North American Rail Traffic Saw Double-Digit Slump
Canadian Pacific’s carloads
Canadian Pacific (CP) is Canada’s second-largest freight railroad. The company mainly competes with the Montreal-headquartered Canadian National Railway (CNI). CP registered a fall of 13% in total railcars in the week ended May 7, 2016. Even CP’s railcars excluding coal railcars went down by ~10% to settle at 23,000 in the latest reported week of 2016. The company hauled ~28,000 railcars in the week ended May 7, 2016, against 32,000 railcars on a year-over-year basis. In the reported week, CP’s decline in total railcars was much less than the fall reported by competitor CNI.
The company received 70% of revenues from Canada while 30% came from the US in 2015. Overall, CP’s weekly fall in total railcars was less than the fall in US and Canadian total railcars of 15% and 17%, respectively. The coal railcars went down by roughly 28% in the reported week of 2016 to 4,700 units against 6,500 units.
Why coal carloads matter for CP
Coal accounted for 10% of revenues and 12.3% of carloads for CP in 2015. CP primarily transports metallurgical coal meant for export through Metro Vancouver’s port. Its coal traffic in Canada begins primarily from Teck Resources’ (TCK) mines in Southeastern British Columbia.
In the US, the company moves thermal coal from connecting railways serving the thermal coal fields in the Powder River Basin in Montana and Wyoming. Coal producers such as Alpha Natural Resources (ANR) and Peabody Energy (BTU) have coal mines in that area.
In the last year, coal’s production and demand has been under pressure due to depressed prices, environmental concerns, and the shift of coal-fired power plants to natural-gas-based electricity generation. However, TCK has issued slightly higher production guidance for 2016 against last year. If this goes according to plan, then we should see more coal hauling by Canadian Pacific in 2016.
Investors interested in dividend ETFs can opt for the Vanguard Dividend Appreciation ETF (VIG). All these US Class I railroads are part of VIG.
The winners and the losers
The commodity groups such as Canadian and US grain and forest products showed upward momentum in the week ended May 7, 2016. Potash, fertilizer, and sulphur, chemicals and plastics, crude, metals, minerals and consumer products, automotive, and domestic intermodal were down in the same week.
For more information on the last week’s rail traffic, visit Market Realist’s Week Ended April 30: North American Rail Traffic Falls, Mexico Up.