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Despite looming economic uncertainties in the second half of 2022, Canadian railway CN expects volume gains in grain and brisk intermodal activity to support the railway in the back half of the year, according to executives on CN’s second-quarter 2022 earnings call.
“We continue to assume low-single-digit [revenue ton mile] growth for the year. The current demand remains strong, and we continue to dialogue with customers to monitor any signs of weakness,” Chief Marketing Officer Dough MacDonald told investors on the late Tuesday call.
That strength will likely include domestic intermodal and grain. CN expects a Canadian grain crop of over 70 million metric tons in the upcoming crop year, compared with less than 50 million MT in the past year.
Some consumer softness has been impacting CN’s (NYSE: CNI) international intermodal segment, with “some small dips here and there” as a result of wider supply chain issues. But CN is planning resources based on what customers are telling the railway they need, MacDonald said.
To prepare for economic uncertainties in the second half of the year, CN has been considering multiple scenarios. If the railway must adjust labor needs, it plans to take actions such as repositioning people into training or other departments as a way to hold on to that labor, instead of furloughing employees and potentially grappling with a labor shortage once volumes recover, executives said.
“While we are seeing some inflationary pressures starting to impact our costs, we are closely monitoring the situation and making sure that we control our expenses and continue to price above rail inflation,” said CFO Ghislain Houle.
Should shippers seek to divert cargo to western Canadian ports because of potential disruptions at the U.S. West Coast ports, CN could take on some of that volume through the end of September, executives said. After that time, CN needs to reserve network capacity to move grain.
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