Canadian Railroads > CIBC analyst: New grain regs could spell trouble

http://business.financialpost.com/2014/03/31/new-grain-regulation-could-spell-trouble-for-cn-and-cp-down-the-road/

New grain regulation could spell trouble for CN and CP down the road

Jonathan Ratner | March 31, 2014 7:51 AM ET

New grain regulation from the Canadian government may not alter the outlook for Canadian National Railway Co. and Canadian Pacific Railway Ltd., but it could lead to more significant changes down the road, CIBC World Markets warns in a new report.

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New legislation that won’t expire until August 1, 2016, includes a minimum volume requirement for CN and CP of 1 million tonnes per week, as well as an increase in the interswitching limit (when one carrier passes cars to another) by 30 kilometres to 160 km.

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While he sees no indications that the government is considering an overhaul of its industry oversight, the analyst cautioned that changes may come at some point in the future.

“The broader implication from the government stepping in to introduce new rail legislation is that it could open the door for more significant regulation,” Mr. Chiang analyst said in a note to clients.

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“While at this point, it is too early to determine what kind of regulatory risk CN and CP face, it is not hard to see that if CN and CP are forced to abide by new regulations that impact how they choose to run their network or ability to raise freight rates, it would have a significant impact on their long-term operating plans, earnings potential and valuation,” Mr. Chiang said.