A CN locomotive sits idle at the CN Stuart Yard west of the West Harbour GO station in Hamilton, Ont., on Aug. 22, 2024. The Canadian Press/Peter Power
Canadian National Railway Co. and Union Pacific Corp. are striking a deal that would end CN’s opposition to that rival’s proposal for a massive merger south of the border.
Announced Wednesday evening, the agreement would hand CN more network access in the U.S. Midwest in exchange for its tacit support of Union Pacific’s proposed US$85-billion acquisition of Norfolk Southern Corp.
Union Pacific, the second-largest railway operator in the United States, announced last July it wants to buy the fourth-largest—Norfolk Southern—in a deal that would create that country’s first transcontinental railway and potentially trigger a final wave of rail mergers across North America.
Competitors and customers worry the merger would cost customers and place unprecedented market power in the hands of a single railway, which would handle some 40 percent of American freight traffic.
Union Pacific and Norfolk Southern argue that getting hitched would slash costs and prompt rivals to lower their rates to compete.
“I said from Day 1 that our merger will create a stronger railroad industry that delivers better service for customers. Our agreement with CN—Canadian National—reinforces those commitments,” said UP chief executive Jim Vena, who worked at CN for decades before joining its bigger rival, during a conference call with analysts Thursday morning.
The U.S. Surface Transportation Board, the industry regulator, rejected an amended merger application in May, saying it left out key information and calling for more details in an updated submission.
The deal this week between CN and Union Pacific hinges on approval from the regulator and approval of the acquisition.
Under their memorandum of understanding, CN would secure the right to run its trains on a 200-plus-kilometre stretch of Union Pacific track in Illinois between Tuscola and East St. Louis, and to serve its customers between St. Louis and Kansas City in Missouri.
In a second deal with Union Pacific that is not contingent on the merger, CN will also gain more direct access to Mexico. The memorandum of understanding grants the Montreal-based railway the right to run trains over UP tracks between Memphis and Eagle Pass, Texas, which sits along the Rio Grande.
“This is a natural extension of our north-south franchise and will open new routes for customers, provide greater choice and strengthen connections between Canada and Mexico,” said CN chief executive Tracy Robinson in a news release.
As part of the quid pro quo, Union Pacific would enjoy expanded operating rights over CN’s Elgin, Joliet & Eastern Railway that rims the Chicago area.
