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Feb. 17, 2014

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SURFACE & DOMESTIC TRANSPORTATION 54 THE JOURNAL OF COMMERCE www.joc.com FEBRUARY 17.2014 CANADIAN NATIONAL RAILWAY'S $220 mil- lion investment in Calgary Logistics Park is a case study in how intermodal is paying off for Canada's largest railroad. The busy gates and positioning near a growing metropolitan area helped drive up CN's intermodal volume 8 percent year-over- year in the fourth quarter and full year of 2013. Construction of a facility adjacent to the terminal for an unidentified tenant has begun, suggesting the railroad's attempt to attract shippers to the year-old logistics park, which has a potential for more than 2 million square feet of warehouse space, is taking hold. A growing population driven in part by the energy boom is driving demand for distribu- tion in the greater Calgary region. Approximately 65 trucks move in and out of the site daily, with CN targeting a 45-minute turn time, said Chris Kyte, CN's senior man- ager of Intermodal Western Canada. The CN terminal, located in Conrich, Alberta, handled about 226,000 units last year, compared with 185,000 units handled by Canadian Pacific Railway's Calgary terminal. Intermodal volume gains at CN boosted fourth quarter intermodal revenue by 11 percent to $497 million and lifted full-year 2013 intermodal revenue by 8.7 percent to $1.9 billion. The growth helped to pro- pel the railroad's fourth quarter profit to $568 million, up 4 percent year-over-year. The railroad's full-year profit, however, slipped 2.5 percent to $2.3 billion, despite revenue expanding 7 percent to $9.4 billion. Despite a severe winter, the railroad kept its title as the most profitable North American railroad with an operating ratio — operating expenses as a percentage of rev- enue — of 63.4 percent. Profitability took a slight hit, as the ratio rose 0.5 percentage points from the same period in 2012. "CN sees good opportunities in 2014 in a number of markets, including intermodal, oil- and gas-related commodities, Canadian and U.S. grain, and commodities related to the recovery in the U.S. housing market," Presi- dent and CEO Claude Mongeau told investors. CP's intermodal strategy is taking shape on a number of fronts, ranging from termi- nal expansions and faster services, such as on the Toronto-Alberta leg. The railroad also has worked with agricultural shippers to harness the potential for match-backs, where containers used for imports are transferred to exporters for outbound use. Through its partnership with Indiana Rail Road, CN connects Midwestern exporters with Port Metro Vancouver and the Port of Prince Rupert, British Columbia. The improved intermodal network was a factor in helping CN grab contracts with container lines APL and MOL last year from archrival CP. CN also gained a contract with OOCL from CP, suggesting that CN will see another volume bump this year. But CP is far from rolling over in the fight for intermodal. CP CEO and Director E. Hunter Harrison has targeted domestic intermodal as one of the two biggest drivers for the railroad this year, and he told inves- tors the company already has gained market share. JOC Contact Mark Szakonyi at mszakonyi@joc.com and follow him at twitter.com/szakonyi_joc. CN'S BIG PAYDAY A $220 million investment in Calgary Logistics Park boosts Canadian National's intermodal volume and revenue By Mark Szakonyi By Mark Szakonyi CP'S HOME RUN Canadian Pacific Railway pins growth hopes on domestic intermodal and merchandise business CANADIAN PACIFIC R AILWAY expects its efforts to increase domestic intermodal and merchandise business to gain traction this year and expand further in 2015 and 2016. "In my previous experiences, you've got to go out there and prove yourself in the mar- ketplace for 1 ½ years or two years before you start to really gain momentum with some of those changes," CEO and Director E. Hunter Harrison told investors in January, according to an edited Seeking Alpha transcript. At first glance, CP's domestic intermo- dal effort doesn't appear to have connected in 2013 — intermodal revenue and volume fell year-over-year. But because the railroad doesn't break out its intermodal business by domestic and international sectors, it's not clear how much of a gain CP has seen in its domestic intermodal business in terms of volume and revenue. That's not to say domestic volume hasn't grown even though international traffic has likely fallen, largely because of the loss of container line contracts with APL, MOL and OOCL to Canadian National Railway. Domestic intermodal business has higher revenue per user and profitability than international intermodal, John G. Larkin, managing director of Stifel Trans- portation & Logistics Research Group, said in a research note. Higher domestic inter- modal traffic helped offset CP's drop in international intermodal volume, he said. Harrison has emphasized the need for CP to shed less profitable business. Chief Market-

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