Playing second fiddle to America is, lamentably, a long-standing Canadian business tradition. But in some arenas, happily, this country is first violinist. Consider the railway game, for example.
On this stage, it leads – quietly, doggedly and effectively. Canadian Pacific Railway Ltd.’s (CP) US$25 billion acquisition of Kansas City Southern (KCS) is the latest example of Canadian rail sector brass and brawn.
The proposal to buy the cross-border Mexico Class 1 railway specialist follows in the tradition of strategic Canadian rail line investments and bets on cargo movement futures.
CP, under the late and legendary Hunter Harrison, pursued a merger with fellow North American transportation giant Norfolk Southern Corp. The aim was to help CP diversify its business away from commodities reliance and provide it with access to the rich U.S. consumer heartland. Norfolk’s board considered but eventually rejected numerous CP merger offers. But, as the KCS deal illustrates, you can’t keep a good rail line down. And both national rail lines servicing this country are top performers in a geographically large and logistically complex North American market.
As DBRS Morningstar notes in a February commentary, CP and Canadian National Railway Co. (CN) are industry leaders in such areas as fuel efficiency. The global credit rating agency also noted that both Canadian railways have improved their deployment of train weights and lengths throughout the pandemic and consequently have proved to be resilient in the face of widespread shipping and business disruptions in the pandemic economy. They continue to be a more economical option than trucking, which is their major competitor.
Unlike their U.S. counterparts, both Canadian railways have continental coast-to-coast rail lines, which are key contributors to the value proposition Vancouver and other Canadian ports offer global shipping companies. Railways helped build this country, and they are continuing to consolidate Canada’s place atop the list of the world’s most desirable trading partners.
