The 13-week strike stopped work at B.C. ports for a long time
The B.C. port workers’ strike cost Canadian Pacific Kansas City Ltd. tens of millions of dollars, said the company’s chief marketing officer, making the end of a tough quarter even more expensive. “At this point, we think the strike cost us about $80 million in revenue,” John Brooks told analysts on a conference call Thursday. “We will work hard to get back a lot of that over the rest of Q3 and Q4.” Most West Coast ports were closed earlier this month because of the 13-week strike and a short “wildcat” job action. The American Railroad Association says that in just the first week, it cut the number of containers moved by Canadian railroads to less than half of what it was during the same time in 2022. CPKC said that its first quarter after a big merger was hard because demand for container shipments and some bulk goods dropped across the rail industry. On a conference call, CEO Keith Creel said, “There’s no doubt that it was a tough quarter because we had to deal with weaker demand.”
In April, the deal was done for Canadian Pacific Railway Ltd. to buy Kansas City Southern. The $31 billion US deal was the first big rail merger on the continent in more than 20 years. It created the only railroad that goes all the way from Canada to the U.S. and Mexico. Brooks said that CPKC’s revenue for the quarter ending June 30 was up 2% from the same time last year when the two railroads that used to be separate were combined. Volume as a whole went down by 5%. He said that revenue from container traffic dropped 10% in the second quarter compared to the same time last year. This was because consumers switched their spending from products to services, which was the opposite of what was happening around the world.
In better years, the corrugated steel boxes that carry everything from kitchenware to building materials made up about a quarter of Canadian Pacific Railway’s total revenue, not just a fifth as they did in CPKC’s second quarter this year. A “major mechanical failure” at the Canpotex bulk terminal in Portland, Oregon, in April caused potash shipments and revenue to drop 18%, Brooks said, even though demand for potash around the world was up. As CPKC works to move fertilizer to other ports, the operation is not expected to start up again until 2024. “This is a long game, it’s not about the first quarter [after the merger],” Creel said, though he did admit that the strike had caused some problems. “This doesn’t mean that everything has been great,” he said.
Long-term growth 
On the plus side, the railroad moved more “frac sand,” steel, and automotive products because parts and finished cars are still in high demand.
As CPKC moves lumber from British Columbia to Kansas City Southern’s old markets, the benefits of a single-line service across the continent will become clearer, Brooks said, “even though we are seeing the effects of a weaker economy on residential construction and related building products.”
Creel said that the bigger reach of the merged company makes long-term growth opportunities “undeniable.”
The newly connected rail network runs from Vancouver and Saint John, N.B., to Houston and Mexico City, with stops at the Gulf of Mexico and the Pacific Ocean. It employs about 20,000 people. In line with the trend of “labor hoarding,” CPKC is “carrying excess headcount and incurring additional costs” right now, said Nadeem Velani, the company’s chief financial officer. “However, when the growth starts in the second half of the year and through 2024, we’ll be ready for it with strong margins,” he said.
On Thursday, CPKC said that it made $3.17 billion in its second quarter, compared to $2.20 billion a year earlier at CP. This was well before the merger of North America’s two smallest Class 1 railroads in April. The railway operator said that net income was $1.33 billion, up from $765 million the year before. The Calgary-based company said that its earnings per share were $1.42, which was more than the 82 cents per share it made during the same time period in 2022.