A CN Rail locomotive pulling a line of cars moves through the railroad's Macmillan Yard in Vaughan, Ontario - Date/Photographer unknown.

29 November 2011

Full Steam Ahead for North American Rails in 2012

Toronto Ontario - Despite the ongoing economic uncertainty, a new survey of shippers shows that it is full steam ahead for North American railways heading into 2012, including both Canadian National Railway Co. and Canadian Pacific Railway Ltd.
 
Not only do the majority of rail shippers surveyed expect higher volumes next year, but they also expect to pay a higher price for it, demonstrating demand remains strong, said Walter Spracklin, the RBC Capital Markets analyst who conducted the survey of 50 of the top customers of North America's largest railways.
 
More than half of the shippers (52 percent) surveyed said they expect prices to increase between 4 percent and 6 percent next year, with another 13 percent saying they expect a rate of 6 percent or higher.
 
"We believe that railroads' efforts to push pricing are in part a reflection of the current economic conditions," Mr. Spracklin said.
 
At the same time, 59 percent of those surveyed are expecting to ship higher volumes next year than in 2011.
 
"The findings of this survey support the case for higher rail valuations going forward, and we remain constructive on the group," Mr. Spracklin said.
 
He said his he was recommending Canadian National Railway Co. as low-risk, long-term holding. While Canadian Pacific Railway Co. offers a near-term upside, and Norfolk Southern Corp. is a strong momentum play.
 
Also interesting in the survey, he said, was that CN, long the "bad boy" in terms of service for its customers, had the highest "good" or "excellent" rate of the entire group. The country's largest railway has implemented a series of service agreements over the past year or so in an effort to stave off greater regulation from the federal Rail Freight Service Review.
 
Those efforts appear to be resonating with customers, Mr. Spracklin said.
 
"Even CP, which had significant service disruption last winter, saw strong year-over-year improvement. Based on our conversations, shippers are not holding CP responsible for weather-related service disruptions, and in our view, this suggests that CP will regain market share that was lost due to the weather-related disruptions", Mr. Spracklin said.
 
Scott Deveau.