Since 1999, the North American Railway industry’s seven Class I railroads have steadily refrained from major mergers due to competition concerns from regulators. Now, for the first time in the 21st century, that stability is set to be interrupted as Canada’s CN Rail looks to take over Kansas City Southern Railway (KCS).
However, Calgary-based Canadian Pacific Rail (CP) was slated as the initial buyer for KCS, with the two operators having agreed to a roughly US$25 billion deal. Nonetheless, when Canada’s largest railway operator, CN Rail, put forth a bid of almost US$30 billion, it became clear that CP would fall short. While the completion of any deal still depends on the industry regulator’s approval, the CN deal will likely go through so long as the company agrees to sell some overlapping assets running from Chicago to New Orleans, presumably to be bought by CP.
With a CN – KCS merger on the horizon, CP would be left as the clear outlier on the bottom end of the remaining Class I railroads, restricting it growth potential and opening the possibility for CP itself to be absorbed by a larger American operator. Although this scenario would leave CN Rail as the lone Class I Canadian company, it would see CN be the first to extend its operations across Canada, throughout the United States, and deep into Mexico, making it truly the first USMCA railway.
Having a Canadian company at the forefront of cross-continent rail transport in North America will prove to be a crucial advantage in reposition Canada once again as a major player in global trade. While the Canada-US relationship will always be one of the most reliable on the global stage, Mexico’s evolution into a major continental economy saw Canada relegated from being the United States’ number one trading partner. Although a Canadian-owned railway spanning the three nations may not renew this coveted position, it will certainly revitalize Canada’s transport and shipping prowess in the rail industry.
Historically, Canadian companies across various industries have been able to rise to great heights of productivity, but it has been very rare for a Canadian company to be the clear leader of a given industry in North America, let alone the world. Make no mistake, Canada has the resources to be able to support and accommodate the development of industry leaders, but time and time again, governments or regulatory bodies stop Canadian companies in their tracks when they try to compete with other global giants.
In an industry that generates over a million jobs, tens of billions of dollars in tax revenue, and hundreds of billions of dollars in economic activity in the United States alone, the Canadian domination of the rail industry is a big step toward revitalizing and reshaping Canada’s place and responsibility in the global economy. Furthered by the importance of trade in securing important supply chain stability across all three countries, CN Rail’s repositioning as the only USMCA railway makes it a critical piece of infrastructure in continental economic security, even for the United States and Mexico individually.
Whether it is CN or CP that acquires KCS, the leadership of either Canadian company in the North American railroad industry is unparalleled as they seek to establish the first truly continental railway in North America. The completion of merger, regardless of which Canadian operator wins out, will be a historic victory for not only the company itself, but for Canada at large in the arena of global trade and transport.