Overview of rail transport in 2008

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Economy in brief

The global economic slowdown in 2008 impacted Canada’s economic growth, especially during the last quarter of the year. Real GDP which grew 1.2% during the first half of 2008, made only a marginal gain of 0.4% at the end of the year, compared with the 2.7% growth rate in 2007. ¹  The year started with high commodity prices and trade surplus for Canada. At the end of the summer season, the Canadian economy began to shrink, as exports suddenly dropped and commodity prices dipped. In addition, Canada could not escape the global meltdown emanating from financial markets.

Falling commodity prices during the fourth quarter of 2008 could not dampen increased trading activities in merchandise trade, which rose 6.2% to $932.8 billion in 2008 on account of both higher imports and exports. ²  Even with a faltering US economy during the second half of the year, financial sector woes, as well as an appreciation of the Canadian dollar, trade in goods with the United States increased 4.0% to $650.7 billion by the end of the year.

Despite the slow down in most prices of goods and services, the consumer price index increased 2.3% in 2008, slightly higher than the 2.2% growth in 2007. ³  Higher prices for various energy and food products, and mortgage interest costs were the primary contributors to the increase in consumer prices in 2008.

Finally, by the end of 2008, employment growth slowed as more than 173,000 full-time jobs were created compared with more than 293,000 full-time jobs created in 2007. ⁴  This moved the unemployment rate from 6.0% in 2007 to 6.1% in 2008.

Industry Performance

The Canadian railway industry’s performance in 2008 essentially mirrored that of the Canadian economy’s performance. That is, the industry saw financial gains for most of the year and then slowed down toward the end due to the global financial crisis that began in October 2008. A discussion of the financial, operational and commodity attributes of the industry is provided below.

Operating revenues

Total operating revenues for the Canadian railway industry rose 4.5% to $11.0 billion in 2008, the 10^th consecutive year an increase has occurred. The increase was brought on primarily by a rise in freight revenue, which rose 4.7% to $9.9 billion. Over the 5 year period from 2004 to 2008, total operating revenues grew from $8.9 billion to $11.0 billion. (see text table 1)

Operating revenues by source

Within the rail industry, freight transportation continuously represents the single largest revenue source. 2008 proved to be no exception to this as the $9.9 billion in freight revenues, which grew 4.7% over 2007 levels, accounted for 89.8% of the industry’s total operating revenues. The growth in freight revenues can be tied to increases in both freight rates and fuel surcharges as a result of increased fuel prices.

The growth in freight revenues was partly offset by decreased revenues from the regional carriers, which saw their freight revenues fall by 2.3%, and the economic downturn towards the end of the year. Despite this downturn, revenues from freight transportation, over the five year period from 2004 and 2008, increased 25.4%.

Revenues stemming from passenger transportation services and government payments also represent key income sources for the industry. In 2008, passenger transportation revenue increased to $304.1 million, a 4.2% rise from the $291.8 million recorded in 2007. Over the five year period from 2004 to 2008, passenger revenues increased 14.7%.

Revenues stemming from government payments also increased in 2008, rising 3.7% to $362.9 million. This increase is much lower than the 12.9% increase in 2007.

Operating revenues by carrier

In 2008, operating revenues for CN rose 6.5% to $5.7 billion. Freight revenues, which accounted for 93.7% of all revenues earned, rose 6.7% to $5.4 billion. This increase compares starkly to the 0.4% drop in the previous year and was due in part to higher volumes of specific commodity groups such as metals and minerals, coal, and increased intermodal transport activities. Weaknesses in the forestry and automotive sector, a strong Canadian dollar and harsh weather conditions at the beginning of the year are some factors that offset the growth.

CP reported $4.2 billion in operating revenues, a growth of 3.0% over 2007 levels. Similar to CN, freight revenues represented the majority of all revenues earned, at 96.6%. For 2008, freight revenues increased 3.1% to $4.0 billion. This growth was primarily the result of higher freight rates and fuel surcharges, and the overall volume growth in industrial and consumer products and coal. The economic downturn and the weakness in forest products throughout the year helped to offset the growth in revenues to some extent.

