Canadian National adds locomotives, reworks U.S. coal position

CN (TSX:CNR) (NYSE:CNI), also known as the Canadian National Railway, said March 22 that it has undertaken a major locomotive acquisition program to accommodate anticipated traffic growth and to improve operational efficiency, with some of those locomotives headed for coal-haul service.

CN will acquire 65 new high-horsepower locomotives as well as 96 second-hand high-horsepower locomotives that will be upgraded.

Keith Creel, Executive Vice-President and COO, said: “The new and used motive power will enhance operational efficiency and reduce fuel consumption by permitting the retirement of older, high-maintenance locomotives and the cascading of less fuel-efficient main-line units into less-demanding yard and local switching operations, while providing additional locomotives to accommodate increased traffic.”

CN will take delivery in the 2013-14 period of 35 new ES44AC locomotives from GE Transportation, and 30 new SD70ACe locomotives from Electro-Motive Diesel (EMD). The GE units have 4,400 and the SD70ACe units 4,300 horsepower. The program includes the acquisition of alternating-current locomotives (AC), which will represent a first for CN. The railroad’s current fleet of about 1,900 locomotives employs direct-current (DC) traction technology, which is a help in the mountainous terrain of western Canada. The new AC units are for heavy-haul coal service in northern British Columbia and Alberta.

CN will purchase this year 42 second-hand GE Dash 8-40C locomotives, 11 leased GE Dash 8-40C locomotives, and 43 second-hand EMD SD60 locomotives. The Dash 8 units have 4,000 and the SD60s 3,800 horsepower. These direct-current technology locomotives will be upgraded to CN specifications.

CN sells Louisiana coal dock, works on cooperation with NS

While much of the focus of this locomotive program is on Canadian rail service, the CN does have coal dealings in the U.S.

The CN, which operates in the U.S. Midwest down to the Gulf Coast through the Illinois Central railroad, last year sold a major coal-related asset. In August 2011, the company sold substantially all of the assets of IC RailMarine Terminal Co. (ICRMT), an indirect subsidiary of the company, to Raven Energy LLC, an affiliate of Foresight Energy LLC and the Cline Group, for cash proceeds of C$70m (US$73 million) before transaction costs, CN noted in a Feb. 3 Form 40-F filing at the SEC.

ICRMT is located on the east bank of the Mississippi River in Louisiana and stores and transfers bulk commodities and liquids between rail, ship and barge, serving customers in North American and global markets. Under the sale agreement, CN will benefit from a 10-year rail transportation agreement with Savatran LLC, an affiliate of Foresight and Cline, to haul a minimum annual volume of coal from four Illinois mines to the ICRMT transfer facility. The transaction resulted in a gain on disposal of C$60m (C$38m after-tax).

The Form 40-F also described the current status of an agreement with the Norfolk Southern, one of two major railroads in the eastern U.S. “In February 2009, CN and Norfolk Southern Corporation (‘NS’) entered into an agreement to create a ‘MidAmerica Corridor’ in which the railroads will share track between Chicago, St. Louis, Kentucky, and Mississippi to establish shorter and faster routes for merchandise and coal traffic moving between the Midwest and Southeast. Under the first major component of this initiative, NS will haul CN freight between Chicago and St. Louis, reducing the distance between these points for CN shipments by 60 miles and providing improved connections to other rail carriers through the St. Louis gateway.’

The filing added: “Second, NS will use CN’s routes between St. Louis and Fulton, Kentucky, as part of a new, more efficient route from the Midwest to the Southeast, saving more than 50 miles on NS shipments. Third, CN will haul NS freight between Chicago and Fulton, shortening NS’s Chicago-to-Birmingham route by almost 100 miles. As part of the MidAmerica Corridor, CN and NS plan to create a new coal gateway at Corinth, Mississippi, to better link NS-served southeastern utility plants with CN-served Illinois Basin coal producers. A key component of this initiative is the West Tennessee Railroad between Fulton and Corinth, which will be upgraded to handle heavier shipments and additional rail traffic. Together, the three components are designed to expedite customers’ shipments, improve asset utilization and generate new efficiencies for both CN and NS, including helping to level demand on busy north-south routes and improving service to customers.”

CN’s network of about 20,000 route miles spans Canada and mid-America, connecting three coasts: the Atlantic, the Pacific and the Gulf of Mexico, serving the ports of Vancouver, Prince Rupert (British Columbia), Montreal, Halifax, New Orleans, and Mobile (Alabama) and the key metropolitan areas of Toronto, Buffalo, Chicago, Detroit, Duluth (Minnesota)/Superior (Wisconsin), Green Bay (Wisconsin), Minneapolis/St. Paul, Memphis and Jackson (Mississippi).

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.