CN Rail preps for Red Sea fallout

Canadian National Railway Co. is girding itself for ripple effects from the conflict in the Red Sea, where attacks on cargo vessels have prompted a wholesale shift in global shipping.

The ongoing missile strikes by Iran-backed Houthi militants in Yemen have pushed major container carriers to steer clear of the area. Since mid-December, hundreds of vessels have sailed around Africa's Cape of Good Hope instead of passing through the Suez Canal, tacking on major fuel and crew expenses and triggering a spike in freight rates.

The longer travel time and scrambled schedules have resulted in delays of up to three weeks on the majority of container ships slated to roll into the Port of Halifax — a key hub for CN — over the next month.

The crisis has also pushed many shippers who had recently switched to the Suez Canal to return to transpacific routes between Asia and North America, after abandoning them due in part to bottlenecks at the Panama Canal. A Central American drought has prompted backups at the passage, which needs vast amounts of water to raise and lower ships at a dozen locks.

Doug MacDonald, CN's head of marketing, said that while shipments to the East Coast from Asia might be disrupted, the company expects operations to ramp up at the West Coast ports of Vancouver and Prince Rupert.

“We're starting to hear, with the different problems about the Panama and the Suez Canal, that the West Coast is looking like a more viable option moving forward. We haven't seen those volumes come in yet, but we're expecting them to gradually ramp up,” he told analysts on a conference call.

“We're seeing a lot of interest come to try to fill that up,” he added of the Prince Rupert port, where CN picks up containers from China and drops off propane, coal and wood pellets for export.

Earlier this month, an extreme cold snap in the Prairies hampered CN operations. Extreme cold reduces train lengths — trains hauling container cars cannot exceed 4,500 feet in temperatures below -35 C, versus an 8,000-foot limit at -25 C — and thus cargo volumes and efficiency.

The frigid start to the year followed a fourth quarter where revenues slid slightly due to lower grain and container shipments, even as the company shored up parts of its operations.