In contrast to both CN and CP, operating revenues for VIA Rail are derived primarily from two revenue sources – passenger transportation and government payments. In 2008, operating revenues increased 5.8% to $502.5 million due to revenue growth in both passenger transportation and government payments. Revenues from government payments rose 6.8% to $214.0 million compared to 2007, as did revenues from passenger transportation by 5.2% to $283.5 million. The increase in passenger revenue, which represented 56.4% of VIA Rail’s revenues, can be mainly attributed to a travel promotions offered by VIA Rail, the shorter average distance traveled by passengers (see table 9 in the Statistical Tables section) and a combination of harsh winter conditions and increased fuel prices that may have caused a slight modality shift by commuters to passenger rail. Passenger revenues were partially offset by weakened demand in the second half of the year.

The regional and short-haul carriers combined for the remaining 5.7% of the total revenues for the industry. For the year, their operating revenues dropped 3.2% to $624.3 million. The decrease is mostly the result of acquisitions of regional and short-haul carriers by mainline carriers and does not necessarily indicate a drop in activities for the remaining carriers.

Operating expenses

In 2008, total operating expenses of the Canadian railway industry reached $8.6 billion, an 8.0% rise over 2007 levels (see text table 2). CN and CP combined for 87.6% of the industry’s operating expenses, while regional and short-haul carriers accounted for 6.9% and VIA Rail represented 5.5%.

At the mainline carrier level, CN saw an increase of 8.5% in its operating expenses, bringing its total to $4.0 billion. CP also reported an increase in its operating expenses with a 7.4% rise to reach $3.6 billion, while VIA Rail showed an increase of 9.1% to reach $478.0 million.

In terms of the distribution of the type of operating expenses within the industry, rail operations expenses are typically the largest. For 2008, these expenses (which include the operation of trains, yard stations, terminals, etc.) increased 16.3% to $4.2 billion. All the mainline carriers recorded increases in this type of expense and combined accounted for 94.7% of the industry’s rail operations expenses.

Expenses related to ways and structures represented the second largest type of expenses within the industry in 2008, at $1.6 billion. Included in this category are maintenance and depreciation of tracks, roadways, buildings, signals, communication and power, and terminals and fuel stations. CN and CP recorded increases of 12.6% and 11.8%, respectively, in their ways and structures expenses over the previous year, while VIA Rail recorded a 5.6% drop.

Equipment expenses represented the third largest type of expenses, while general expenses represented the fourth largest type within the industry. For 2008, equipment related expenses decreased by 6.2% to $1.4 billion, as did general expenses by 1.4% to $1.4 billion.

Net Income

The combined effect of the changes in operating revenues and expenses in 2008 resulted in net operating income decreasing 6.5% over 2007 levels to $2.4 billion. Net income, after adjusting for taxes and extraordinary items, dropped significantly by 78.8% to $442.3 million. This is the largest drop in net income in the five year period from 2004 to 2008. The economic downturn at the end of 2008 was one of the factors contributing to the decline in the industry’s net income.

Balance sheet and property accounts

Total assets of Canadian railways were $21.4 billion in 2008 (see text table 3). For mainline carriers, CN held 52.1% of the industry’s total assets with $11.2 billion, while CP held 38.1% with $8.2 billion and VIA Rail held 4.4% with $932.3 million. Regional and short-haul carriers held the remaining 5.5% of the industry’s total assets with $1.2 billion. In the five year period from 2004 to 2008, total assets of the rail industry rose 16.3%.

Most year-end balances of property accounts also showed increases in 2008 (see text table 4). The year-end balance of land was $540.9 million, which represented an increase of 3.1% over 2007. As well, the year-end balance of ways and structures increased 3.0% to $18.4 billion, while the year-end balance of equipment decreased by 0.3% to $7.6 billion. The decrease in equipment was due in part to equipment retirements over the year.

CN comprised 55.9% of all accounts related to ways and structures in 2008, while CP comprised 35.2%. VIA Rail and the remaining regional and short-haul carriers held 3.3% and 5.6% of these accounts, respectively. CN also held the largest industry share of accounts related to equipment in 2008 at 45.4%, with CP following at 40.6%.

