Drop in Volumes Weighs On Canadian Pacific’s Carloads
Canadian Pacific’s carloads
Canadian Pacific (CP) registered a fall of 9% in total railcars in the week ended December 17, 2016. The company hauled 29,000 railcars that week, compared with ~32,000 in the corresponding week last year.
CP’s railcars, excluding coal, fell 11% to settle at just more than 23,000 units in the reported week of 2016. These railcars were at over 26,000 units in the corresponding week last year. The percentage fall in CP’s railcars was much bigger than the fall recorded by Canadian railroads.
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Canadian Pacific normally receives 70.0% of its revenue from Canada and 30.0% from the United States. CP’s coal carloads declined 0.5% to 5,600 railcars in the reported week of 2016. The decline was far smaller than the 14.4% fall reported by Canadian National Railway (CNI) in the same category in the week ended December 17, 2016.
Why coal carloads matter to CP
Coal accounted for 10.6% of Canadian Pacific’s (CP) revenue and 12.3% of its carloads in 3Q16. The company mainly transports metallurgical coal meant for exports through Metro Vancouver’s port. Its coal traffic in Canada begins primarily from Teck Resources’ (TCK) mines in southeastern British Columbia.
For the past year, coal’s production and demand have been under pressure due to depressed prices, environmental concerns, and a shift from coal-fired power plants to natural gas–based electricity generation. Even US steel producers’ capacity utilization didn’t see a marked improvement in the recent quarter. However, TCK has issued a slightly higher production guidance for 2016 than last year.
If all this goes according to plan, we should see either Canadian Pacific hauling more coal in 2016 or less contraction in the company’s coal volumes in 2016 than peers. All US-born Class I railroads are included in the portfolio holdings of the WisdomTree Earnings 500 ETF (EPS).
The commodity groups
Commodity groups such as US grain and potash rose in volume for the week ended December 17, 2016. Volumes of Canadian grain, forest products, crude, and automotive fell that same week.
For more information on US major railroad stocks (UNP), visit Market Realist’s Railroads page. If you’re interested in comparing this week’s traffic data with the previous week’s, you can refer to Freight Rail Traffic for the Week Ended December 10. Next, we’ll take a look at the changes in Canadian Pacific’s intermodal traffic.