Termination of NAFTA won’t push CN railway off track, CFO says
Canadian National Railway Co.’s chief financial officer downplayed the company’s exposure in the event that NAFTA is dissolved, and said the Trump administration should not be looking to Canada to solve its trade deficit.
Speaking at a CIBC Investor Conference in Whistler on Thursday, CN’s CFO Ghislain Houle said about 30 per cent of the company’s revenues come from the United States, but that most of those revenues would not disappear if the Trump administration walked away from the deal, as it has repeatedly threatened to do.
“From a Canadian National standpoint, we don’t believe that the exposure is significant,” Houle told investors.
According to Houle, about 20 per cent of CN’s U.S. revenue comes from southbound trade from Canada to the United States. Of that 20 per cent, he said about five per cent is lumber, which falls under a separate agreement. Between seven to eight per cent of the remaining exports are raw materials, which Houle said will not be impacted by a potential termination of NAFTA.
“At this point we do not believe we would be impacted because the U.S. needs raw materials for production,” he said.
The final seven to eight per cent — accounting for about $1 billion in revenues — would not be fully eliminated by a loss of NAFTA, Houle said, pegging the company’s exposure risk to between $100 million and $200 million.
Concerns about NAFTA uncertainty have persisted through the sixth round of negotiations currently taking place in Montreal. On Thursday, Canada’s counterproposals on controversial American demands regarding content requirements for automobiles and dispute resolutions were not immediately rejected by the U.S., but a source told The Canadian Press it’s too soon to assess what that means.
U.S. President Donald Trump has previously said that the U.S. “lost $17 billion” in trade with Canada. However, according to the United States Trade Representative, the U.S. goods and services trade surplus with Canada was $12.5 billion in 2016 and exports to Canada supported about 1.6 million jobs in 2015.
Houle stressed that Trump’s focus on the trade deficit should not be targeted at Canada, citing statistics that showed the U.S. had a trade surplus with Canada of about $8 billion, including goods and services, in 2016.
“If the intent is to drive down the trade deficit for the U.S., Canada is not where to look,” he said.
“I’m not going to talk about other countries, because that’s not our issue. We just hope that cooler heads will prevail.”
Last week Keith Creel, the chief executive of Canadian Pacific Railways Ltd., said he is keeping a close eye on contentious NAFTA talks that could affect the firm’s cross-border business. He said that despite the U.S. representing about 30 per cent of the company’s business, the figure “overstates” its exposure in the event that NAFTA is no longer intact. “I’m starting to see signs that Mr. Trump is probably feeling the same thing we feel, that it makes a whole lot of sense to have healthy trade and commerce between these two countries,” Creel told analysts on a conference call after the firm released its fourth-quarter results last week.
In a report this month, CIBC analyst Kevin Chiang wrote that “NAFTA negotiation pose the biggest risk to our outlook,” pointing to how shares of transportation firms in the United Kingdom shed 10 per cent on average “almost immediately” after the Brexit vote.
“We would not be surprised to see a similar reaction in the Canadian industrial (and) transportation complex, especially for those companies tied to North American trade (i.e., rails, airlines, truckers),” Chiang wrote.