CN profit nearly doubled in past quarter amid COVID-19 recovery

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Canadian National Railway Co.’s profit almost doubled in the second quarter as Canada’s largest railroad signalled it is emerging from the COVID-19-related slump in freight volumes.

However, hundreds of wildfires in Western Canada and Northern Ontario that have damaged rail lines and caused a rail car backlog threaten to dampen the rebound in volumes.

The wildfires have halted or disrupted rail traffic since the beginning of July. On June 30, a fire that ignited near CN’s tracks in Lytton, B.C., destroyed most of the village and killed two people.

The fire also ruined a CN bridge that carries 25 trains a day, and left the railroad facing a backlog of freight that will persist for some time, even though the link was restored on July 13, said Rob Reilly, CN’s chief operating officer.

“We will be a few weeks more before we are fully recovered from the backlog of traffic from the outage,” Mr. Reilly said, cautioning there are still about 300 fires in the province and the dangers persist.

“It’s a very active situation,” Mr. Reilly said on a conference call with analysts. “There are stops and starts.”

Transport Canada orders restrictions on rail traffic in areas with extreme fire risk

Port of Vancouver hit with trade delays after B.C. wildfires damage railway tracks

Transport Canada on July 9 ordered CN and Canadian Pacific Railway Ltd. to halt trains in the area for 48 hours amid the wildfires that have damaged tracks and blocked routes.

The Transportation Safety Board of Canada launched an investigation into the possible role played by CN or CP’s train operations. The probe is expected to last as long as two years, and will look for ties to trains, including sparks from locomotives’ exhaust systems and rail grinding and welding.

The TSB announced its investigation after being told by the RCMP and the B.C. Wildfire Service of evidence of possible links to freight trains.

The wildfires contributed to a 13-per-cent decrease in the number of rail cars hauled by CN and CP in the week ended July 10, compared with the same period a year ago, according to the Association of American Railroads. Carloads of grain and farm products fell by 40 per cent, while shipping containers dropped by 20 per cent, highlighting the impact of the stoppages related to the fires.

Year-to-date, Canadian rail volumes are up by 8 per cent, lagging the U.S. increase of 13 per cent.

Canadian railroads reported 64,203 carloads for the week, down 6.2 per cent, and 51,982 intermodal units, down 20.9 per cent compared with the same week in 2020. For the first 27 weeks of 2021, Canadian railroads reported cumulative traffic volume of 4,037,939 carloads, containers and trailers, up 8.1 per cent.

CN is awaiting a ruling from the U.S. regulator on a key step in its proposed US$29.8-billion takeover of Kansas City Southern . The U.S. Surface Transportation Board is reviewing the rail companies’ application for approval of a voting trust CN will use to independently operate KCS while awaiting STB approval of the takeover. A final ruling on the deal is not expected until next year at the earliest, but a decision on the voting trust is expected in the coming weeks.

KCS shareholders will vote on the takeover on Aug. 21.

JJ Ruest, chief executive officer of CN, expressed confidence the deal will win regulatory approval.

“Our proposed combination with Kansas City Southern has received overwhelming support from a broad base of stakeholders because it will enhance competition and drive economic growth in North America,” he said. “We are confident in our ability to obtain the necessary approvals and successfully close this pro-competitive combination and look forward to delivering the many compelling benefits to customers, employees, labour partners and the communities in which we operate.”

Montreal-based CN said profit in the three months ended June 30 climbed to $1-billion, or $1.46 a share, compared with $545-million, or 77 cents, in the same period of 2020. Revenue rose by 12 per cent to $3.6-billion.

CN said it is standing behind its full-year financial guidance and expressed hope COVID-19 vaccinations will help end the pandemic, but cautioned the surging Delta variant of the virus throws the recovery into doubt.

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