Canadian Pacific Railway Ltd. has lost its monopoly freight contract with potash marketing agency Canpotex Ltd., leaving Canadian National Railway Co in a position to muscle in on its rival’s territory over the next decade.
CN will transport potash from mines in Saskatchewan to a terminal in North Vancouver, but the railway is also considering opening a new potash export site at the Port of Prince Rupert in northwestern British Columbia.
“We will be hauling a portion of the potash volume that Canpotex ships through North Vancouver,” CN spokesman Mark Hallman said Monday. While Mr. Hallman declined to provide further details, some analysts estimate that Montreal-based CN won 20 per cent of the 10-year Canpotex contract.
CN and Calgary-based CP each signed 10-year agreements with Canpotex, to take effect on July 1, after the expiry of CP’s exclusive 10-year deal.
CP, which noted that it will be carrying a large majority of Canpotex’s shipments, is improving its tracks in Western Canada to smooth deliveries from Saskatchewan mines to the West Coast.
Raymond James Ltd. analyst Steve Hansen said CN will be promoting its access to Prince Rupert as a potential competitive advantage over CP.
As well, CN will be able to bid on contracts from new potash projects that aren’t part of Canpotex. Potash Corp. of Saskatchewan Inc. , Agrium Inc. and Mosaic Co. , which are three of the world’s largest fertilizer companies, belong to Canpotex.
“By upgrading our network, and through the ongoing implementation of our long-train strategy, CP is continuing to strengthen our world-class potash supply chain,” CP chief executive officer Fred Green said in a statement. “We are now running potash trains up to 170 railcars in length, further improving service, capacity and efficiency.”
Mr. Green has been under pressure from U.S. hedge fund Pershing Square Capital Management LP to stage a turnaround at CP, which lags the industry in productivity. Pershing Square CEO Bill Ackman is waging a proxy battle against CP in his quest to replace Mr. Green with Hunter Harrison, who retired as CN’s CEO in 2009.
BMO Nesbitt Burns Inc. analyst Fadi Chamoun said CP still managed to secure a valuable, long-term shipping contract with Canpotex and the railway will also move potash to Portland, Ore., in co-operation with Union Pacific Corp. of Omaha.
CN reports its fourth-quarter and 2011 financial results on Tuesday, followed by CP on Thursday.
- Canadian Pacific Railway Ltd$229.130.00(0.00%)
- Canadian National Railway Co$103.000.00(0.00%)
- Potash Corporation of Saskatchewan Inc$25.480.00(0.00%)
- Agrium Inc$142.850.00(0.00%)
- Mosaic Co$24.820.00(0.00%)
- Union Pacific Corp$130.700.00(0.00%)
- Updated December 12 4:00 PM EST. Delayed by at least 15 minutes.