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Weak forest products traffic and a strong Canadian dollar put a double whammy on Canadian National Railway Co.'s income in the third quarter.

Operating income tumbled 9 percent to $785 million and net income fell 2 percent to $496 million — despite a $14 million benefit from favorable tax adjustments — compared with third-quarter 2006 figures.

In addition, quarterly revenue totaled a flat $2.1 billion because of an unfavorable Canadian-to-U.S. dollar exchange rate, lower fuel surcharge revenue and sluggish demand in forest products, CN's largest revenue-producing commodity group. Forest products carloads decreased 11 percent to 147,000 units and revenue declined 13 percent to $401 million year over year.

"The stronger Canadian dollar not only affected forest products but also our other businesses," said CN President and Chief Executive Officer E. Hunter Harrison in a prepared statement. "Clearly, few of us expected that the Canadian dollar would surge beyond parity with the U.S. dollar during the quarter."

Metals/minerals and intermodal revenue also dropped — by 8 percent and 2 percent, respectively — and revenue ton-miles fell 1 percent compared with third-quarter 2006. CN partially offset revenue declines with rate increases, an improving traffic mix and growth in Canadian coal, grain and fertilizers, petroleum and chemicals, and automotive carloads.

Increased labor, fringe benefits, fuel, equipment rents, and casualty and other expenses affected the Class I's bottom line in the quarter. Operating expenses totaled $1.3 billion, a 6 percent increase compared with third-quarter 2006's expenses.

Higher costs and lower income took a toll on CN's operating ratio. The railroad reported a third-quarter ratio of 62, up 3.5 points compared with third-quarter 2006's 58.5 ratio.