Raymond James: Canadian rail traffic shows mixed results with CN down, CPKC up

Canadian rail traffic showed mixed trends last week: CN traffic fell 2.3% year over year, while CPKC traffic rose 3.8% year over year, led by gains in grain, energy chemicals and products, automotive, and intermodal. Quarter-to-date, CN traffic is still up 2.6% and CPKC is up 1.8%, with both carriers benefiting from strength in select segments but also facing offsets from weaker coal and intermodal/forestry volumes. Raymond James said both railroads should see favorable year-over-year comparisons in the coming weeks.

Analysis

The key signal is not the headline-level divergence, but the mix effect: CP is taking share where pricing power and network density matter most, while CNI’s softness is concentrated in more cyclical or rate-sensitive lanes. In the near term, that favors CP’s relative earnings durability because it is showing momentum in higher-quality freight categories that typically hold up better into a slowing industrial tape. The market usually underestimates how quickly weekly carload trends translate into operating ratio narrative shifts, especially when one carrier is compounding positive mix and the other is leaning on easier comps.

Second-order, this is mildly bullish for Canadian grain, potash, and energy-linked supply chains, but the bigger implication is competitive positioning: CP’s cross-border and intermodal franchise can look incrementally better if shippers continue prioritizing service reliability over pure price. For CNI, the risk is not one weak print; it is that a few more weeks of underperformance while peers improve can re-anchor sell-side models toward lower volume growth and less operating leverage. That said, rail is a lagging industry, so the next 2-6 weeks of data matter more than the last one, and both names could snap back if commodity flows normalize and intermodal comparisons ease.

The contrarian view is that this may be less about a structural winner/loser and more about timing around freight seasonality and comp noise. If that is right, the spread may mean-revert before quarter-end, making any outright directional bet lower quality than a pair trade. The setup is most attractive if CP keeps outperforming in potash/grain while CNI fails to recover in intermodal and coal, because then the relative multiple gap can widen faster than absolute EPS revisions.

The main catalyst path is weekly volume data over the next month, not macro headlines. A sustained confirmation regime for CP and a stabilization regime for CNI would keep the current relative trade alive; one or two sharp reversals would likely unwind it quickly, since rail investors are already positioned for a recovery in the commodity-sensitive lanes.

Key Decisions for Investors

• Long CP / short CNI as a 4-8 week relative-value trade; target continued volume dispersion and multiple re-rating if CP sustains mid-single-digit growth while CNI stays negative. Stop if CNI re-accelerates or CP loses momentum for two consecutive weeks.
• Add to CP on any 2-3% pullback ahead of the next weekly traffic prints; risk/reward favors buying strength because the market is likely to reward confirmed share gain more than isolated volume beats.
• Hold off on initiating a fresh outright short in CNI; use it only as the short leg in a pair until there is evidence the weaker lanes are stabilizing. Outright downside is capped if easier comps drive a near-term bounce.
• For longer-dated exposure, prefer CP over CNI in any rail basket tilt over the next quarter; CP has better asymmetry if commodity-linked freight remains resilient and intermodal share gains persist.