on two coal trains in British Columbia for four years beginning in 2008 before abandoning the technology because it was unreliable.
“They had mechanical delays more often than conventional brakes and the delays lasted longer,” a company spokesman said.
Meanwhile, the American Petroleum Institute went to court this week to block the U.S. rules on hauling flammable liquids by rail.
The group, whose members include Canadian oil producers Cenovus Energy Inc. and Talisman Energy Inc., said in a petition to the U.S. Court of Appeals that the new tank-car and brake rules are “an abuse of discretion, or otherwise not in accordance with law.”
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