Canadian Pacific Railway is investing heavily in high-capacity hopper cars and facilities that can handle them. CP is now shipping record amounts of grain.
A few years ago, Canada’s two transcontinental railroads failed to ship the full grain crop in a timely manner. Calgary-based Canadian Pacific Railway (TSX—CP; NYSE—CP) is rectifying this. It moved a record amount of Canadian grain for the second year in a row. CP is preparing to ship even more grain this year and beyond. It remains a buy for long-term capital gains and modest, but growing dividends.
The 2018-2019 crop year ran from August 1, 2018 to July 31, 2019. During this period, CP shipped over 27.4 million metric tonnes. The railroad writes: “The crop year, Aug. 1 to July 31, saw 2.8 per cent more Canadian grain and grain products shipped from the prior record in the 2017-2018 season. . . . CP has consistently shipped more grain each year.”
New high-capacity hopper cars carry more
This success largely reflects CP’s ongoing investment in 8,500-foot trains with high-capacity hopper cars. They can carry up to 10 per cent more grain than the older, less-efficient hopper cars that they are replacing. CP currently has almost 1,500 of these high-capacity hopper cars. By the end of this year, the railroad will put another 1,900 into service. It plans to expand its fleet further to 5,900 high-capacity hopper cars.
CP is also investing in facilities to handle the high-capacity hopper cars. Today there are seven CP-served 8,500-foot loop-track facilities. Another five facilities are under construction, “enabling producers to start shipping under the new [High-Efficiency Product] train model this fall”. By the spring of 2020, CP expects to operate four more of these facilities.
CP Vice President of Sales and Marketing, Grain and Fertilizers Joan Hardy said: “CP works closely with its customers to bring North American commodities to market safely, reliably and efficiently. Tight coordination across the supply chain enables maximum efficiency even during challenging winter months.”
CP is building facilities for the future
Ms. Hardy added: “We continue to make record investments in our network . . . to operate trains, and modernize locomotives . . . today, more than ever, we are focused on driving the future of grain transportation for the benefit of the entire supply chain.”
The need to reverse the effects of global warming is becoming more apparent than ever. For instance, floods have affected major cities such as Calgary, Ottawa, Montreal and Toronto.
‘Once-in-a-century’ floods have become what’s known as ‘the new normal’. We expect the world to greatly reduce its use of hydrocarbons. This could reduce the railroad’s deliveries of oil and coal, among others. But the need for grain will remain. Railroads will keep delivering food crops for the foreseeable future.
This is an edited version of an article that was originally published for subscribers in the October 18, 2019, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.
The Investment Reporter, MPL Communications Inc.
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