Canadian Railways Dealing With Demand

According to CTV News, volatility in energy prices is expected to be a “wild card” for Canadian railways in the long term, but crude-by-rail volumes should continue to grow, albeit more slowly, in 2015.

Walter Spracklin of RBC Capital Markets said in the short-term he believes shipments of oil by rail are secured by contracts through 2015. “Crude-by-rail momentum will be sustained by infrastructure investments and contractual commitments in the near-term, however, longer-term prospects are less certain if WTI stays at current levels,” he wrote in a report.

The price of West Texas Intermediate crude oil, the U.S. benchmark, fell to US$48.96 a barrel last week, the fourth straight day of declines and the lowest level since April 2009.

The shipment of crude oil by rail has grown quickly in recent years amid growing concerns about rail safety.

Canadian National Railway and Canadian Pacific Railway posted strong double-digit growth in petroleum products in 2014. Frac sand shipments were also up. They were the bright spots on the year for CP, whose total volumes fell 0.6 per cent on decreases in six of 10 commodity groups due to contract losses and lower coal traffic.

CN Rail led the North American industry last year, with total carloads increasing 8.2 per cent for the 52 weeks ending Dec. 27, according to data from the Association of American Railroads.

Spracklin expects overall volume growth will slow for most North American railways aside from CP. He estimates the Calgary-based railway’s revenue ton miles (RTM) – a key measure determining profit based on revenue to transport one ton of goods for one mile – will grow 5.1 per cent in 2015, up from 3.8 per cent in 2014. The outlook assumes a pickup in intermodal growth and slower crude traffic than previously implied by CP.

Spracklin expects CN’s RTMs will grow 4.4 per cent, down from about 11 per cent in 2014.

Congestion hurt the North American rail network last year as all railways posted slower train speeds and more time in terminals due to unanticipated volume growth, capacity constraints and a stormy winter in the first quarter.

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