CP: Good Quarter; Great Future

Canadian Pacific Execs Tout Good 4Q19 Performance in Upbeat Investor Conference Call. Much of the Call was Devoted to Presenting "Art of the Possible" Opportunities Deriving from CMQ Integration.

30 January, Calgary AB — CP presented a round picture of improvement in 4Q-2019, and for 2019 generally:

 

Atlantic – Midwest reach

Creel spoke about spending much of the recent weeks visiting the newly-acquired property and adjoining shortlines in recent weeks: “[A]fter spending time on the railroad the last few weeks, I feel even more compelled … about the addition to our CP family franchise and the value it represents. … [The CMQ] acquisition enables CP to extend its reach to St. John, New Brunswick on the east coast and increasing our presence in the eastern United States with access to the deep-water port in Searsport, Maine.” Creel expanded, “We’ll be able to offer the shortest routes from the Maritimes to Montreal, Toronto, Chicago, and Western Canada, that will be truck-like reliable and truck-like competitive.”

When pressed on specific traffic for the new CMQ gateway, Creel responded that it’s still a developing situation, adding, “I see opportunity in intermodal growth … I see an opportunity in automotive growth … I see opportunities in fuels. I see opportunities in lumber. Just across the board.”

Creel sees great strategic value in Port St. John. “St. John to Montreal … is the shortest distance. And if you run your best day at the shortest distance versus a truck running its best day, or your competitor running its best day at a longer distance, I’d say, that’s a compelling opportunity to open up value for our customers.”

Looking to the Midwest, Creel said, “St. John could be … the Vancouver in the East that can get you to those same key routes in the Midwest. So, a franchise that has a Vancouver in the West, and its sister or brother in the East, I think, that’s pretty compelling. And again, it’s the art of the possible. But what’s impossible is, if you don’t have that network, you can’t create that vision.

CMQ discussion

Creel and John Brooks said that the priority for 2020 is to upgrade the CMQ lines to Class III standard including ties, rail and ballast, for a planned 2021 completion. “[When] the STB gives us approval (anticipated in May – Ed.), we will implement a more CP-like operating plan, taking time out of the schedules with the existing physical plant. It’s not that we’re running trains faster, per se, it’s in totality, the transit time is reduced, because we’re handling the trains differently and the schedules differently … philosophically, it’s different.”

CMQ territory

CMQ connections with SLQ (orange), VRS (dark green), NBM, medium green), and PAR (blue) {CP; annotated by ANRP}.

Shortlines

Brooks said, “I’m super excited about … the new gateway access to the short line partners that we’ve never reached before. The [Atlantic northeast-region] shortline level of interest has been overwhelming. [My] team and our leadership has been out on that property and talking to these folks.”

Creel divulged that CP is working on partnering with NBS to handle the ‘final mile or first mile’ at St. John. An NBS partnership will present “customers [with] a single-line haul from coast to coast and allow competitive, if not the fastest, [Atlantic inland routing].

CP’s new shortline partners include Vermont Rail System’s Washington County Railroad, connecting at Newport VT; G&W’s St. Lawrence & Atlantic, connecting at Sherbrooke QC; and Irving’s New Brunswick Southern and Maine Northern at Brownville Jct. ME. Another key connection will be with Pan Am Railways at Northern Maine Jct. ME. 

Searsport

Canadian Pacific is looking at the use of St. John and Searsport for direct competitive option to Halifax, creating reduced rail transit time for customers. Creel adds, “I see it as opening the door and being competitive to trucks and creating new solutions that don’t call on the Maritimes now, from an inbound standpoint.

Creel closed out the CMQ discussion with, “St. John to Montreal in a day, that’s pretty darn compelling. That’s truck-like reliability with a railroad that not just says it but does it. St. John to Chicago in three days, consistently, reliably — these are products that haven’t been put in the marketplace. Those that sign up early are going to realize the value early.”

More eastern acquisitions?

Responding to a question regarding opportunities to further extend CP connectivity in Eastern Canada or the Northeast U.S. through a transaction with G&W’s new owner Brookfield Infrastructure Partners, Creel responded with a “maybe,” adding, “Obviously, there’s a [Quebec City] railroad that we used to own … [that] could represent compelling value. It just depends on … if we can make it work.”

G&W’s Quebec Railway (QGRY) reaches into Ontario from Quebec City through Montreal. CP is QGRY’s primary feeder, and has seen an uptick in export grain traffic that can go to ports on the St. Lawrence in either Trois-Rivieres or Quebec City. There are also rumors of CP interest in G&W’s St. Lawrence & Atlantic (SLA/SLQ).