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CN and CP say service will improve as frigid winter weather subsides

Last Updated Feb 21, 2018 at 4:20 pm EDT

MONTREAL – Canada’s two largest railways vowed to improve their service levels over the coming months as they escape the grip of a tough winter that hampered their ability to transport goods.

During separate presentations to a transportation conference, Canadian National Railway chief financial officer Ghislain Houle and CP Rail chief executive Keith Creel told investors that heavy snow in Western Canada and frigid temperatures had a big impact, especially compared to last year’s milder conditions.

“We had more snowfall in the first 10 days of January than we had the entire month last year,” Creel told the Barclays Industrial Conference in Miami.

Despite the headwinds, he said there’s nothing that causes him to lose sleep over about operations in the rest of the year.

Creel said the strong North American economy should deliver opportunities this year as it did in 2017.

Houle said CN’s operations were restricted during three quarters of its days of operation in the first quarter that reduced its capacity by cutting train lengths by more than half.

That meant moving the same volume with more trains.

Weather conditions have improved in the last six days and operating metrics like velocity and locomotive utilization are up so far in February by three- to 10-per cent, said Houle.

“So now, if you look at it on a year-over-year, we’re still down versus last year, and we expect that. But sequentially, we’re going to get ourselves out of the hole.”

Houle also said the Montreal-based railway is hiring 350 to 400 conductors this quarter and adding locomotives as part of its $3.2-billion infrastructure spending this year.

“And so, you’ll see us humming,” he told analysts.

“We’re doing what we can to get out of it as quickly as possible. And you can rest assured and investors should rest assured that we are focused on getting ourselves out of this bump ASAP. And we’re putting the money where our mouth is.”

Analyst Walter Spracklin of RBC Capital Markets last week said service at CN Rail had deteriorated to the point where clients were switching their cargo to its Calgary-based rival.

Recent complaints about CN service by the CEO of energy services firm Halliburton, along with service disruptions on CN lines in areas such as the Port of Prince Rupert terminal in British Columbia, have raised questions among CN investors and caused “irreparable damage” to shipper relationships, Spracklin charged in a report.

He said CN’s train speeds were down 17 per cent in the week from a year ago, compared with nine per cent for the railway group. Dwell time — in which trains sit at a terminal — was up 43 per cent compared to the group’s nine per cent.

Meanwhile, Creel said he continues to believe there will be railway consolidation in North America even though it withdrew in 2016 its contentious effort to take over Norfolk Southern Corp.

“So to me, inevitably, consolidation must occur to create capacity to continue to drive the North American economy,” he said.

“I don’t think it’s imminent…but eventually I think within my career, whether it’s five years or 10 years, I think, it’s the next step.”

Follow @RossMarowits on Twitter.

Companies in this story: (TSX:CNR, TSX:CP, NYSE:NS).