Freight shipments not expected to recover until the fourth quarter or even 2021
North America is just starting to feel the crunch of the coronavirus pandemic, with freight shipments not expected to recover until the fourth quarter or even 2021, Canadian National Railway chief executive JJ Ruest said Thursday.
“We’re going to see the real impact of coronavirus in both Canada and the United States in the month of April,” Ruest said on a call hosted by Citigroup Research. “May will be worse.”
As the head of Canada’s largest railroad, Ruest has a front-row seat to economic activity during the pandemic, with a near real-time measurement of how many automobiles or how much grain gets shipped.
CN had a strong March after a rough patch including a labour strike last year and rail blockades in February, but activity started to slow in the last 10 days, Ruest said. The problem has shifted from one of supply from earlier in the year when China went into lockdown to one of demand as millions of North American consumers lose their jobs and stay at home.
He expects a tough second quarter and a flat third quarter, with some potential for recovery in the last quarter of the year and the potential for a strong 2021 as companies work to fulfill pent up demand.
While some financial market analysts expect a steeper, V-shaped rebound, Ruest expects the freight business recovery will be U-shaped as it takes more time for consumers to start shopping and factories to resume higher levels of production.
“Part of the issue is how long big cities like New York will be shut down,” he said. “If the consumer is not consuming, eventually the stuff really has no place to go.”
Lack of demand will eventually prompt factories to cut volumes in places like China, where manufacturers have been ramping up production after two months of strict quarantine measures.
CN’s large customers including refineries, pulp mills and chemical plants are still running, but Ruest predicts those operations will slow down as people stop buying cars and houses and consumer goods.
“That is also a strong base that will slowly get weaker and weaker,” he said.
So far, the strongest areas during the pandemic have been grain shipments, coal and propane exports, and domestic containers headed to restock grocery stores with essential products.
“These businesses we bought last year are running flat out,” Ruest said.
But in the past seven days, CN’s auto shipments dropped by 50 per cent as General Motors Co., Fiat Chrysler Automobiles N.V. and Ford Motor Co. decided to stop production for two weeks.
“As soon as we cleared their parking lots from all the assembly lines, there’s no other freight to move,” Ruest said, adding he expects it will be 2021 or 2022 before the auto business recovers.
International container shipments from overseas have dropped substantially, along with crude and frack sand.
CN is preparing for the fallout by cutting costs. As shipments decline, it will park its least fuel efficient locomotives and train cars first and close down local yards where product isn’t moving. It has already shut down the Battle Creek yard in Michigan where vehicle manufacturers park product.
The railway also intends to lay off workers as train movement drops. CN temporarily laid off 1,400 workers in fall 2019 due to economic conditions and has since laid off a few hundred more, Ruest said.
CN is also taking measures to ensure a safe workplace for the 20,000 of its 24,500 employees that work in the field. It increased equipment cleaning and started making its own cleaning supplies. At its three network control centres, critical to ensure trains keep running, it hired medical technicians to take the temperature of every employee, every shift. CN also bought more thermometers and eventually would like to take the temperature of people coming to work in most of its buildings, Ruest said.
In case one of its three network control centres gets contaminated, it is opening three additional network control offices.
April 2, 2020 – ‘May will be worse’: CN Rail CEO says Canada, U.S. just starting to feel impact of coronavirus – Financial Post https://business.financialpost.com/