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April 27, 2018 3:00 PM, EDT

Canada’s Rail Crunch Adds to Soaring Cost of Lumber

Kurt Bauschardt/Flickr

Just when it seemed lumber prices couldn’t surge any higher, problems for Canada’s railways mean the rally could continue.

A shortage of rail capacity cost Vancouver, British Columbia-based lumber producer Canfor Corp. C$20 million ($15.6 million) in the first quarter and led to a pileup of inventories left sitting at the company’s sawmills and pulp mills, CEO Don Kayne said April 26.

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The rail crunch is adding to the cost of lumber at a time when futures in Chicago already are trading at record highs. Prices have soared amid rising demand from the U.S. housing market and pressure from President Donald Trump’s tariffs on Canadian shipments.

“All the duties and now transportation, there’s no question that both had and are having an impact,” Kayne said April 26 during his company’s first quarter earnings call. “Particularly transportation since October is having an impact.”

Harsh winter conditions and swelling demand from multiple Canadian industries, including grain and crude, spurred a shortage of railcars. Lumber futures have gained about 25% this year, among the best-performing commodities tracked by Bloomberg.

The rail woes were echoed by other companies. West Fraser Timber Co. said April 26 transportation disruptions resulted in a substantial increase in inventories, and the company is uncertain when the backlog of shipments will be cleared. International Paper Co. had some inventory it was unable to get out of its pulp mill in Grand Prairie, Alberta, in the first quarter as demand improved faster than boxcar capacity, CEO Mark Sutton said in a telephone interview April 26.