Expanded Rail Access
Union Pacific and CN Expand Rail Access, Preserving Competition for Proposed Merger
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Key Points
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Union Pacific CEO Jim Vena said: "From day one, we’ve said our merger with Norfolk Southern will preserve and enhance competitive options and create a stronger railroad industry that delivers better service for customers."
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CN President and CEO Tracy Robinson stated: "We are thrilled to have an agreement with Union Pacific to expand CN’s access to Mexico. 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."
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Robinson added another forward-looking note: "By extending our reach, we are creating new opportunities for growth while continuing to deliver the safe, reliable service our customers expect."
Canadian National Railway and Union Pacific have signed binding agreements to expand CN's reach across the American Midwest — and CN will drop its opposition to Union Pacific's $71.5 billion merger with Norfolk Southern in exchange, according to The Wall Street Journal. The deal reshapes freight competition across a wide swath of North America.
The agreements give CN new rail access rights, terminal ownership stakes, and — for the first time — operations in central Kansas City, according to Nasdaq. The deals take effect only if federal regulators at the Surface Transportation Board approve the Union Pacific–Norfolk Southern merger.
CN Gains Kansas City, St. Louis, and Mexico Routes
Under the deal, CN gets overhead rights — meaning the ability to run trains over another railroad's tracks — between Tuscola, Illinois and East St. Louis, according to Nasdaq. CN also gets customer service rights between St. Louis and Kansas City. That unlocks a major freight corridor CN did not previously control.
CN will also run trains through Union Pacific's Neff Yard in Kansas City. That marks the first time CN will operate in central Kansas City. On top of that, CN gains expanded access to Mexico through its own north-south corridor. CN President and CEO Tracy Robinson called it "a natural extension of our north-south franchise" that "will open new routes for customers."
CN Takes Ownership Stakes in Two Key Terminal Railroads
As part of the agreement, CN will acquire Norfolk Southern's ownership interests in two shared terminal railroads: Kansas City Terminal Railway and the Terminal Railroad Association of St. Louis, according to Nasdaq. Terminal railroads are short switching railroads that connect multiple carriers at major hubs.
Owning a stake in these terminals gives CN direct influence over how freight moves through two of the country's busiest rail gateways. It also strengthens CN's hand in negotiating track access and interchange agreements with other carriers in the region, according to Benzinga.
Union Pacific Also Wins New Access on CN's Network
The agreement runs both ways. Union Pacific gets enhanced access to CN's EJ&E route, a rail loop that circles Chicago and helps trains bypass the city's notorious congestion. UP also gains access to CN's network in the Memphis-to-Eagle Pass corridor, which links the Deep South to the Texas–Mexico border, according to Benzinga.
Union Pacific CEO Jim Vena said the merger with Norfolk Southern will "preserve and enhance competitive options and create a stronger railroad industry that delivers better service for customers." The two companies framed the reciprocal access as a way to keep competition alive even as two major railroads combine.
Deal Designed to Satisfy Federal Regulators on Competition
The Surface Transportation Board, the federal agency that oversees major rail mergers, will have final say over the Union Pacific–Norfolk Southern deal. Competitive access agreements like this one are often used to show regulators that a merger won't hurt shippers by eliminating their choice of carrier, according to Head Top Topics.
CN agreed not to oppose the merger as part of the settlement. Robinson said the expanded access creates "new opportunities for growth while continuing to deliver the safe, reliable service our customers expect." Analysts will now watch whether other railroads raise their own concerns before the STB review concludes.
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