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Trump presidency, grain crop hold seeds of hope for Canadian railways

Both Canadian National Railway and Canadian Pacific Railway have seen revenues, profits and carloads slump over the past year amid economic weakness in Canada and the United States.

Jeff McIntosh/The Canadian Press

Canada's two major railways are counting on a big grain crop and a Trump presidency to lift them out of the doldrums.

Keith Creel, chief operating officer of Canadian Pacific Railway Ltd., lauded U.S. president-elect Donald Trump's promises of lower corporate taxes and a trillion-dollar infrastructure-spending spree as good for the Calgary-based railway.

"If he does what he says he's going to do, CP's going to benefit," Mr. Creel said. The freight railway's business depends on many of the raw commodities needed to upgrade U.S. roads and bridges – stones, steel and cement.

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He said Mr. Trump's promise to slash corporate taxes to 15 per cent would reduce CP's tax rate to 20 per cent. "Obviously, we're a Canadian [company] and it's only going to affect about 30 or 35 per cent of our revenue, but right now, our effective tax rate is about 26 per cent," Mr. Creel said on Wednesday at an investors conference in Palm Beach, Fla.

However, both CP and its Montreal-based rival Canadian National Railway Co. have extensive cross-border operations and stand to lose if trade declines between Canada and the United States if Mr. Trump follows through on his threat to renegotiate or tear up the North American free-trade agreement. Mr. Trump's protectionist views also cloud the future for the softwood-lumber agreement.

Speaking at the same conference on Wednesday, Ghislain Houle, CN's chief financial officer, said the railway's forest-products customers are not afraid of tariffs "because they've lived with tariffs for years." But quotas on softwood shipped to U.S. buyers could force lumber producers to sell more to Asian markets, possibly sending their goods away from CN lines, Mr. Houle said.

As for any threat to NAFTA, Mr. Houle said it is too soon to see which election promises will become reality, and declined to speculate on how the company would be affected if the United States erected new barriers to trade.

"I think that when people look at [NAFTA] in more detail, they'll find out it's a fundamentally good agreement for both countries," he said. "We try not to worry about it. Remember, Mr. Trump is a business person. What he said is he wanted to increase and help the economy so that's good for railroads and that's going to be good for CN."

Both CN and CP have seen revenues, profits and carloads slump in the past year amid economic weakness in Canada and the United States. Coal, ore and steel shipments have plunged as factories have slowed production and power plants have turned to cheaper natural gas. And oil shipments have plunged along with prices.

"Our company, our industry is facing some challenging times," CN's Mr. Houle said. "We have a sluggish economy. The energy downturn resulted in significantly weaker volumes in … crude and frac sand, which were major growth engines just a few years ago."

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But a large grain harvest in Western Canada and parts of the United States is expected to keep both railways busy until well into next year, executives at both freight shippers said on Wednesday.

"You're going to see strong grain shipments out of Canada," said Mr. Creel of CP, which counts grain as its largest business. Wet weather delayed the western harvest and slowed the movement of grain from elevator to train to ship this year. CP says shipments are down by about 7 per cent, year over year, in recent weeks due to the bad weather, but it is moving record amounts of grain.

Mr. Houle said CN is moving "full out" hauling grain to the main grain ports on the West Coast and in Thunder Bay, Ont., with about 5,800 rail cars a week. He said the Western Canadian grain harvest is expected to be 70 million to 72 million tonnes, which is higher than the five-year average of 63 million tonnes.

"Hopefully, now we'll be able to move grain well beyond Q2 and in Q3," he said.

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