Canadian National Railway Co. is positioning itself to become a major transporter of potash and coal by increasingly pushing onto the turf of embattled Canadian Pacific Railway Ltd.
With CP facing a shareholder revolt, industry heavyweight CN is making major inroads into shipments of the two commodities its rival has dominated for years.
“We believe that our growth in the offshore potash market, combined with our position in North America, could see us get from transporting 25 per cent to half the production of potash” in Canada by 2016, CN chief executive officer Claude Mongeau said in an interview on Thursday.
The Port of Prince Rupert in northwestern British Columbia will be crucial to Montreal-based CN’s plans for potash and coal, a focus that comes as Canada’s largest railway looks to outpace an expected stretch of sluggish growth by expanding into promising new sectors.
Last month, CN won an estimated 20 per cent of a new 10-year contract with Canpotex Ltd., breaking CP’s exclusive hold with the potash marketing agency. Saskatoon-based Canpotex is mulling over investing $800-million on a new export terminal at Prince Rupert, where CN has rail lines but CP doesn’t.
Canpotex serves as the oveseas potash marketing agency for Saskatchewan producers, notably Potash Corp. of Saskatchewan Inc., Agrium Inc. and Mosaic Co., three of the world’s largest fertilizer companies.
As well, CN will be bidding on contracts from new potash projects that aren’t part of Canpotex and is working with fledgling coal mining developments in northern B.C. and Alberta to move their product on its rails once they are producing.
“Coal is a huge growth opportunity,” said Mr. Mongeau, who added that winning business in new areas, increasing its share with existing customers and improving service by working more closely with port and terminal operators will help CN over the next several years.
Raymond James Ltd. analyst Steve Hansen said CP is strong in southeastern British Columbia because of its contract with coal miner Teck Resources Ltd., but “CN is looking to leverage the Port of Prince Rupert to its advantage. There is a lot of strategic value that the port has to offer, particularly the freight export opportunities.”
New York-based hedge fund Pershing Square Capital Management LP wants to replace CP CEO Fred Green with Hunter Harrison, who retired as CN’s CEO at the end of 2009. Pershing Square, CP’s largest shareholder, has vowed to guarantee Mr. Harrison’s retirement benefits if CN prevails in persuading a U.S. court to uphold the railway’s decision to cancel its former CEO’s pension and other payments.
Mr. Mongeau wouldn’t comment on the lawsuit but took subtle jabs at CP, highlighting his company’s stronger operating performance and noting that CN’s strategic development is several years ahead of its rival’s.
“Whoever manages CP, Fred Green or whoever – the challenge is to compete and to find the momentum and find their own recipe to get that flywheel going,” Mr. Mongeau said. “We’re not standing still. We’re going to make it very, very tough for people to catch us.”
He spoke at CN’s government affairs office at Ottawa’s Chateau Laurier Hotel, prior to a Canadian Chamber of Commerce speech in which he emphasized the huge productivity gains made by CN over the years and cautioned against any changes that would disrupt investment and innovation by Canadian corporations.
Ottawa is being pressured by shippers to introduce tougher regulations to improve rail deliveries, but Mr. Mongeau said CN has been a success story since the government privatized the railway in 1995.