While extremely cold temperatures are usually a factor that Canadian National (NYSE: CNI) considers when drafting its operational plan for winters, in the 2019-2020 winter season the railway also had to grapple with forecasting volumes amid various trade uncertainties.
“Because it is difficult to predict climate or customer demand, [Canadian National] is preparing for extreme conditions as well as a shifting and unpredictable global trade environment for our customers,” chief executive officer Jean-Jacques Ruest stated in the introduction to his company’s winter plan for the 2019-2020 season. “We know winter will not be without its challenges but we firmly believe that we are well-positioned to once again meet the transportation needs of our customers this season.”
The Canada Transportation Act requires both Canadian National and Canadian Pacific (NYSE: CP) to submit their operational plans because the extreme cold weather that Canada tends to encounter during the winter season can affect rail operations.
For CN, if temperatures reach -25°C, infrastructure components such as the tracks, the train wheels and the long compressed air brake systems may not work as well, and so more crews and locomotives, as well as shorter trains, are required to continue to haul freight safely. If temperatures reach below -40°C, CN must stop night operations to ensure safety and reduce the risk of derailments.
To meet the challenges that come from cold temperatures, CN said it plans to deploy a number of measures. One measure is to use distributed power and deploy air distribution cars. Distributed power means that an additional locomotive is placed in the middle or at the end of a train to help maintain adequate air pressure, while air distribution cars supplement air supply to the train’s air brake system.
The railway also said it has made a number of capital investments in 2017-2019 to deploy safety technology, such as automated car inspection portals and automated track inspection cars, and enable smoother network flows through the construction of double tracks in the western Canadian provinces.
Canadian National also said it is working with shippers to help reduce congestion woes at pinch points such as the Port of Vancouver. It said it will hold traffic outside of the Lower Midland until space is available for trains to deliver freight, and it is working with wood pulp and destination terminals to address congestion issues.
With cooperation from customers, CN “has initiated a collaborative program aimed at ensuring that demand for railcar spotting at participating terminals in Vancouver will not exceed their daily operational unloading capacity,” the company said in its winter plan.
Global uncertainties also loom
Despite these plans to combat congestion and cold temperatures, CN said trade uncertainty has made it more challenging for both the railway and its customers to project anticipated volumes during the winter months.
Issues such as the softwood lumber dispute, the lack of a ratified trade agreement that would replace the North American Free Trade Agreement or NAFTA, China’s bans on Canadian canola and India’s tariffs on peas and lentils, trade uncertainties between the U.S. and China, and the volatility of crude oil and frac sand movements “have all exacerbated the normal challenge CN and its customers face trying to predict traffic volumes,” CN said.
“While many customers work closely with us to try to forecast traffic in these challenging times, some customers still maintain the position that given our common carrier obligation to move their goods, they do not have to provide Canadian National with traffic forecasts,” CN said. “While technically true, this positioning makes it even more difficult for Canadian National to plan asset levels and appropriate deployment of crews and equipment across our network. While always challenging, these forecasting issues are even more problematic when already dealing with the uncertainties of winter operations.”
The railway said it provides incentives to encourage customers to install and operate air compressors at their facilities so that railcars are already coupled together and have the needed air pressure in the brake lines when they’re picked up.
