Moody's: Crude-by-rail poses higher social than financial risk for CN, CP

A Moody's Investors Service analysis of crude-by-rail (CBR) shipments in Canada finds that shipments in 2021 are expected to remain below the peaks of early 2020.

But "reputational" and social risks associated with accidents far outweigh the financial risk that CBR poses for CN and Canadian Pacific, Moody's officials said in a press release. The Canadian Class Is, which together move more than 95 percent of the country's CBR, continue to take steps to improve safety, they said.

Among the report's highlights:
• The decline in crude production in western Canada has led to declining shipments for the Canadian railways. Despite big annual swings in carloads, the Canadian railroads have "relatively low exposure" to the CBR segment, as customer-supplied rail cars and customer contracts help minimize revenue losses.
• While CBR accounts for less than 2% of Canadian rail carloads, they involve a potential social-impact risk disproportionate to the business that they generate.
• Moody's analysts expect that both CN and CP, as well as the Canadian government, will continue efforts to increase the safety of both rail transport and the transportation of hazardous goods in Canada. The railroads have taken other steps to reduce accidents, including upgrading their networks with annual investments in infrastructure and new safety technologies, while the government has said it will invest CA$25 million over three years to improve rail safety.

CBR shipments declined in Canada this year in line with the drop in the country's crude production, according to the report. CBR exports, mostly to the United States, have fallen accordingly. In the first half of 2020, Canada's crude production declined by 20 percent from its 2019 average of 5.5 million barrels per day.

CN reported a 25% decline in carloads from its petroleum and chemicals segment in second-quarter 2020 compared with the same period in 2019, while CP posted a 28% decline in carloads for its energy, chemicals and plastics segment.

The Moody's CBR report can be read here.