The driver shortage, which some observers say has been exacerbated by the U.S. and Canadian vaccine mandates restricting truck drivers’ cross-border movement, will benefit CN as current and prospective customers seek rail as a freight alternative to trucking, executives said during a call with investors late Tuesday afternoon to discuss fourth-quarter 2021 financial results.
“The driver shortages and the lack of truck capacity are things that are boding well for us to pick up some volume” as the trucking market deals with the vaccine mandates, said Keith Reardon, CN senior vice president for the consumer product supply chain.
“Just this past week, we saw a big uptick in those discussions with our retail customers, our TransX customers and our wholesale customers. So, the opportunities are definitely there. Just not sure how to quantify that. But the opportunities are there and we’re going to work with our customers to offer them services. We have the capacity on our trains.”
With an anticipated demand for rail service come expectations that there will be a “strong pricing environment for 2022 and beyond,” said James Cairns, CN senior vice president for the rail-centric supply chain.
CN (NYSE: CNI) expects volumes to grow in 2022, particularly in the second half of the year as it moves an anticipated robust grain harvest for domestic use and export. The railway plans to hire in preparation for the fall’s rail service needs and to account for attrition, according to COO Rob Reilly.
Among the other items that CN expects this year is ramping up grain and coal volumes as well as international imports to and from the Port of Vancouver. Severe flooding in British Columbia last fall washed out CN’s main line from mid-November to early December, resulting in between CA$120 million and $130 million (US$95 million and $103 million) of revenue that couldn’t move, according to CN CFO Ghislain Houle. The railway is still catching up on moving those volumes in the first quarter of 2022 because CN also dealt with a cold snap in December, he said.
“We’re not going to get it all back, of course … but there’s a lot of business that’s still there to move,” Cairns said. “We’re going to have a very, very busy first quarter here once we get some good weather behind us.”
CN is also looking for a strategic partner to join in the ownership of TransX, according to Helen Quirke, CN senior vice president and chief strategy officer. The railway acquired trucking and transportation provider TransX in 2019 to support wholesale and beneficial cargo owner customers, including the refrigerated transportation business, CN said in March 2019.
“We are not actively selling TransX. We are exploring models to change the ownership structure,” Quirke said.
CN is still working with active bidders on a potential sale of the Great Lakes fleet, Quirke said. CN said last September that it would seek to sell the Great Lakes vessels it acquired in 2003. Meanwhile, CN also finished closing its freight forwarding business. TransX and these two nonrail assets were part of a strategic review that CN began conducting in September following its failed attempt to acquire KCS.
4th-quarter 2021 financial results
CN’s net income for the fourth quarter of 2021 was nearly CA$1.2 billion (US$951 million), or $1.69 per diluted share, compared with net income of $1.02 billion, or $1.43 per diluted share, in the fourth quarter of 2020. One Canadian dollar equals about US79 cents.
Adjusted net income was $1.21 billion, or $1.71 per diluted share.
Fourth-quarter 2021 overall revenues were $3.75 billion, up 3% from the fourth quarter of 2020 on higher fuel surcharge rates, freight rate increases and an increase in intermodal ancillary services, but were offset by lower volumes of Canadian grain, a stronger Canadian dollar and the impact of network washouts in British Columbia, according to CN.
Operating expenses in the fourth quarter fell 3% to $2.19 billion on lower volumes and lower average headcount.
Operating income in the fourth quarter of 2021 was a record $1.57 billion, which is 11% higher year-over-year, while adjusted operating income was up 12% to $1.58 billion.
“I would like to thank our dedicated team of railroaders for delivering once again despite extreme weather and disruptive global supply chain issues,” Ruest said in a release. “The last months of 2021 allowed us to tangibly demonstrate our resilience, our ability to make significant progress against the goals of our Strategic Plan, and what it means to build the premier railway of the 21st century. Our previous strategic investments in safety, technology and capacity enabled us to continue delivering high-quality service to customers while generating profitable growth and enhanced value to shareholders.
“While I’ll be retiring, I am excited to see what CN’s world-class team will accomplish as they continue to lead the next transformation of the industry by delivering high-quality service to our customers and to the communities we serve, while driving sustainable returns to shareholders over the long term.”
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