Uncertainties surrounding the coronavirus pandemic could provide an additional layer of challenge as Canadian railways CN (NYSE: CNI) and Canadian Pacific (NYSE: CP) conduct their operations this winter.
The Canadian government’s Transportation Modernization Act requires both railways to submit their operational plans for winter. Adverse weather conditions such as extreme cold can affect the functionality of train tracks and result in shorter trains and slower train speeds. Passageways along the St. Lawrence River and to Thunder Bay, Ontario, also close during the season.
“Winter is known to be harsh, but where and when it will impact our operations is unknown. We therefore diligently prepare for it by implementing specific measures to meet with its inevitable extreme conditions,” said CN President and CEO JJ Ruest in the railway’s operating plan for the 2020-21 winter season.
Both railways also announced separately that they moved record grain volumes in the third quarter.
CN: Communication will be key to managing 2020-21 winter
Keeping communication lines open between customers will be critical this winter, since CN and its customers will not only be grappling with potential weather impacts but also with the macroeconomic uncertainties related to the coronavirus pandemic.
“The perfect matchup of resources to demand, especially in this environment of uncertainty due to the pandemic, can be challenging for all. Therefore, CN needs the most up-to-date and frequent forecasts from customers in order to diminish as much as possible the time lag between demands and rightsizing,” CN said in its 2020-21 winter plan. The railway noted that it can be a “huge effort” to ramp up operations; for instance, the lead time for furloughed crews to be back to work is three to five weeks, it said.
The railway continued, “CN understands that forecasting rail traffic demand is never an easy task. Even in regular times, experience shows that forecasts are often thwarted by the uncertainty of global trade and volatile markets as well as the rigours and hazards of winter. Therefore results do not always reflect what was forecast. And these are anything but regular times.
“Consequently, CN will base its assessment of anticipated volumes — and adjust accordingly — on insights gained from establishing more frequent communications and consultations with its customers and supply chain partners, as they are weathering through these pandemic and post-pandemic periods.”
This potentially unusual winter season follows a challenging 2019-20, during which CN not only encountered extreme cold but also service disruptions from labor disputes, illegal blockades, landslides and the COVID-19 pandemic, CN said.
Nonetheless, CN said its 2019-20 winter performance, at 155 billion gross tonne miles (GTM) of goods moved, was its second-best performance in company history. The top spot belonged to the 2018-19 winter, during which CN moved 159 billion GTMs.
CN said capital investments of C$7.4 billion helped the railway through last year’s winter. Those investments included the acquisition and implementation of cutting-edge technology and modern equipment, such as automated car inspection portals and alternating current locomotives, along with the addition and lengthening of passing siding tracks, CN said. These strategic investments were supplemented with innovative practices such as maintaining train length through better air distribution along the braking system, the railway said.
Among the efforts that CN will continue to deploy in the 2020-21 winter season are a four-tier system that reduces train lengths as temperature drops; refined use of air distribution cars to help with braking; and placing operational support employees alongside chief dispatchers in operation centers to help with troubleshooting. CN also said it will invest in double tracking, adding more infrastructure at the ports of Vancouver and Prince Rupert and acquire 1,500 new grain hopper railcars.
But CN also said it will communicate frequently with customers so that it can adjust operations accordingly.
“Obtaining timely forecasts from customers is necessary to deploy responsive operations. This year’s uncertainties make these forecasts more difficult, yet even more so essential,” CN said.
CP: Using technology will help overcome winter challenges
Meanwhile, CP said it will deploy measures such as air brake flow monitoring and using new technologies as it handles volumes throughout the winter season.
Those technologies include expanded use of automated train brake effectiveness technology for cold wheel detection and expanded use of a ground-level air temperature forecast system, utilizing predictive analytics to forecast potential rolling stock equipment failures, implementing a high-speed camera train inspection system and conducting in-house tests on new air brake valve gasket materials. The railway is also seeking to modernize 201 locomotives, train over 400 employees and implement additional communication tools with customers.
These initiatives are part of CP’s broader C$1.6 billion capital improvement program.
CP also will use predictive modeling tools that help analyze weather data and guide CP on how to deploy equipment and resources such as snow removal equipment, sand and switch heaters.
“Our in-house specialists analyze weather data and make use of the best predictive modeling available in an effort to forecast the conditions we are likely to encounter during the upcoming winter, including the type, severity and geographical reach,” CP said.
The railway also alluded to potential supply chain challenges that could arise this winter.
“Within reason, CP is well positioned to accommodate unexpected surges in volumes caused by challenges experienced by other rail carriers, non-rail components in the supply chain or adverse weather,” CP said. “While we do not currently expect any particular supply chain challenges, we note that network service disruptions do not occur in a vacuum. Rather, they are the product of multiple factors throughout the supply chain. As a result, we will continue to work with our interchange carriers and the other participants in the supply chain to maintain interchange fluidity, optimize loading and billing and balance car cycle flows.”
CP continued, “An extraordinarily complex, interdependent supply chain requires collaboration and cooperation from all participants. We urge the government to seek and provide greater visibility on the entire supply chain, not just rail.”
Canadian railways moved record grain in September
CN said on Monday that September was its seventh-straight month of record grain movements, with third-quarter totals at around 7.76 million metric tonnes (MMT).
The railway moved over 2.43 MMT of Canadian grain and grain products in August and more than 2.81 million MMT in September. Previous records for August and September were 2.31 MMT in August 2014 and 2.6 MMT in September 2016.
“CN’s people are truly essential, they move the economy. I am proud of them and of the critical services they are providing, especially in these challenging times. The collaboration at all levels, from prairie grain farmers, to British Columbia coastal terminal operators has been exemplary,” Ruest said in a Monday statement. “Grain demand is enabling the return to active employment of many of our people and with the addition of 1,500 new locally built, high-capacity grain cars, the CN ONE TEAM looks forward to breaking more records.”
Meanwhile, CP also said it reached record grain levels in September. It moved 2.8 MMT, which is more than 8.4% higher than the previous record for September set in 2017.
Third-quarter grain movements were also a record for CP, with the railway hauling 7.72 MMT, compared with the previous record of 6.97 MMT set in the third quarter of 2014.
“We are proud of the steadfast commitment and dedication the CP family has shown throughout the pandemic, which has been critical to Canada’s grain supply chain and to our customers,” said Joan Hardy, CP vice president of sales and marketing for grain and fertilizers. “The CP team showed itself ready for this fall’s harvest, supporting customers and their supply chains to get grain moving off the combine and to market. Customers tell us the crop that continues to come off the fields is large and CP is ready to keep it moving.”