Canadian Pacific Railway Ltd. is spending more than $500-million on a fleet of grain cars and says it has plans to add thousands of railcars – purchases prompted by financial incentives in new federal laws.
Calgary-based CP said on Thursday that more than 500 of the 1,000 higher-capacity cars built by Hamilton’s National Steel Car will be hauling grain this year. And Canada’s second-largest rail carrier said it will order another 5,900 hopper cars over the next four years as it replaces the decades-old fleet that moves the company’s largest line of business, Keith Creel, CP’s chief executive officer, said in a statement.
The new cars can carry 10 per cent more grain in a shorter and lighter car, allowing CP to haul 35 additional hopper cars in an 8,500-foot train.
“CP’s investment in new hopper cars will directly benefit Canada’s farmers, grain shippers and the economy as a whole,” Lawrence MacAulay, the federal Minister of Agriculture, said in the same news release.
CP’s announcement mirrors a move by rival Canadian National Railway Co., which in late May said it would buy 1,000 grain cars.
The grain car investments are driven by new transportation legislation passed two weeks ago. The law governing western grain shipping eliminated a provision that required railways to share with each other any capital investment credits applied to the limit on total revenue collected.
About 44 per cent of Canada’s 23,000 grain cars are federally or provincially owned and most are about 30 years old. The rest are owned by CN, CP and other companies. The federal government has no plans to sell its hopper car fleet, which is operated under agreements with the railways. By 2044, the government-owned cars will have reached the end of their service and will be retired, a Transport Canada spokeswoman said in a recent e-mail.
Grain companies say the old cars are slow to load and unload and are prone to failure, hampering operations.
The CP investment adds to the order book at National Steel Car, which is recruiting and training welders to keep pace with new demand. In addition to the CN and CP grain cars, the company is also filling a CN order for 350 lumber cars.
“We’ve been hiring since March,” said Hal Bruckner, National Steel Car’s vice-president. The company, which was founded in 1912 and whose first order came from CP, has hired 250 people this year and is adding another 500.
“We should be up to over 2,000 employees once the hiring program finishes, if it ever finishes,” Mr. Bruckner said.
Walter Spracklin, a stock analyst at Royal Bank of Canada, said the new cars could improve CP’s efficiency and service. He noted the investment is included in the upper range of CP’s 2018 capital expenditures of $1.35-billion to $1.5-billion.
“CP’s hopper fleet was in poor condition prior to this investment, especially compared to peers, and based on commentary from management, limited efficiency upside,” Mr. Spracklin said in a note to clients.