February 6, 2012
Railroad carloadings as a proxy for how Canada’s overall economy is doing
Chief Economist, CanaData
Some sectors in the economy are flashier than others. They have at least a veneer of glamour.
For example, pretty much anything to do with high tech – e.g., telecommunications, computers, bioengineering, etc. – garners a lot of media attention.
Other segments are more pedestrian. They’re part of the background. They help the economy unfold in an everyday manner.
But they may capture more of a sense of what is truly happening than their higher-profile companions.
The railroads are such a sector. Although, at the moment they are getting their allotted time in the spotlight, due to a possible personnel move.
Hunter Harrison, while he was CEO of Canadian National Railway Co. (CN), spearheaded the modernizations that prepared that company for the future. After a profit gain of 17% in 2011, the company plans to raise its dividend by 15%.
Mr. Harrison left CN’s employment on January 1, 2010. A U.S. hedge fund, Pershing Square Capital Management, is now lobbying to see Mr. Harrison installed at the top of rival Canadian Pacific Railway Ltd. (CP).
In response, CN is freezing Mr. Harrison’s pension payments in the belief his interest in the CP job violates a non-compete agreement he signed earlier.
It seems logical that railroad traffic in Canada warrants a closer look.
Buried in the blizzard of material from Statistics Canada on a daily basis is a report entitled Monthly Railway Carloadings (catalogue no. 52-001-X).
It contains a wealth of material on cargo shipments by rail across the country.
There are three primary sources of rail traffic – intermodal (i.e., containers and trailers on flat cars), non-intermodal (i.e., carried in box cars and in bulk) and cargo received from U.S. connections.
In the January to November period of last year, the proportions of the total (based on metric tonnes) were 9% for intermodal, 80% for non-intermodal and 11% for the U.S. share.
As important as it may be, container traffic remains only a small percentage of the total. Non-intermodal accounts for the vast majority of goods shipped by rail.
There are some interesting stories to be gleaned here.
The number of railcars loaded in January through November of last year was +5.7% higher than in the same period of 2010. The volume in metric tonnes was +5.8%. Those are significant gains.
In the comparisons that follow, the figures are based on number of rail cars.
The ranking of carloadings by product category – which is somewhat arbitrary, since a number of items could have been combined in an overall forestry grouping, for example – is as follows.
• (1) Iron ore (340,243 rail cars, which was -7.4% versus the same period in 2010);
• (2) coal (313,181; -0.5%);
• (3) wheat (198,484; -5.1%);
• (4) motor vehicles (172,923; +0.5%);
• (5) potash (160,920; +14.7%);
• (6) fuel oil (157,411; +4.1%);
• (7) lumber (103,173; +51.2%);
• (8) canola (98,222; +14.8%);
• (9) wood pulp (97,160; +41.5%); and
• (10) sulphur (59,245; +10.1%).
Sulphur barely beat out iron and steel (57,827; +1.5%) to take the final position in the Top 10.
The numbers suggest that the some of the commodities which helped drive Canada’s economy after the recession have since fallen slightly out of favour.
Especially notable here are iron ore and coal. Slower growth in Europe and China is requiring less steelmaking capacity.
Potash has stayed strong. Agricultural markets are expected to remain tight world-wide.
Lumber and wood pulp have been doing surprisingly well according to this measure. With respect to the former, the domestic homebuilding sector has held up better than expected and there have been overseas demands in connection with Japanese post-tsunami rebuilding efforts.
As for pulp, the general improvement in the economy has caused a pick-up in advertising accompanied by the output of more printed matter.
Insight into the industrial make-up of the country is provided by a two-way geographic split.
Statistics Canada places carloadings from Thunder Bay to the Pacific coast in what it terms a Western Division. From Armstrong, Ontario to the Atlantic, is considered to be the Eastern Division.
According to this breakdown, the West dominated with 59% of all railway cars loaded through the first 11 months of last year. One might have thought the industrialized East would have fared better than only a 41% share.
The story we’ve been hearing for a while now continues to hold true. The West is fortunate to hold the resources that are in demand almost everywhere.
The West was dominant (i.e., accounting for 50% or more) in seven of the Top 10 commodities or products.
In order, these were canola (100%), sulphur and potash (both 96%), coal (95%), wheat (93%), lumber (77%) and wood pulp (72%).
The East led in iron ore (100%), motor vehicles (89%) and, surprisingly, fuel oil (57%).
The latter figure is refined fuel product shipped by tanker car. Most fuel shipped in the west, including product destined for the U.S., moves by pipeline.
If iron and steel is added to the analysis, the East gained another specialty, accounting for 92% of the loadings in that category.
The bottom line is that total cargo volumes moved by rail have been shifting upward.
Furthermore, traffic received from U.S. connections in the January to November period last year was +20% in metric tonnes.
For the month of November alone, the year-over-year gain was also +20%.
For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog.
