28 April 2010

CP Expects Continued Rebound in
Asian Demand

Calgary Alberta - Canadian Pacific is forecasting a first-half rebound in Asian demand for commodities, overcoming weakness in European trade.
 
While last year's global recession hurt CP and other transport companies, the Calgary-based freight carrier said Wednesday that it expects business to be brisk this year at the Port of Vancouver, though it cautioned that any recovery will be bumpy.
 
Healthy carload traffic for bulk commodities destined for Asia, including grain, coal, and fertilizer such as potash, helped lift CP's first-quarter profit by 74 percent to $99.8-million, beating analysts' expectations.
 
The country's second-largest railway saw its revenue rise 5 percent to $1.17-billion.
 
"On the international side, we saw good growth off the Port of Vancouver, but relatively flat at the Port of Montreal. Looking forward, we think that Vancouver will continue to be stronger than it has been," said Ray Foot, CP's group vice-president of sales.
 
Another bright spot on Canada's West Coast is expected to come from robust intermodal traffic, mostly imported consumer goods shipped in containers from Asia, notably from China.
 
CP once had its corporate focus on Montreal, where its sister shipping company would unload European goods onto its rail lines.
 
The railway transferred its head office to Calgary from Montreal in 1996, a year before the Asian economic flu hit, but the strategic move later paid off as it thrived when Asia rebounded and Chinese trade boomed in Western Canada.
 
CP announced its improved profit just two days after Montreal-based Canadian National Railway Co. posted a 21 percent increase in its first-quarter profit, prompting the freight carrier to raise its outlook for 2010, including projections for $1-billion in cash flow this year, up from the previous estimate of $700-million.
 
But when it comes to making bullish economic forecasts, CP chief executive officer Fred Green isn't quite prepared to throw caution to the wind, even though CP's shipments of bulk commodities have been bustling.
 
"Am I delighted with the speed of the bulk recovery? You bet. We had no way to predict that. The issue that we all face is simply the sustainability of the demand. Will it be volatile? I would guess it probably will be a bit more volatile than history says," Mr. Green said during a conference call Wednesday.
 
"We're delighted, but the reality is we don't really know what's going to happen beyond the second quarter, and I don't think our customers do."
 
Canada's second-largest railway posted a first-quarter operating ratio of 82.4 percent, a key indicator of productivity that measures operating costs as a percentage of revenue.
 
A lower operating ratio is better, and CP's ratio improved from 88.1 percent in last year's first quarter.
 
"It appears CP benefited from a relatively easy winter and ongoing cost reduction initiatives, resulting in a better operating ratio," National Bank Financial Inc. analyst David Newman said in a research note.
 
Mr. Green said his company's goal is to be "agile and nimble," calibrating itself to have locomotives and trains at the ready should orders pour in for freight services.
 
Brent Jang.