The Class I railroads are striving to collaborate more proactively and create a product that will be competitive against the truck markets, CN executives said throughout the Canadian railway’s earnings call Tuesday to debate third-quarter 2023 financial results.
The comments echo ones similarly expressed throughout the third-quarter earnings call for Eastern U.S. Class I rail carrier CSX last week.
“I believe it’s a change that we’re seeing within the industry for various reasons,” CN President and CEO Tracy Robinson said to investors throughout the call. “I’ll inform you that we’re open for business and really wanting to work with our partners and the opposite carriers to offer and design the services that make sense for our customers.”
Those which have been announced recently, corresponding to the partnership with Western U.S. Class I railroad Union Pacific and Grupo Mexico and one other partnership with Eastern U.S. Class I carrier Norfolk Southern, “are really targeting getting truck traffic off the road. … We now have a product in place now that’s consistently delivering at very truck-like transits. And that’s pretty remarkable,” Robinson said.
“I believe you’re going to see more of this. And I’d say that the character of the dialogues that we’ve had thus far with all the carriers is that we’ll conduct ourselves in a way as if we were a single carrier. And which will mean, in some cases, it’s advantageous to 1 and in one other case is advantageous to the opposite. But that’s a principle that I believe must underscore these relationships as we go forward.”
Ensuring faster rail transport can also be a shared goal inside these partnerships, in keeping with CN Chief Marketing Officer Doug MacDonald.
“It’s all about service. The quickest transit times to compete against truck is de facto what the operating teams between the railways are really focused on,” MacDonald said. “We don’t really care how long the haul is. It’s all about we want to get there as fast as truck. All of the teams have been greatly focused on that. They’ve provide you with some great products where we predict we’re truck competitive in all these corridors and the key truck lanes.”
CN executives also touted the advantages of being the one Class I rail carrier to have exclusive access to the Port of Prince Rupert in British Columbia. Robinson singled out CN’s premium container service from Prince Rupert to U.S. markets as one example.
“There are real structural benefits to Rupert. … We’re two days faster from China to Chicago than the opposite alternatives and there are some economic benefits,” corresponding to being tied to Canadian currency, Robinson said.
The Port of Prince Rupert announced that it’s starting construction on a project to expand rail-to-container transloading capability at Ridley Island and higher facilitate the export of agricultural, forestry and plastic resin products.
And ahead of releasing its third-quarter earnings results, CN said Monday in a separate announcement that it had renewed a five-year transportation agreement with AltaGas. The agreement, which CN says expands the present one, gives AltaGas access to the Port of Prince Rupert and may enable AltaGas to grow its export business.
“By selling into our capability and benefiting from our unique network reach, we’re confident in our ability to speed up sustainable, profitable growth,” Robinson said in Monday’s announcement.
AltaGas President and CEO Vern Yu said, “The agreement provides AltaGas and our customers with cost and repair predictability to proceed to support ongoing resource development across Western Canada and supply our key downstream customers with energy security to support economic activity and fuel on a regular basis life.”
CN Q3 2023 financial results
A 12% decrease in revenue contributed to lower net profits for CN (NYSE: CNI) within the third quarter.
Net income was CA$1.12 billion (US$806.3 million), or $1.69 per diluted share, for the third quarter of 2023, compared with nearly $1.46 billion, or $2.13 per diluted share, for the third quarter of 2022. All financial figures are in Canadian dollars.
Revenue was $3.99 billion within the third quarter, compared with $4.5 billion for the third quarter of 2022. Lower fuel surcharge revenues consequently of lower fuel prices, in addition to lower volumes of intermodal, crude oil and forest products, put pressure on revenue, CN said.
Lower volumes were as a result of lower demand for freight services to maneuver consumer goods, the negative impact of the Pacific Coast dockworkers strike, unfavorable crude oil price spreads and weaker market conditions for lumber and panels in addition to lower ancillary services including container storage, CN continued.
Freight rate increases, higher volumes of Canadian grain and potash and the positive translation impact of a weaker Canadian dollar were among the many aspects that lent support to third-quarter volumes, in keeping with CN.
Operating expenses were $2.47 billion for the third quarter, an 11% decrease yr over yr (y/y) amid lower fuel prices.
Operating income was $1.52 billion, 21% higher compared with the third quarter of 2022, while operating ratio, an indicator that investors sometimes use to gauge the financial health of an organization, was 62% compared with 57.2% y/y. A lower OR implies improved financial health.
“Our ‘Make the Plan, Run the Plan, Sell the Plan’ approach continued to perform well, delivering strong customer support despite weak consumer demand in addition to external challenges,” Robinson said in a news release. “As volumes proceed to enhance, we’re well positioned to deliver incremental operating leverage. We remain confident in our ability to speed up sustainable, profitable growth in 2024 through 2026.”
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