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Why Did Canadian Pacific’s Carloads Fall in the Week Ending July 16?

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Canadian Pacific’s carloads

Canadian Pacific (CP) registered a rise of 1.2% in total railcars in the week ended July 16, 2016. The company hauled nearly ~30,000 railcars in the same week against 29,600 plus railcars in the corresponding week last year. Even CP’s railcars excluding coal went up nearly 1% to settle at 23,000 plus in the latest reported week of 2016.

The company received 70% of revenues from Canada and 30% from the US last year. In sharp contrast with rival Canadian National (CNI), CP’s coal carloads were actually up in the reported week of 2016.

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Why coal carloads matter for CP

Coal accounted for 10% of revenues and 12.3% of carloads for CP last year. CP primarily transports metallurgical coal (UNG) meant for export through Metro Vancouver’s port. Its coal traffic in Canada begins primarily from Teck Resources’ (TCK) mines in Southeastern British Columbia.

In the last one year, coal’s production and demand has been under pressure due to depressed prices, environmental concerns, and the shift of coal-fired power plants to natural-gas-based electricity generation. However, TCK has issued slightly higher production guidance for 2016 compared to last year. If the guidance proves accurate, then we should see either more coal hauling by CP in 2016 or less contraction in the company’s coal volumes in the same year compared with rival CNI.

Investors interested in dividends ETFs can opt for the Vanguard Dividend Appreciation ETF (VIG). All US Class I railroads (UNP) are part of the portfolio holdings of VIG.

Commodity groups

The commodity groups such as US grains, potash, forest products, chemicals and plastics, and automotive were up in the week ending July 16, 2016. On the contrary, Canadian grains, fertilizer and sulphur, crude, and metals and minerals were down in the same week.

You can compare this week’s rail data with data from the previous week in How Did North American Rail Traffic Fare in Week Ending July 9. For more information on major US railroad stocks, visit Market Realist’s railroads page.

In the next part of this rail traffic series, we’ll go through Canadian Pacific’s intermodal traffic.

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