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Rail boss says worst ever gridlock looms
From the Financial Times of Tue, 21 Oct 2014 20:37:49 GMT
A Canadian Pacific Railway Ltd. train transporting oil leaves Hardisty, Alberta, Canada©Bloomberg

North America’s rail industry cannot continue on its current path and avoid unprecedented gridlock, Hunter Harrison, Canadian Pacific chief executive, warned on Tuesday, after abandoning talks over a potential merger with CSX.

Mr Harrison, one of the industry’s most respected figures, had argued that a merger between CP, the number two rail company in Canada, and CSX, the US east coast’s main rail company, would reduce congestion that is slowing service all over the US and Canada.

However, the company’s proposals have provoked widespread scepticism, with many in the industry arguing that a merger was unlikely to receive regulatory approval and that a deal might initially make congestion problems worse. There have been no significant mergers in US rail since 1999, when CSX and Norfolk Southern, its rival on the US east coast, took over Conrail, the formerly government-owned rail company, and split it up between them.

Congestion started with the rapid growth of grain and oil traffic in plains states such as North Dakota and has gradually spread to the whole of the US and Canada, partly because of the backlog’s effects on a few bottlenecks. Some of the worst problems are in Chicago, where all seven big North American railroads – known as the Class Is – meet and exchange trains.

CP announced on Monday that it was abandoning its talks with CSX.

Mr Harrison made his comments on the same day CP announced third-quarter net income up 23 per cent to C$400m because of the rapid growth in grain and oil traffic that is contributing to congestion.

“We’re quickly approaching a time where none of this works,” Mr Harrison said of the combination of rapid traffic growth and slowly tightening regulation that the industry faces.

“We cannot continue to go down the road that we’re going down and be successful and not have gridlock beyond anything we’ve experienced before,” Mr Harrison told analysts and reporters on a conference call. “So I think that’s something we should all take under advisement.”

Mr Harrison said that a merged CP-CSX would have moved much of its cross-border traffic away from Chicago and instead moved through Buffalo or Albany in upper New York State.

He also revealed that there had not been “a great deal of difference” between CSX and Norfolk Southern as potential merger targets.

“There were some issues that pushed one a little bit ahead,” he said.

Norfolk Southern reports its third-quarter results on Wednesday.

CP’s shares were up 1.9 per cent in New York at $200.18. CSX’s shares were up 2 per cent at $34.19 and Norfolk Southern’s up 2.4 per cent at $109.64.

Mr Harrison said that, if other companies in the industry thought they had other means of addressing current service backlogs without new mergers, he was happy to hear them.

The company hauled 6.79bn revenue ton-miles (RTMs) of Canadian-grown grain for the quarter, up 27 per cent on the same period last year, and 3.01bn RTMs of US-grown grain, up 20 per cent. Crude oil shipments also increased 60 per cent to 4.63bn RTMs.

Canada’s government in March said it would fine both CP and Canadian National, its bigger rival, if they failed to meet set targets for the amount of grain they handled weekly. CP said on Tuesday it was meeting the targets.

The US’s Surface Transportation Board has held hearings on the performance of CP and BNSF in moving last year’s record grain harvest amid a surge in traffic in the great plains.

CSX declined to comment on Mr Harrison’s remarks.

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