November 12, 2009 / 6:39 PM / 9 years ago

CN Rail sees gradual recovery, growing demand

* Railway says economy has touched bottom

* Sees Q4 sequential shipment growth 4-5 pct

* Expects rising fuel costs to boost rail demand

OTTAWA, Nov 12 (Reuters) - Canadian National Railway (CNR.TO) (CNI.N) believes the economy has touched bottom and Canada’s largest railroad expects a gradual recovery, shaped more like the Nike swoosh logo, rather than a robust V-shaped rebound.

Railways, often considered barometers of the overall economy, have been badly stung by the recession, with CN Rail, for example, reporting a 13 percent drop in quarterly profit last month.

But slow and steady gains have begun, said CN Chief Executive Claude Mongeau.

“We’re going through perhaps the worst recession since the ‘30s, but the good news is we are firmly of the view that we have found bottom,” Mongeau said via webcast at a Citigroup industrial manufacturing and transportation conference.

“We are managing our business on the basis that this economy is on firm ground, but with a gradual recovery.”

The company expects its fourth-quarter shipments, as measured by revenue-ton-miles, will match third-quarter volume gains of about 5 percent over the second quarter.

“We’ve seen the growth on a sequential basis and the first few weeks in the fourth quarter would point to effectively another 4-5 percent increase,” Mongeau said.

CN Rail, which has weathered the economic storm with deep cost cuts and programs to boost efficiency, believes rising fuel costs will lift demand for rail transportation in Canada and the United States.

Coupled with clogged highways, the environment for railroads “has never been better,” Mongeau said.

Grain transport prospects look good, he added, with decent U.S. and Canadian crops, while the agriculture outlook appears good to decent. “There’s an awful lot of agricultural product sitting on the ground that’s waiting to be moved when prices are right,” he said.

There are no signs that an “extremely difficult” year for fertilizer and potash is set to change, but Mongeau is hopeful for a recovery in the spring.

Shares in CN were down nearly 1 percent, or 53 Canadian cents, at C$56.32 on the Toronto Stock Exchange and off 1.5 percent at $53.45 in New York on Thursday. Year-to-date, the stock has gained about 22 percent.

$1=$1.05 Canadian Reporting by Susan Taylor; editing by Rob Wilson

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