UPDATE 1-Teck coal rate decision hits CP Rail's shares

* Ruling cuts rates, allows routing over two railways

* CPR shares fall on weaker than expected contract price

* Teck says decision has long-term implications (Updates, adds background. In U.S. dollars, unless noted)

TORONTO, July 6 (Reuters) - A ruling in a rate dispute between Canadian coal producer Teck Resources Ltd (TCKb.TO) and Canadian Pacific Railway Ltd (CP.TO) will cut the miner's shipping costs and sent the railway's shares down nearly 7 percent on Monday.

The arbitrator's decision, which covers coking coal shipped from April 8 of this year to April 7, 2010, will also allow Teck to switch some of the export-bound traffic from CP to rival Canadian National Railway (CNR.TO) midway through its journey to lower shipping costs.

"This has long-term implications," Teck spokesman Greg Waller said.

The decision cuts Teck's freight rates, drops a provision that pegged shipping rates to the price of coal, and ends CPR's status as the only railway with a contract to haul coal from the five mines in southeastern British Columbia to the ports near Vancouver, officials said.

Teck expects average transportation costs, including rail and port costs, to be in the range of $33 to $35 per tonne for the 2009 calendar year, compared with its earlier forecast of $35 to $37 per tonne, saving it about $70 million.

Waller said the decision could also send a message to port operator Westshore Terminals (WTE_u.TO), whose contract with Teck comes up for renewal next year, and whose current contract also links coal prices to the fees it charges Teck.

Exact pricing details in the contract with Canadian Pacific remain confidential, but analysts noted that the implied pricing is well below expectations.

"At the top of the volume range, and at today's fuel prices, the company stated revenues would be approximately $360 million, which is considerably lower than the $460 million we had been forecasting," Research Capital analyst John Chu said in a note to clients.

"At the bottom end of the range, we suspect coal revenue could be $320 million," said Chu, based on CPR's view of coal shipments of between 17.5 and 19.5 million tonnes.

If it can get a lower price from Canadian National, Teck will also be able to reroute up to 3.5 million tonnes of its coal to Canadian National from CPR at Kamloops, British Columbia, which is a midway point between the mines and the Pacific Coast ports near Vancouver.

That represents about 15 percent of the coal traffic it has traditionally hauled, CP said.

"The new arrangements will trigger changes in our operation," said Kathryn McQuade, Canadian Pacific's chief financial officer.

Canadian National, which already handles coal from Teck's Cardinal River mine in Alberta, declined comment on what impact the decision will have on it.

Canadian Pacific shares fell C$3.12, or 6.9 percent, to C$42.13 in midday trade on the Toronto Stock Exchange, while Teck's shares were down 75 Canadian cents to C$19.23, as weak metals prices weighed on its shares.

($1=$1.16 Canadian) (Reporting by Euan Rocha, Allan Dowd; editing by Peter Galloway)