CP vows steady flow of grain
Source: By Lauren Krugel - The Sudbury Star
Published: May 11th 2008

Canadian Pacific Railway is taking steps to make sure grain and other high-demand commodities flow more smoothly across the continent, the company's chief executive said Friday.

Fred Green said the railway "took away some learnings" from the past few quarters, which were beset by weather delays and other operational challenges.

"We learned that our grain processors across Canada were built for the era prior to the recent grain company merger activity, and we were not adaptable enough when the forces of the severe winter impacted the supply chain," Green told the company's annual meeting in Winnipeg.

"To address this, several organizational changes were implemented in April to better align to our new grain world."

The railway has appointed a new vice-president of grain, and new managers to oversee grain shipment and bulk pulp lines in the Port of Vancouver.

"With these leaders now in place, we will make process changes to ensure that CP is not the bottleneck in the grain supply chain."

Green said the railway is poised to take advantage of a strong agriculture industry, with prices of wheat, corn, soybeans and rice surging because of soaring demand.

"With record crop prices and strong global demand, our role is to enable the industry's success by having the right capacity in the right place at the right time - something that will serve both CP and our clients very well for years to come."

Over the trying winter, marked by bitter cold throughout the Prairies and record snowfall in Eastern Canada, the railway also learned that demand for bulk services is "robust - perhaps even stronger than we thought, not only for today, but very likely well into the future," Green said.

"As such, we are selectively expanding our track capacity to meet demand, but of equal importance to drive efficiency - a cornerstone of our game plan every year."

Tom Varesh, an analyst with Canaccord Adams, said it would be a good idea for Canadian Pacific to lay down a second set of tracks alongside its existing lines in some high-traffic parts of the country.

"That would allow them to bypass a slower-moving train or a train that perhaps would be holding up this grain shipment," he said in an interview.

At the shareholder meeting Green said the railway is "actively advocating" expanding capacity at the Port of Vancouver so that high-demand commodities like grain, coal and potash can be more efficiently shipped to booming Asian markets like China and India.

"We believe it's critical that all supply chain partners are engaged in the process. We are only as strong as the weakest link in the supply chain," Green said.

Last fall Canadian Pacific announced the $1.48-billion acquisition of Dakota, Minnesota & Eastern Railroad Corp., which would give the railway access to the U.S. Midwest.

Green said he expects to see a "very smooth transition" when CP takes control of DM&E on Oct. 30.

However, there has been some resistance to a planned expansion of that railway into Wyoming's coal-rich Powder River Basin.

The so-called "Rochester Coalition" wants the extended railway to bypass the Rochester, Minn., area, where opponents say a train accident could endanger patients at the renown Mayo Clinic.

Despite the challenges ahead, Varesh said his outlook for Canadian Pacific is "very positive," giving it a "buy" rating with an $80 share price target.

Shares in Canadian Pacific were down $1.14 to $73.34 Friday afternoon on the Toronto Stock Exchange, with a 52-week high and low of $91.00 and $57.30.

Rising prices for coal in particular are expected to be a boon, Varesh said. Fording Canadian Coal Trust (TSX:FDG.UN) has just settled contracts for most of its coal sales at US$275 per tonne, compared with US$93 last year.

Canadian Pacific's five-year contract to ship coal from Fording's mines to Vancouver for export is set to expire in March 2009, so the higher prices will not have an effect on the railway's business for a few quarters.