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CN upbeat about prospects heading into new year

Grain, coal, potash poised to support railway in Q4 and into 2023

CN announced its third-quarter 2022 results late Tuesday. (Photo: Shutterstock/Christopher O'Donnell)

Despite some potential market softness that could occur in coming months due to changing macroeconomic conditions, Canadian railway CN remains confident it can handle any downturn, officials told investors during the company’s third-quarter 2022 earnings call.

There are early signs of softness in some markets, but CN “will be very busy” in certain parts of the network, CN President and CEO Tracy Robinson said Tuesday.

Although harvests started a little later than normal this year, CN expects to see strong Canadian grain volumes well into next year. U.S. grain volumes should also be robust as Midwest producers seek alternative routes due to low-water levels on the Mississippi River restricting barge movements. 

The war in Ukraine is one of the reasons why CN expects to move sizable volumes of grain, as well as coal and potash, in the fourth quarter and into 2023. Automotive volumes also could be strong as manufacturers relieve the multimonth sales backlog, CN officials said. 

However, international intermodal volumes could soften as the supply chain “sorts itself out” and warehouse inventories remain elevated, according to CN Chief Marketing Officer Doug MacDonald. Market demand is also flattening for chemicals, he said. 

A lot of companies were “overordering” because they were afraid of delayed shipments, MacDonald said. But now there is a “dramatic amount” of retail volume in warehouses serving Toronto and Montreal, so orders are backed up and there could be blank sailings in November.


Despite any potential macroeconomic softness that may evolve, CN officials said they will use network capacity needs to gauge where the railway should invest in capital projects.

“As we’ve leaned into the scheduled railroad… you get a pretty good look on where you have capacity and where you don’t,” Robinson said. “The worst thing you can do is sell capacity you don’t have.”

Running the network well and increasing velocity frees up capacity, according to Robinson. Working with shippers in order to have visibility into capacity needs also enables CN and its supply chain partners to coordinate responses accordingly. 

Should rail demand also soften, CN could make operational adjustments, such as adjusting its hiring plan and the use of its locomotives and railcars, according to CN CFO Ghislain Houle. CN will be watching how inflation impacts both costs and contract prices, especially since contracts will be coming up for renewal. 

CN has also become the sole Canadian partner with Union Pacific (NYSE: UNP) and Norfolk Southern (NYSE: NSC) in an intermodal equipment management program. CN said its participation will enable the railway to increase its cross-border traffic for intermodal and grow its transcontinental freight business.

Q3 2022 financial results

CN reported net profit of nearly CA$1.46 billion ($1.07 billion) in Q3 of 2022, or $2.13 per diluted share, compared with nearly CA$1.69 billion, or $2.37 per diluted share, in Q3 of 2021.

On an adjusted basis, the third-quarter 2022 earnings per share was 40% higher than the adjusted Q3 diluted earnings per share of $1.52. The adjusted Q3 2021 figure accounts for a termination fee associated with CN’s failed attempt to acquire Kansas City Southern.

CN’s third-quarter revenue was a record CA$4.5 billion amid a higher fuel surcharge, freight rate increases and a positive translation impact of a weaker Canadian dollar, the company said. CN also experienced higher Canadian export coal volumes and U.S. grain volumes. 

CN also reported record third-quarter 2022 operating income of CA$1.93 billion, a 44% increase year over year.

Operating expenses rose 15% in Q3 to CA$2.58 billion due to higher fuel prices and the weaker Canadian dollar but were partially offset by CA$84 million stemming from the termination fee related to Kansas City Southern’s decision to not merge with CN.

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Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.