Canadian National Railway Struggles to Make On-Time Deliveries
March 15 2018 - 4:59AM
Dow Jones News
By Jacquie McNish
TORONTO -- Service problems at Canadian National Railway Co.,
caught off guard by an oil-sector rebound, are causing severe
delays in deliveries of grain, fracking sand, crude and other goods
from Wisconsin to the Canadian west coast.
Producers say they are falling weeks, and in some cases months,
behind deliveries to customers because of erratic and reduced
service at CN, Canada's largest railway.
Oil-field services company Halliburton Co. warned last month
that it would take a hit of 10 cents a share on first-quarter
earnings because of CN delays in deliveries of sand to
hydraulic-fracturing shale-oil sites.
The abrupt ouster of CN's CEO Luc Jobin last week was prompted
by concerns from its board that the railway wasn't moving quickly
enough to boost capacity, a person familiar with the matter
said.
The railway said last week it is investing 250 million Canadian
dollars ($193 million) to build new tracks and yards from Chicago
to Western Canada to expand capacity. It also said it has leased
130 locomotives, expects to add 775 conductors by the end of June
and is asking employees to postpone holidays and retirements.
The slowdown is particularly critical for grain farmers in
Alberta and Saskatchewan, where CN has canceled deliveries of more
than 18,000 cars ordered to fulfill weekly grain shipments since
August, according to an agricultural coalition that tracks
shipments. Rival Canadian Pacific Railway Ltd. canceled 100 cars
during that period. Most grain from Western Canada is shipped
overseas.
Jean-Jacques Ruest, appointed CN's interim CEO last week, told a
conference Wednesday in New York that he was "on the clock" to
"rebuild capacity to meet the demand."
The added capacity recently boosted weekly car deliveries by
about 50% in early March from February lows, a CN spokesman
said.
Both CN and CP have grappled with delivery delays in recent
months because of harsh winter weather. But the problems run much
deeper at CN because the railway aggressively cut costs in 2015 to
adjust to a downturn in demand in the then-struggling energy
sector. More than 1,000 employees were laid off and about 200
locomotives were placed in long-term storage, a spokesman said.
The network backlog is also straining capacity for crude-oil
shipments.
Jarrett Zielinski, CEO of Torq Energy Logistics Ltd, which
operates six crude-oil rail terminals in Canada, can't find enough
room on the trains to meet demand from shippers. The firm is being
asked to ship roughly 50,000 barrels of crude a day, but can only
find room for about a fifth of that amount, he said.
Some oil producers are coping by loading oil on trucks that
drive across the border and then load the cargo onto U.S. trains,
he said. "In some cases, that is still more reliable than train
shipping in Canada," Mr. Zielinski said.
The delays are so acute that Canada's federal government has
asked CN and rival CP to submit a plan this week for clearing up
the crop backlog.
"Canada's international reputation as a reliable supplier is at
stake," Transport Minister Marc Garneau and Agriculture Minister
Lawrence MacAulay said in a letter to the rail CEOs.
CN was delivered 17% of grain cars ordered in Western Canada for
the last two weeks of February, according to the agricultural
coalition, leaving some 40 ships idling off Canada's Pacific coast
as they wait for grain loads going overseas. Some farmers are
months behind in deliveries to customers, threatening cash flows
needed as this year's planting season approaches
"This is costing us a lot of money," said Greg Porozni, a grain
farmer east of Edmonton, Alberta, who said he has been unable to
sell January and February crop contracts after months of canceled
local CN grain-car deliveries.
The slowdown has forced him to increase his bank loan and delay
seasonal crop purchases for the planting season, which begins in
six weeks, he said. "We're very, very frustrated than CN hasn't
fixed a service problem that it has known about for months," said
Mr. Porozni.
Energy and crop experts predict it will take several months to
clear the transportation log jam.
"This is an extraordinary situation. We will be well into the
fall before we can clear this up," said Mark Hemmes, president of
Quorum Corp. a government appointed monitor of Canadian grain
shipping.
When the railway stalled service to Wisconsin fracking sand
producers for a few days last month, some clients turned to rival
U.S. railroads and truckers. Emerge Energy Services LP said during
an earnings call last month that its shipments on BNSF Railway Co.
"will increase significantly" in the second quarter.
--Vipal Monga contributed to this article.
Write to Jacquie McNish at Jacquie.McNish@wsj.com
(END) Dow Jones Newswires
March 15, 2018 05:44 ET (09:44 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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