Vancouver-headquartered Teck Resources (NYSE: TECK) will start using Canadian National (NYSE: CNI) to haul its coal to West Coast ports in 2021.
Canadian National’s (CN) competitor, Canadian Pacific (NYSE: CP), currently has a 10-year contract with Teck to transport metallurgical coal from Teck’s four mining operations in British Columbia to the West Coast ports. That contract will expire in March 2021.
While Canadian Pacific (CP) will continue to handle moving Teck’s coal from the mines to an interchange at Kamloops, CN will handle transporting the coal from Kamloops to the West Coast ports, including the recently expanded Neptune Terminals at the Port of Vancouver.
The contract runs from April 2021 to December 2026. The companies didn’t share financial terms, but CN will invest more than C$125 million to enhance rail infrastructure in anticipation of the higher volumes from Teck.
“This significant volume commitment from Teck is further proof of CN’s ability to serve our customers into Canada’s trade gateway on the West Coast,” said CN CEO JJ Ruest. “This agreement also further enhances CN’s role as a supply chain enabler for Teck’s shipments into Neptune Terminals.”
Teck produces metallurgical coal, which is used in steelmaking. The company has six metallurgical coal mining operations overall in western Canada, and it produced 26.2 million metric tonnes (mmt) of coal in 2018, of which 26 mmt was for export.
“This agreement and the associated infrastructure investment will provide us with rail capacity to match the major upgrades underway now at Neptune Terminals,” said Teck CEO Don Lindsay. “We expect this will lower our total transportation costs and improve overall rail and terminal performance.”
In response to the Dec. 4 announcement, CP said it expects the transition to “negatively impact” CP’s 2021 earnings by 1% because of the change in length of haul.
“There is a significant amount of work required to ensure that the interchange at Kamloops is capable of accommodating the additional interchange volume in April 2021, and CP expects that all stakeholders will do their part,” CP CEO Keith Creel said. “We will be working hard between now and Q1 2021, and beyond, to protect our fluidity through Kamloops for all shippers dependent on this critical corridor.”
But the railway said it would continue to meet Teck’s future shipping requirements, and it framed the change as an opportunity to seek additional business along the corridor.
“We have long valued Teck as a customer and will continue to be an important supply chain enabler for them from their mine sites to our interchange with CN at Kamloops,” Creel said. “This announcement will allow us to focus on other, value-added opportunities from Kamloops to Vancouver. We are excited about the capacity opportunities this creates for us, to and from the West Coast, and look forward to finding win-win opportunities for other customers within this integral corridor.”