ALBERTA

CN CEO says railway is not the bad guy for delayed forest product shipments

04/23/2013 03:50 EDT | Updated 06/23/2013 05:12 EDT
EDMONTON - Canadian National Railway is firing back at the forest products industry over a rail bottleneck that companies say is preventing them from cashing in on recovering housing and other markets in the U.S. and abroad.

CEO Claude Mongeau said CN had increased the number of rail cars that were earmarked to carry timber and other wood products by 11 per cent, but all that rolling stock was slowed by a harsh, snowy winter.

Mongeau said it is wrong to paint the railways as the villain for the delays.

"We could not meet every order and we are working hard as we speak to recover," Mongeau said in response to a shareholder's question at CN's (TSX:CNR) annual general meeting Tuesday.

"If you just try to paint the railroad as the bad guy, eventually you deprive of us of our ability to be the true backbone (of the economy) that we want to be, and that is the message I would send to the forest products association."

The Forest Products Association of Canada said delays in wood product shipments by CN and Canadian Pacific Railway (TSX:CP) are affecting companies across the country.

In some cases up to half of the rail cars requested by companies are not being delivered, said Catherine Cobden, the association's executive vice-president.

The fact that companies are facing these delays when the market for their products is rebounding after years in the doldrums is frustrating.

Blaming the rail delays on the cold and snow is no excuse, she said.

"I can only say that we have winter every year and we are looking for reliable service," Cobden said from Ottawa.

"The significant upturn is being felt in the U.S. Our need to have reliable service that we can count on when we order the cars that they show up so we can meet the needs of our customers. It is a business imperative. Without it, we basically struggle to get our products to market."

The delays underscore the need for the federal government to pass the proposed Fair Rail Freight Service Act that is before Parliament, she said.

The association contends that Bill C-52 would help ensure that rail shippers deliver their goods in a timely, predictable, cost-effective way.

Mongeau told shareholders that CN still believes that a deregulated rail system is in the best interests of Canada's economy.

He said the industry would be better served if the federal government focused more on trade, improving the supply chain and innovation.

"Keeping to a deregulation agenda has been so successful to Canada over the last 20 years is the right approach," he said, noting if the bill passes CN will work with stakeholders to ensure the new legislation doesn't stifle innovation or impede service to customers.

Company officials also faced a question from a shareholder over the safety of the railway's plan to ship more crude by rail.

CN said it shipped more than 30,000 carloads of crude in 2012 and hopes to double that amount this year, including sending bitumen from Alberta's oilsands to the U.S. Gulf Coast.

Mongeau said the railways have an enviable safety record and CN will do what it can to expand this new niche transportation market.

"It is something that is good for CN but also good for the energy industry," he said. "Getting to market is critical to adding value to the product."

On Monday CN announced it was maintaining its forecast for a stronger year in 2013 despite suffering a harsh winter that delayed trains and increased costs.

The company said it expects to report high-single-digit adjusted earnings per share growth on top of the $5.61 per share it earned last year.

The company said it earned $555 million or $1.30 per share for the quarter ended March 31. The results compared with a profit of $775 million or $1.75 per share a year ago, when it gained $252 million from the sale of rail lines in the Toronto area to Metrolinx.

Excluding one-time gains, the Montreal-based railway said it earned $519 million or $1.22 per share for the quarter compared with $523 million of $1.18 per share a year ago when the company had more shares outstanding.

Revenues increased five per cent to $2.47 billion, from $2.35 billion a year ago, while revenue ton-miles rose three per cent and carloadings increased two per cent.

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