Some areas in Eastern Canada continue to see blockades

Canadian National Railway will take a significant financial hit from the rail blockades that choked train traffic in Eastern Canada for most of February, but chief executive JJ Ruest is “cautiously optimistic” the disruption is behind the railroad as it turns its focus to potential impacts from the coronavirus outbreak.

“It definitely is significant,” Ruest said in an interview Tuesday regarding the financial impact from the blockades that cropped up on tracks nationwide in support of the Wet’suwet’en hereditary chiefs’ opposition to a natural gas pipeline through their traditional territory in B.C. CN was forced to stop about 460 freight trains during the blockades.

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“It’s a lot of lost revenue for CN, and I’m sure a lot of lost revenue from our customers who probably lost some sales in that period of time because they could not execute,” he said. “It might be significant for Canadian economy, too.”

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On Tuesday, CN called back to work most of the 450 employees it temporarily laid off during the blockades, which have mostly dispersed over the past four days since the Wet’suwet’en chiefs reached a draft arrangement with B.C. and federal officials.

CN will not reveal the exact cost until it releases financial results in April, but Ruest said the hit will be in the scale of the impact from the eight-day strike by CN employees in November. That prompted CN to cut its 2019 annual guidance by 15 cents per share, meaning it lost an estimated $140 million or $18 million per day during the labour action.

The blockades were harder to plan for than the strike given their unpredictability, which stressed both employees and customers, Ruest said.

“People were just showing up on our tracks and the crews would tell us, ‘There’s people ahead,’” he said.

“In the last 15 days, we would find on social media that something is about to happen and therefore we’re going to have to do what we can without that piece of track.”

He thanked customers, various law enforcement agencies, CN Police Services and the provincial and federal governments for their support during the blockades.

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“The issue started with a pipeline and unresolved First Nation’s rights,” Ruest said. “It’s not about CN or the people whose livings rely on the railroad, it’s about something that really the federal government has to find a way to progressively and slowly bring to a positive outcome.

Passenger train service Via Rail also expects to resume most of its services starting Tuesday, including the link between Toronto, Ottawa and Montreal. Via Rail temporarily laid off about 1,000 employees – nearly one third of its total staff – during the blockades.

More than 164,000 passengers were affected by the cancellation of 940 trains as of Feb. 28, according to Via Rail, which operates on CN’s tracks.

It will take CN several weeks to recover from the blockades, which Ruest described as an “unprecedented ordeal.” But CN will not change its 2020 financial guidance because it still has 10 months to hit its targets, Ruest said.

“The blockade was a one-time event, we’re cautiously optimistic it’s behind us,” he said. “What’s really ahead of us now is the coronavirus.”

Canadian and American consumers haven’t stopped consuming so Ruest hasn’t seen a drop in demand for freight so far. But there’s been a marked reduction in imports from China.

“The container vessels coming from China to the Port of Prince Rupert and Vancouver are either very, very low count or they’ve been cancelled,” Ruest said. “By the end of this week, we will have cleaned up pretty much every import container we have from Asia will be on train moving East.”

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It takes about a month for a product to be manufactured, get on a vessel and complete the 15-day sail to Canada from China, so imports are expected to be weak in March but may bounce back between April and June.

“The real question is the demand side and will the concerns around coronavirus start to slowdown consumption here,” Ruest said.

Industry analysts are also more focused on how coronavirus could harm the entire transportation industry given the decline in manufacturing activity in China. Last week, Citi analysts trimmed earnings estimates for CN and other transportation companies.

“We expect the combination of an import lull related to extended Chinese manufacturing shut downs and softening demand from the spread of COVID-19 to North America to impact volume over the next several months,” Citi noted to clients. It expects rail volumes to decline in March and April.