At the end of 2008, the balance of the main property accounts (including land) totalled $26.6 billion. In the last 5 years, this total has risen by 6.7%.

Financial Ratios

In 2008, the operating ratio ⁵  for the industry increased by two percentage points to 0.78. The increase in the operating ratio was due to an 8.0% increase in operating expenses and a 4.5% increase in operating revenues. Overall, the operating ratio remains low, in comparison with years prior to 2004.

In contrast to the increase in the operating ratio, the industry’s debt-equity ratio ⁶  decreased five percentage points to 0.55 in 2008, indicating that rail carriers had a reduction in the proportion of debt used to finance their assets.

Another measure of solvency within the rail industry is the debt-asset ratio ⁷  . This ratio decreased by two percentage points to 0.36 in 2008, implying that 36% of the industry’s assets were financed through creditors. This percentage is an improvement from 2006, when the debt-asset ratio was 0.40.

Inventory of equipment in service

At the end of 2008, there were a total of 2,910 locomotives in service – a decline of 2.9% from the 2,998 in service in 2007 (see text table 6). Out of those in service in 2008, 2,343 were engaged in freight service, 87 in passenger service, 452 in yard work and the remaining 28 classified as associated equipment.

The number of freight cars in service for 2008 totalled 82,423. The composition of these cars involved hopper cars (42.1%), flat cars (20.6%) and box cars (19.2%). Over the 5 year period from 2004 to 2008, the number of freight cars decreased by 15.5%.

In 2008, CN owned 45.1% of all locomotives used for freight in the industry and 53.7% of all freight cars. CP, for its part, owned 40.8% of all locomotives used for freight and 38.1% of all freight cars. From a passenger perspective, VIA Rail owned 87.4% of all locomotives used for passenger service and 77.2% of all passenger cars.

Length of track operated

The total length of track operated by rail carriers decreased to 70,784 kilometres in 2008 – a decline of 1.3% compared to the previous year. Of this total, 57,533 kilometres of track was owned while the remaining 13,250 kilometres was operated under lease, contract or trackage rights, or was jointly owned (see text table 7). Together, CN and CP accounted for 83.1% of the total length of track operated (owned and leased) in 2008. (For detailed data related to length of tracks, see tables 4 and 5 in the Statistical Tables Section.)

Fuel consumption

Rail carriers consumed 2.1 billion litres of diesel fuel in 2008, and spent $2.0 billion acquiring the fuel (see text table 8). Fuel consumption decreased 4.2%, while costs increased by 33.7%. Although the consumption of diesel declined, it was offset by high fuel prices in 2008. For most of the year, prices per litre of fuel were above 100.0 cents. The cost of fuel reached its highest point in the month of July when the price per litre was 148.8 cents. ⁸  It was only at the end of the year that fuel prices dropped below the dollar mark.

The drop in fuel consumption in 2008 reflected the decrease in intermodal freight transportation activities and tonne-kilometres, each of which declined 3.8%. (For more details, see origin and destination tables in the Statistical Tables Section and text table 9).

CN accounted for 48.4% of the total fuel consumption for the industry in 2008. CP accounted for 42.7%, while VIA Rail and the regional and short-haul carriers accounted for the remaining 8.8%. At the provincial level, Ontario had the highest consumption of diesel fuel for rail activity in Canada with 651.0 million litres consumed, down 4.4% from 2007 levels. (For data on the remaining provinces, see table 7 in the Statistical Tables Section.)

Operating statistics – Freight transportation

In 2008, the total tonnage of revenue freight carried was 337.8 million tonnes – a decrease of 5.3% from 2007 (see text table 9). Over the five year period from 2004 to 2008, total tonnage decreased by 6.6%. Tonne-kilometres also declined in 2008 by 3.8% to 344.9 billion tonne-kilometres.

CN accounted for 40.2% of the total tonnage of all revenue freight carried and 52.7% of all tonne-kilometres recorded in 2008. For CP, revenue freight carried represented 32.9% of all tonnage for the industry while its tonne-kilometres represented 41.5%.

