Under the banner of Canadian Pacific Kansas City, the merger of two of North America’s smallest Class 1 railroads became official Friday morning. CEO Keith Creel took home his spikes platinum at a ceremony in Kansas City, Missouri.
The merger of Canadian Pacific Railway and Kansas City Southern Railway makes it the only rail line from Canada to the U.S. and Mexico, and the continent’s first major railway in more than 20 years since U.S. regulators approved $31 billion. It will be a railway merger. US trading last month.
It also opens the door to higher cargo volumes and faster shipping, despite some network issues.
“Instead of being tied to an interchange or being locked out of the market because we don’t have a strong network, we can control the fate of our customers,” Creel said in a telephone interview from Kansas City.
He pointed to grain, timber and shipping containers as key areas of growth, including stronger competitiveness against trucking rivals.
“We can operate 24/7 across the border, as opposed to the very busy trucks to and from Mexico,” said Creel.
“But we need to build this network methodically and stay ahead of the curve and not jeopardize our ability to serve the customers we have a duty to serve today.”
The 142-year-old Canadian Pacific network, stretching from Vancouver to St. John, New Jersey, will connect to KCS at a meeting point in Kansas City. The annexed Canadian Pacific Kansas City Line meanders through New Orleans and Houston to Mexico City, reaching ports on the Gulf of Mexico and the Pacific Ocean.
However, some hurdles remain, including labor shortages, low cargo levels and logistical issues.
Back-up on the KCS line north of Mexico City has had regular problems over the past year, Creel acknowledged, citing labor and railcar capacity.
“They were overcrowded and had some challenges with the workforce, hiring enough people and keeping enough people. Probably yes. I think the whole industry is facing that.” Creel said.
However, he argued that staffing was not a significant issue, and that some lines will have high-paying collective bargaining agreements in place by June as an incentive to workers.
“If that was yesterday’s chokepoint, we propose to create massive production capacity,” he said.
In the short term, rail traffic is declining amid a volatile economic outlook this year. According to the National Bank of Canada, Canada’s container traffic fell nearly 12% in March from a year earlier.
In an investor note, National Bank analyst Cameron Doaksen said, “Intermodal volumes have been particularly affected by international intermodal volumes as North American retail inventory levels remain high, leading to a decline in international container imports. We believe that this is a segment with a risk of
CPKC and its arch-rival Canadian National Railways are pointing to a “continued weakness” in container shipments abroad, Doerksen said.
Long term, the outlook looks bright.
“We believe CPKC will have the most attractive growth of any class 1 railroad in the coming years,” he said.
Canadian Pacific Kansas City on Friday built a new shipyard for its U.S. operations center in Kansas City, Missouri, but remains headquartered in Calgary. CPKC will operate approximately 33,000 kilometers of railway and employ approximately 20,000 people.
Despite its extensive network, the railroad does not own the tracks that run between Chicago and Detroit, nor does it rely on other railroad operators to move freight across the borders of Windsor, Ontario and Buffalo, New York. It depends on the route. His 113-year-old tunnel under the Detroit River cannot accommodate railcars laden with large shipping containers.
“I wouldn’t call it an obstacle or a nuisance. I would call it an opportunity,” Creel says. CP Rail purchased the Detroit River Railroad Tunnel from pension fund manager OMERS in December 2020 for his $312 million.
“Five to 10 years from now, if the network has grown adequately, will it be possible and certainly justifiable to build a double chimney tunnel in Windsor? The answer is yes,” said Creel. said Mr.
But with tracks that stretch from Vancouver and Halifax to New Orleans, CN Rail still offers an attractive alternative to competitors, said rail consultant Greg Gormick.
“The KCS is a pretty rough railroad. It’s a razor rail that goes up over the Ozarks. If you want to go to the Gulf of Mexico, the KCS is not the way to go,” he said. CN’s “Water Level” route that follows the Mississippi Valley.
A green light from the U.S. Ground Transportation Commission last month cleared the final hurdle for CP Rail’s bid to purchase KCS.
STB chairman Martin Oberman said in March that the combined company would reduce freight transit times and promote tougher competition with the continent’s five other railways.
CN Rail had been in a long battle over the acquisition until CP closed the deal in December 2021. This placed KCS shares in a Voting Trust. U.S. regulators announced CN’s bid in August of that year after he pulled KCS out of his CP proposal first in his $33.6 billion U.S. proposal in May 2021. refused.
CPKC’s shares in the railroad will continue to be listed on the Toronto and New York Stock Exchanges under the ticker symbol CP and will begin trading under the new name on Tuesday, the company said.
According to U.S. regulators, the terms of the agreement include keeping connection points between the CPKC system and other railroads open on “commercially reasonable terms” and a constant rate of interline travel. This includes formally justifying increases in fees above the level.
The agreement also provided for four KCS board members to continue as directors of the combined company. Antonio Garza, a Mexico City-based attorney and former U.S. Ambassador to Mexico. Henry Maier, former CEO of FedEx Ground, a subsidiary of FedEx Corp.; Janet Kennedy was former Vice President of North America for Google Cloud and former President of Microsoft Canada.
The four appointed will be elected to the board of directors at CPKC’s annual shareholder meeting on June 15, the company said.
