Exclusive: Canada railroads cut crude freight rates to lure shipments
By Nia Williams and Jarrett Renshaw
CALGARY, Alberta/NEW YORK (Reuters) - Canadian rail companies are slashing rates for shipping crude in their first serious effort to revive an industry rocked by the rout in global oil prices, according to shippers and terminal operators who are seeing discounts of as much as 25 percent.
The move highlights how railroads are struggling to compete with pipelines for a share of shrinking crude shipments across North America, particularly in Canada, where a long hoped-for boom in oil sands traffic has fizzled with the oil bust.
Canadian National Railway and Canadian Pacific Railway, which together account for the vast majority of crude-by-rail cargoes shipped across the country, are dropping prices, four people familiar with the cuts told Reuters. The size of the cuts varied among sources, leading one source to suggest that railroads may be working with individual shippers to give some bigger discounts than others.
Canadian National said it does not publicly discuss its freight rates. Canadian Pacific said it does not comment on individual customer relationships.
Canadian Pacific has offered discounts of around 15-25 percent, but in exchange wants shippers to commit to firm volumes, for example one 70,000 barrel unit train, made up entirely of oil tanks cars, per month for three months, said one source with a Calgary-based midstream company.
Another shipper said his company had been offered a single digit discount giving them a "small amount of relief".
Shipments from Canada to the United States have plunged by more than a third this year to 112,000 barrels per day in July, according to the latest U.S. data, undermining industry forecasts made before the oil price crash that total Canadian crude by rail volumes could hit 700,000 bpd by end-2016.
"They have cut their rates to help attract volumes. All the railways are doing it," said John Zahary, chief executive of Altex Energy Ltd, which operates five rail loading terminals in Canada and whose customers are shippers. "It's certainly helpful in getting volumes, but it's still tough out there." Continued...