The number of train-kilometres fell 3.5% in 2008 compared to 2007 levels. Car-kilometres followed a similar path showing a decline of 1.3% over the previous year. Over the five year period from 2004 to 2008, train-kilometres decreased by 3.7%, while car-kilometres increased 3.1%.

From a haulage perspective, the average haul increased 1.6% in 2008 to slightly above a thousand kilometres (see Statistical Table 9). Over the 5 year period from 2004-2008, the average haul increased by 9.0%.

The average number of cars per train also increased in 2008, rising to 83 cars. This amount is 7.1% higher than the 77 cars on average moved by trains in 2004.

Operating statistics – Passenger transportation

The total number of passengers carried by rail increased 9.6% in 2008 to 4.8 million, the 2^nd consecutive year an improvement has occurred (see text table 10). The rise was influenced by travel promotions offered by VIA Rail in the month of July to the Canadian Forces, which allowed the personnel to travel for free and their family members at discounted fares. Other factors such as improvements in services in the Quebec City – Windsor corridor, harsh winter conditions and increased fuel prices also contributed to the growth in the number of passengers.

The total number of passenger-kilometres increased 9.0% in 2008 to 1.6 billion passenger-kilometres, while the average passenger journey per ticket for the year declined to 331 kilometres - a 0.6% decrease from the 333 kilometres traveled per ticket in 2007.

Train-kilometres and car-kilometres both followed a similar path in 2008 with increases of 1.1% and 3.0%, respectively. As well, the average number of passenger cars per train rose 1.5% in 2008. Over the 2004 to 2008 period, the average number of cars per train varied slightly with approximately 7 cars per year.

Employment and compensation

Employment in the Canadian rail industry rose to 34,440 employees in 2008, an increase of 0.5% over the previous year. This employment level is 3.2% lower than the recorded level of 35,591 in 2004.

In 2008, CN continued to have the largest number of employees with 15,434. CP followed closely behind with 12,698 employees, while VIA Rail and the regional and short haul carriers had 3,215 and 3,093 employees, respectively.

Total compensation received by employees in the rail industry for 2008 was $2.5 billion. This represented an increase of 2.8% compared to 2007. On its own, CN paid almost half (46.4%) of the industry’s total compensation.

The total average annual compensation per employee in 2008 was $73,704, a 2.3% increase from 2007. Employees from general services had the highest average annual salary at $84,135, followed by employees from transportation services at $78,670. Employees from road maintenance and equipment maintenance, for their part, received average salaries of $64,609 and $63,481, respectively.

The average hourly salary for all employees in the rail industry in 2008 was $32.40, which was an increase of $0.40 compared to what employees received in 2007. The highest average hourly salary within the industry was held by the general services group at $39.90, itself an increase of 0.8% from the $39.60 the group received in 2007.

Commodity origin and destination

Statistics on the origin and destination of commodities are based on CN and CP data and data on the traffic of regional and short-haul carriers. For further details, see the section entitled Data Quality, Concepts and Methodology—Data quality, concepts and methodology — Survey methodology, coverage and data limitations at the end of this publication.

The terms “origin” and “destination” used in this publication refer to origins and destinations of railway transport and not necessarily to the true origin or final destination of commodities. Some commodities may enter or leave Canada by marine, surface or air transport and be transferred to or from rail. The transfer points are the origins or destinations referred to in this publication.

In 2008, the total tonnage of commodities transported to, from and within Canada totalled 270.5 million metric tonnes (see text table 12). This was a decrease of 3.8% compared to the 281.2 million metric tonnes in 2007. For 2008, the top ten commodities carried accounted for 58.4% of all commodities transported in Canada.

The top three commodities with the largest volumes transported in 2008 were: coal, the main commodity moved in Canada at 34.5 million metric, followed by mixed loads or unidentified freight at 25.9 million metric tonnes, and iron ores and concentrates at 19.9 million metric tonnes.

