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CP: Merger will add needed capacity without unwanted infrastructure

THE Canadian Pacific Railway (CP) has answered critics of its proposal to take over the Norfolk Southern Railway by arguing that a change in the status quo is necessary to support growth of the North American economy.

The key problem, CP says, is a lack of capacity - not so crucial now with a weak economy, but essential later when growth picks up to avoid clogged and disruptive to supply chains.

Traditionally, railways rely on adding infrastructure to increase capacity. But these days the public won't wear it. This is especially true in urban areas where it is most needed.

"CP believes that industry consolidation offers the best opportunity to increase capacity without adding infrastructure, which is why we are pursuing a combination with Norfolk Southern," said its white paper.

"The solution lies in adding capacity without adding infrastructure, increasing the efficiency of the overall network and addressing critical issues, such as congestion in Chicago.

CP believes the merger with Norfolk Southern (NS) will enable far better utilisation of existing infrastructure.

It will introduce alternative options for re-routing traffic around areas of congestion and create new opportunities to generate the most efficient route for rail shipments, the paper said.

It will also allow CP-NS to provide end-to-end service to customers, without hand-offs and interchanges, which improves safety.

Nowhere is the need for additional infrastructure more critical than in Chicago with 25 per cent of all rail traffic moving through the city.

"Although substantial effort has been made to improve infrastructure in Chicago, those efforts have fallen short. A multitude of stakeholders with various competing interests make it difficult, if not near impossible, to achieve consensus and identify a path forward," said the white paper.

"Today, the system is performing well, but this is largely a function of a weakened economy, lower shipments and favourable operating conditions. But we are living on borrowed time.

"Unfortunately, recent government regulations have reduced capacity. For example, regulations have been imposed that restrict train speeds for certain commodities in certain areas. While these regulations are intended to increase safety, reducing train speeds reduce system capacity," said the paper.

CP said consolidation enables far better utilisation of existing infrastructure. "For example, trains interchanged in Chicago today must be broken apart and rebuilt in yards within the city and then delivered to receiving carriers.

"The process involves multiple interchanges between multiple carriers in multiple yards. A merger would allow these activities to be performed elsewhere so that trains moving through Chicago can move smoothly through the city without exiting the mainline.

An expanded network also would introduce alternative options for re-routing traffic around areas of congestion and creates new opportunities to generate the most efficient route for rail shipments, the paper said.

"Clearly, industry consolidation can improve service and efficiency over the existing rail footprint.

"And while a CP-NS combination would not reduce rail competition as our two networks are end-to-end (they do not overlap), in order to address competitive concerns, assure regulatory approval, and because we are confident we can improve service, CP proposes adopting competitive enhancements that shippers have been demanding," the white paper said.