NEW YORK — Union Pacific, Canadian National, and CPKC executives are expecting a quick rebound in Chinese exports to the U.S. thanks to the temporary tariff reductions announced this week.
U.S. importers had largely paused their orders from China after the Trump administration raised tariffs on Chinese goods to 145% last month. This created a so-called “air pocket” in container volume bound for West Coast ports.
Under the deal announced this week, those tariffs are reduced to 30% for 90 days. Speaking at investor conferences over the past two days, the railroad officials said that the temporary reduction in tariffs has prompted U.S. companies to reopen the spigot of imports from China.
UP CEO Jim Vena says the railroad’s international intermodal volume related to Chinese imports should bounce back as containers arrive at West Coast ports. “We should come out of this in the next few weeks,” Vena says, assuming that consumer spending remains robust.
UP’s overall intermodal growth has been slowing as international and domestic container volume related to China has begun to fall.
“But we are starting to see that tail down as we’re approaching that air pocket that people are talking about,” Chief Financial Officer Jennifer Hamann says. “Obviously we got some good news on Monday in terms of a change in the tariff policy. So we’ll see how quickly that supply chain can reverse itself and see some of that come back.”
Last week, UP’s intermodal volume was up 3% over last year, compared to 8% growth in the second quarter to date and 14% growth so far this year.
UP is running well and will be prepared for a container surge, Hamann says.
About 30% of the railroad’s overall volume is tied to trade with Asia, a figure that includes China.
“The thing that I think is important to point out … is 30% volume does not equate to 30% revenue,” she says, citing the lower revenue per unit for international containers. “There’s a very different revenue profile for international intermodal than the rest of our portfolio. In fact … it’s 40 to 45% below our system average.”
CN CEO Tracy Robinson says the railway is talking to its customers about how quickly volume will recover for the container traffic that CN brings to the U.S. from Vancouver and Prince Rupert, British Columbia. “It could be a matter of weeks, or it could be a little bit longer, depending on where they are on manufacturing,” she says.
Thus far CN hasn’t seen much impact yet from the U.S.-China trade war, aside from the looming volume gap from cancelled, or “blanked,” sailings from China. Just 2% of CN’s overall volume is tied to U.S.-China trade.
Prince Rupert is the primary port for the U.S.-bound containers that CN handles. This year Prince Rupert container volume is evenly split between freight bound for Toronto and the U.S. “We want to get to 60/40, 70/30 because of the strength of the service offering at Rupert,” Robinson says.
Container volume at Rupert is up this year as the port wins back business lost to Seattle/Tacoma during labor disruptions last year. Also contributing to growth: Ships in the Maersk/Hapag-Lloyd Gemini Alliance began calling at Rupert this year.
CN is betting that trade disputes will get ironed out and that the remote British Columbia port will continue to grow.
“What we are building in Rupert is something that’s got a fundamental structural benefit to the shipping lines and to our customers,” Robinson says. “And if you think about that, it’s two days closer sailing to Asia. We can get a container from Asia to Chicago faster than if you go through any other port. It’s Canadian dollars for port fees. And we’ve set up … express service to Chicago.”
CPKC, which handles U.S.-bound containers through the Port of Vancouver, seems unaffected by the trade dispute. “I said on our earnings call I didn’t see an air pocket and I got worried because every one of the other rails said they saw an air pocket. And we still don’t see an air pocket,” Chief Marketing Officer John Brooks says, noting that inbound container volume from China is running in line with the railway’s expectations.
But the pending surge in U.S. imports from China will present Canadian ports with the opportunity to capture additional market share from U.S. West Coast ports over the next 45 days, Brooks says.
