MONTREAL (Reuters) - Canadian National Railway Co CNR.TO, the country's biggest railroad, is banking on growth in consumer products and supply-chain diversification in Asia, to revive traffic on its underutilized eastern Canadian rail lines, the company's chief executive told Reuters on Friday.
Coronavirus, which hit China’s industrial production, along with U.S. tariffs on Chinese goods, are further leading suppliers to eye alternative manufacturing sites in Asia.
“The tariff war and coronavirus have intensified and accelerated these trends,” CN CEO Jean-Jacques Ruest said. “I think, therefore, we are even more bullish today than two years ago.”
He sees a shift in the business mix, combined with container expansion projects planned for ports in Montreal, Quebec City and Halifax - three main eastern Canadian ports - as key to reviving CN’s underutilized eastern network, which lost capacity as manufacturing dwindled.
“CN is very focused to repurpose that network, which is in great shape and only running at 50% capacity,” Ruest said.
CN, which has access to 15 port operations overall, is a partner in a C$775 million ($570 million) joint venture for a new container terminal at Quebec City’s port, but has not disclosed its specific investment.
Montreal-based CN is betting on more freight generated by consumer spending being shipped through the Suez Canal to North America’s east coast, even as the pandemic fuels demand for e-commerce.
CN figures show 30% of 2018 revenues were from consumer products, compared with 65% for commodities like chemicals, grain and fertilizer, that the railway moves on its densely-trafficked line in western Canada.
But revenues for CN’s consumer franchise grew nearly 28% between 2014 and 2018, around double the rise in the company’s commodity and resource business during those years.
CN figures show overall twenty-foot equivalent units (TEU), a measurement for cargo capacity, are expected to grow by around 70% at the three ports in 2024. Plans for the two Quebec ports, however, still require permits.
CN’s strategy is to connect more cities with the port access through acquisitions, joint ventures, or strategic partners that would help it access markets in the U.S. midwest and central Canada.
Ruest said what CN needs to fully capitalize on the unused capacity on the mainline between Halifax and Chicago is increased access to highly-populated areas.
CN withdrew its full-year 2020 forecast following the pandemic and expects a tough second quarter for its energy unit.
Reporting By Allison Lampert in Montreal; Editing by Denny Thomas and Nick Zieminski
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