Out of the top ten commodities transported only four saw increases in tonnage compared to 2007. Colza seeds (canola) had the highest growth, increasing 16.8% in 2008. Iron ores and concentrates, coal and other cereal grains also grew, rising 8.9%, 3.4% and 2.6%, respectively. Without these four commodities, the total tonnage transported by rail in Canada would have fallen 6.8% in 2008 compared to the previous year.

Of the remaining six commodities in the top ten, lumber and wheat experienced the largest drops, declining 24.6% and 14.5%, respectively. While the decrease in wheat is mainly due to depleted stockpiles, the drop in lumber and forestry products was influenced by a number of events. These include a weakened housing market in the U.S., mill closures and production curtailments in 2008.

Text table 13 shows the top three commodities between origin and its principal destination, total tonnage between these origins and destinations and total traffic for origins. This table also shows the percentage change between 2008 and 2007, the market share of each variable with regard to the total tonnage between an origin and a destination, and the market share of these variables with regard to the origin’s total traffic. The following text contains the highlights of the table.

Atlantic – Quebec

Iron ore and concentrates remained the main commodity transported from the Atlantic region to ports in Quebec in 2008. The commodity accounted for 96.1% or 19.9 million tonnes of all commodities transported between the two regions. Total commodities from the Atlantic region to all destinations stood at 27.7 million tonnes in 2008, up 0.5% from the previous year.

Quebec – United States and Mexico

Traffic from the province of Quebec to the United States and Mexico accounted for 42.9% of all traffic originating from Quebec. In 2008, the three main commodities transported from Quebec to the United States and Mexico were aluminum – primary or semi-finished, mixed loads or unidentified freight, and paper and paper board, except printed products. Of these commodities, only aluminum – primary or semi-finished showed an increase in transport, rising 5.8% in 2008. Paper and paper board, except printed products, and mixed loads or unidentified freight both showed decreases, falling 13.0% and 4.6%, respectively, over 2007 levels.

Ontario – United States and Mexico

In 2008, traffic from Ontario to the United States and Mexico stood at 13.3 million tonnes, down 12.9% from 2007. The United States and Mexico accounted for 39.9% of all of Ontario’s markets. The main commodity transported from Ontario to the two countries was iron and steel – primary or semi-finished, which rose 8.1% to 1.4 million tonnes.

Manitoba – United States and Mexico

For 2008, the main commodity transported from Manitoba to the United States and Mexico was wheat at 621.9 thousand tonnes, a drop of 18.6% over 2007. This commodity represented 15.3% of the total tonnage of all commodities originating in Manitoba and transported to the United States and Mexico.

Saskatchewan – United States and Mexico

United States and Mexico was the main destination for commodities originating in Saskatchewan in 2008. For the year, United States and Mexico accounted for 38.9% of Saskatchewan’s traffic. The main commodities transported between Saskatchewan and the United States and Mexico were potash with 8.8 million tonnes, other cereal grains with 1.5 million tonnes and wheat with 854.3 thousand tonnes.

Alberta – British Columbia

In 2008, the main commodity transported from Alberta to British Columbia remained the same as the previous year with coal leading at 5.8 million tonnes. Wheat and sulphur followed at 4.5 million tonnes and 3.5 million tonnes, respectively.

British Columbia – British Columbia

Coal remained by far the leading commodity transported within British Columbia in 2008 with 23.0 million tonnes – a decrease of 0.5% over 2007. Coal also accounted for 72.2% of the total tonnage shipped within British Columbia. Wood pulp and wood chips, the next main commodities transported, were far behind with 2.3 million tonnes and 2.0 million tonnes, respectively.

United States and Mexico – Ontario

The three main commodities that were transported from the United States and Mexico to Ontario in 2008 remained the same as in 2007. Other basic chemicals, plastics and rubber and mixed loads or unidentified freight accounted for 33.4% of the total tonnage transported between Ontario and the two countries. Other basic chemicals were the main commodity with 980.8 thousand tonnes, while plastics and rubber and mixed loads or unidentified freight followed with 858.0 thousand tonnes and 598.9 thousand tonnes, respectively.