Both of Canada’s major railways announced third quarter results for the period ended September 30. Once again, both were able to produce revenue growth, but this time revenue growth was accomplished on the back of increased freight rates, rather than increased volumes.

During the quarter, CN’s revenues rose by 3.3 per cent to $3.222 billion, a new quarterly record, compared to the third quarter of 2014. Operating expenses as a percentage of revenues declined from 58.76 per cent to 53.85 per cent, which set a new quarterly record. Cash flow from operations rose to $1.652 billion from $1.328 billion. “Free” cash flow, the amount remaining from operating cash flow after subtracting net investments made during the quarter and dividends paid to investors, declined to $467 million from $706 million. During the first nine months of the year, “free” cash flow declined from $1.453 to $1.033 million. From Jan 1 to Sept 30, CN spent $1.244 billion repurchasing its own shares, and spent $750 million paying dividends. As of September 30, the company’s equity stood at $14.5 billion (as compared to $13.5 billion as at December 31, 2014), while total debt increased to $21.4 billion from $18.3 billion).

CP’s revenues rose to $1.71 billion during the quarter, up 2.3 per cent compared to the third quarter of 2014. Operating expenses declined dramatically from 62.8 per cent during the third quarter of 2014 to 55.94 per cent during the third quarter of 2015. However, CP classified the gain on the sale of some of its rail assets of $68 million as a reduction of its operating expenses. Had the gain been classified as a one-time non-recurring gain, its operating ratio would have been 59.9 per cent in the third quarter, and 62.8 per cent during the period from Jan 1 – Sept 30. While “free” cash flow of $878 million for the first nine months of 2015 rose about 9 per cent compared to the same period of the previous year, it was nowhere near sufficient to fund the repurchase of its own shares ($2.6 billion), repayment of debt that fell due ($1.4 billion), and the payment of dividends ($172 million). Accordingly, CP borrowed $3.4 billion during the Jan 1 – Sept 30 period to satisfy those requirements. The company’s equity declined to $4 billion as at September 30 (from $5.6 billion as at December 31, 2014), while total debt increased to $14.4 billion from $11 billion).

For CN, the bright spots were forest products and automotive, which produced the largest revenue gains during the quarter (up 12 and 13 per cent respectively). Petroleum and chemicals came in with revenues of $609 million, up 3 per cent over the same quarter of 2013. Overall revenue tonne miles (RTM) declined by 6 per cent, while revenue per RTM was up by 10 per cent. Carloads declined by 6 per cent. At $3,973 per carload, revenues per carload from carrying forest products were the highest of any category. CN’s most important revenue generator continues to be Intermodal, with third quarter revenues of $764 million, up 5 per cent from 2014.

For CP, lack of volume growth was more than made up for by higher freight charges in virtually all freight categories, except crude oil, metals and minerals, and domestic intermodal. Not surprisingly, because of further drops in the price of crude oil, volumes of crude shrank by about 20 per cent. As well, volumes of metals, minerals and consumer products dropped by about 18 per cent. On the other hand, volumes of potash shipped increased dramatically (27 per cent), but suffered a 9 per cent decline in freight rates.

During the quarter, both CN and CP continued to make efficiency improvements, as a result of which employee productivity rose another notch for both carriers.

In a June report, the Canadian Association of Petroleum Producers said that crude-by-rail volumes averaged 185,000 barrels per day in 2014, and it forecast that these volumes would grow to 200,000 barrels per day in 2015 and 250,000 barrels per day in 2016. Ultimately, it said, if Keystone XL is not built, volumes could rise to as much as 600,000 barrels per day. With Keystone XL recently vetoed by President Obama, its future is uncertain, this was good news for CN and CP.