Friday, March 02, 2007

CN Stealth Problems

Canadian National Railway (NYSE:CNI) has had an interesting existence in recent past. 06 year end results show a small decline in pre-tax operating income. They have recently settled a strike with a major union. Q1 07 results will reflect the ugly reality of work stoppages that almost needed government back to work legislation.

On March 1 32 cars of a 105-car eastbound intermodal train went off the tracks at Pickering Junction, on the railroad's line between Toronto and Montreal. There were no reports of injuries. Two of the 50 containers on the derailed cars were carrying dangerous materials, including batteries, but there were no reports of leaks, CN spokesman Mark Hallman said.

The incident is under investigation but the derailment occurred as Canadian National was trying to clear a backlog of freight caused by a two-week strike by freight train conductors and switch crews.

CN has had several derailment problems in the past and has been criticized for inadequate maintenance. Q1 numbers already strike ugly will be further negatively influenced by the derailment.

Here is the kicker. Everyone thinks the strike is settled. The union 2800 member strong UTU (United Transportation Union) is being challenged by the Teamsters. More than 65% of the membership has paid $5 for a Teamster Card. This allows the Teamsters to make application to change over the union. The membership is very disgruntled. After a two-week strike when your union settles with a legislative gun to its head the labor force has elected to change unions. The expectations and implicit labor agenda will create a lot of rock and roll for CN’s income statement.

On another note keep a watch on the Teamsters. They seem to be on the march and are signing up support. They continue to beaver away at Fedex (NYSE:FDX) in both the US and Canada.