Canada Freight Transport Report Q1 2013

We have downgraded our Canadian real GDP growth forecast for 2013 to 2.1% from 2.3%. While mostof our individual forecasts of GDP by expenditure category remain the same, we have downgraded ourreal export growth projection to 5.0% from 5.7%, which accounts almost entirely for the decline in ouroverall GDP projection. For the moment BMI maintains its broadly optimistic outlook for Canadian portsector, but with exports expected to fall, total throughput will need to be driven by steady imports. Ouroutlook for air freight and inland waterway volumes remains subdued.

Headline Industry Data

Port of Vancouver tonnage throughput is forecast to grow 3.5% in 2013. Over the medium term,to 2017, we project a 2.5% increase in tonnage volumes.

Air freight tonnes-km to grow 0.8% in 2013, with average growth of 0.7% during our forecastperiod.

Rail tonnes to grow 4.6% in 2013, with average growth of 4.7% during our forecast period.

Road freight tonnes to grow 6.3% in 2013, with average growth of 5.7% during our forecastperiod.

Key Industry Trends

Container Port Unlikely To Attract Investment

BMI believes that the Municipality of Cape Breton (located on the south-east coast of Canada) willstruggle to find a port operator willing to undertake the development of a proposed container facilitygiven the poor outlook for other container ports in the region, which apart from the east coast bellwether,Montreal, are forecast to perform poorly over the medium term (2012-2016). Furthermore, we believethat the port's exposure to Europe will also lead to lack of interest.

Canadian National Bought 2,200 Freight Cars, 1,300 Containers In 2012

The Canadian National Railway (CN) says it is buying 2,200 new freight cars in 2012, as well as 1,300new containers, to support traffic growth and improve customer service, according to the ShippingGazette.

Air Canada To Hire 900 In 12 Months As It Seeks To Expand

Air Canada is to hire more than 900 people over the next 12 months as it expands operations. The airlinewas plagued with labour disputes in 2012 with unionised pilots and ground workers staging wildcatstrikes to protest management's stance over labour issues and the Canadian government's interference toprevent work stoppages. The labour troubles ended in the summer when a federal arbitrator chose AirCanada's labour package over that of the pilots' union - the last of five labour groups with which it neededto reach new contracts.

Risks To Outlook

On the downside, any significant slowdown in the US recovery would be highly negative for Canadianbusiness confidence, commodity prices and exports, and therefore for the transport sector.

Similarly, although exports to Asia Pacific countries have been increaseing, a significant slowdown inChinese demand would be a negative development for Canadian exports of coal and grains and thereforepresents potential downside risk to our forecasts.