May 22, 2009 / 7:42 PM / 9 years ago

CP Rail prepares for new post-recovery reality

VANCOUVER, British Columbia (Reuters) - North America’s railways should be prepared for a change in shippers’ habits once the economy recovers, the head of Canadian Pacific Railway said on Friday.

Chief Executive Fred Green said recent volatility in traffic volume has forced the railroad re-examine how it invests in fixed costs, such as infrastructure, which require a long-term commitment from the carrier.

Freight volumes on CP, which operates in Canada and the northern United States, were 30 percent below last year’s levels in April and May, after a weak first quarter, and Green is still waiting for signs of an economic rebound.

“What I’d like to see is sustained demand. It’s one thing to say we’re going to have a good week, but it is another thing to see that sustained demand over four weeks, six weeks, eight weeks,” he said after CP’s annual meeting.

Green said he is not ready to predict yet exactly how the economic crisis will change shipping demands, but shifts in public policy and credit markets caused by the downturn will likely alter future buying patterns.

“So, if they’re not going to be buying things in China to be used in North America, it could cause a completely different set of logistical needs ... we’ll still be involved, but in a different lane, a different corridor,” he said.

Before the recession, Canadian Pacific and other major railroads in western North America had found themselves struggling to keep up with demand to handle goods coming into Pacific Coast ports from China, as well as the demand to handle exports of raw materials.

“I wouldn’t predict that there will be a net negative to the company, but just a net difference to the company, and it is something we have to have our eyes wide open for,” Green told reporters in Vancouver.

The economic turmoil and political uncertainty over coal as a power source have also pushed back the railway’s decision on whether to pursue an expansion into Wyoming’s Powder River coal fields, but the proposal is not dead, Green said.

Canadian Pacific has been considering the expansion since it bought the Dakota, Minnesota and Eastern Railroad, which had won regulatory approval to build tracks into the coal field but was not able to fund the plan.

CP has always considered the coal project as “icing” on the DM&E deal, but it will not try to pursue it until it is comfortable it can secure affordable financing and adequate long-term traffic levels.

“We’re not any closer than we were 18 months ago to making a decision on that ... and until such time as those stars line up, it’s just an option,” Green said.

He said that, even without the coal traffic, the DM&E deal has been more beneficial to Canada Pacific in terms of revenue and cost savings that had been anticipated.

Reporting Allan Dowd, editing by Rob Wilson

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