Canadian National Won’t Move Lumber Until Backlog Clears

Canadian National Won’t Move Lumber Until Backlog Clears

 Note  – the embargo refers to shipments to the west coast

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Canadian National Won’t Move Lumber Until Backlog Clears
Railway’s Notice Comes as Port Strike Worsens Delays Caused by Railcar Shortage
Canadian National Railway Co. told British Columbia wood and pulp producers it will stop moving products to Pacific Coast loading facilities until a backlog is cleared.
By David George-Cosh , Ben Dummett

Canadian lumber exports are taking a hit as a strike at Canada’s largest port worsens delays caused by a shortage of railcars in recent months.

On Sunday, Canadian National Railway Co. issued a rare embargo notice to British Columbia wood and pulp producers to say it will stop moving lumber and pulp product from mills to Pacific Coast loading facilities until a backlog is cleared.

The lumber has been stuck in warehouses along British Columbia’s coast after hundreds of truck drivers that drive containers filled with forestry products to Port Metro Vancouver walked off the job Monday.

Forestry producers were already seeing a slowdown in shipping. The railcars that ship pulp and wood to coastal warehouses are in short supply in western Canada after a bumper crop of grains, a cold weather snap and higher shipments of commodities such as crude combined to squeeze capacity at CN and Canadian Pacific Railway Ltd. Grain shipments to the U.S. have been throttled by the capacity squeeze, leading Ottawa to impose new rules last week to force the railways to ship more grain, a move CN called “counter-productive.”

Now, the bottleneck at loading facilities brought on by a strike at the Port Metro Vancouver means that softwood lumber and other forestry products won’t make it to market in the U.S. and Asia on schedule and companies who can’t fulfill contracts to customers will forego revenue.

CN said that the work stoppage at the port left the operator with “no choice” but to stop accepting forestry shipments, and said it regretted the action. The company said it would work with warehouses to identify those that have capacity and can accept shipments, and that cars will deliver to those locations.

Canada exported 10.1 billion Canadian dollars ($9.1 billion) of forestry products in 2013, nearly half of which goes to the U.S. through rail. The port said the work stoppage could affect the movement of about C$885 million of cargo each week.

“This is grinding us down to a trickle of exports coming out of the province,” said James Gorman, president and CEO of the Council of Forest Industries in Vancouver. “We’re sort of strangled here.

The transit slowdown is a blow to producers who finally saw exports recover to prerecession levels last year. “We’re doing more business through the port than ever before and with that shut off now, it’s creating significant backlogs,” said Mark Thomson, general manager of transportation at West Fraser Timber Co. Ltd., the largest lumber producer in North America.

The delays are leading lumber companies to seek other methods of shipping their product out of the province, such as through break-bulk cargo, or cargo that is loaded individually, which can be more costly than moving containers. Some are looking at exporting their product through U.S. ports such as Seattle and Tacoma.

“We are a little less impacted than the rest (of the industry) because we have our own ship, but it doesn’t bail us out completely,” said John Horning, chief financial officer at International Forest Products Ltd., a lumber company based in Vancouver.

The backlog has some producers worried that if the strike continues for a few more weeks, mills will have to be temporarily shutdown, Mr. Gorman added. The last truck driver strike affecting British Columbia ports lasted 47 days in 2005.

Rail shipments of forestry products are notably down so far this year.

CN has seen a 9.3% decline in forestry goods since the beginning of the year, while its smaller rival Canadian Pacific Railway Ltd. has seen shipments fall by 17%, according to Cherilyn Radbourne, a rail analyst with TD Securities.

The port strike has yet to affect the price of lumber. CME May lumber contracts were opened Wednesday at $360.50 per 1,000 board feet, slightly lower from $371.20 from the start of the year. That is a reflection of soft demand from U.S. home builders who haven’t been able to start breaking ground on new homes thanks to cooler-than-normal temperatures.

Write to David George-Cosh at david.george-cosh@wsj.com and Ben Dummett at ben.dummett@wsj.com

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