NORTH American Class 1 railways Canadian National (CN) and Union Pacific (UP) signed two binding Memoranda of Understanding (MoU) on July 22. One establishes a framework for CN to secure competitive access in connection with UP’s proposed acquisition of Norfolk Southern (NS), which CN “will not oppose.” The CN-UP deal will be contingent on the Surface Transportation Board’s (STB) approval and closing of the UP-NS merger.
The other agreement provides UP with expanded operating rights over CN’s Elgin, Joliet & Eastern (EJ&E) corridor through Chicago, and CN with new rights over UP’s Memphis, Tennessee - Eagle Pass, Texas network. This deal is not linked to closure of the UP-NS merger.
“We are thrilled to have an agreement with UP to expand CN’s access to Mexico,” CN president and CEO, Tracy Robinson says.
“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. By extending our reach, we are creating new opportunities for growth.”
The framework deal between CN and UP, that is dependent on closure of the UP-NS merger, allows CN to gain access to shipper facilities where Class 1 railway options would be reduced from two to one or three to two, “where commercially and operationally feasible.”
CN will acquire NS’ ownership interests in the Kansas City Terminal Railway Company (KCT) and the Terminal Railroad Association of St Louis (TRRA). Furthermore, CN will gain new access to the Midwest through overhead rights between Tuscola and East St Louis in Illinois, as well as rights to serve customers between St Louis and Kansas City in Missouri, and use of UP’s Neff Yard in Kansas.
Industry reaction
Competing US Class 1 railway BNSF, a vocal critic of the proposed UP-NS merger issued a statement on July 23 in response to the CN-UP agreements, stating that they “undermine one of the core arguments for the merger.”
“For a year, UP has claimed that partnerships cannot deliver the benefits it says this transaction would create,” BNSF says. “Yet the CN agreement closely resembles partnerships that BNSF and other Class 1 railways have successfully operated for decades. The benefits UP highlights can be pursued today without a merger, and significant portions of the arrangement are not even contingent on merger approval.”
