Canadian Pacific Kansas City is touting that its newly announced partnerships with Schneider National and Knight-Swift will benefit all three companies’ customers.
CPKC (NYSE: CP) officials pointed to the broader goal of converting truck volumes to rail as well as win-win situations environmentally for all companies when describing its partnership with both companies in providing transcontinental service for intermodal shipments.
“Extending that haul and that single-linehaul value proposition was important to Schneider in that reliability of capacity and service,” said John Brooks, chief marketing officer, during CP’s earnings call Wednesday afternoon to discuss first-quarter 2023 financial results.
But “as much of that story is about that, it’s about taking trucks off the road,” Brooks continued, adding that providing service between Laredo, Texas, and Chicago and then south to Monterrey, Mexico, and Mexico City would be competitive with over-the-road trucks.
CPKC’s partnerships with both companies will go into effect on May 11. Schneider (NYSE: SNDR) said it will serve as a strategic carrier on the intermodal line that connects Chicago to major ports and regions in Mexico, while Knight-Swift (NYSE: KNX) said it will provide truckload capacity for a Mexico-to-Chicago cross-border train.
Earlier this month, CP and Kansas City Southern finally merged, completing a two-year process that resulted in a transcontinental railway providing single-line service between Canada, the U.S. and Mexico.
“Schneider and Knight-Swift saw the value prop[position] to stay on one railroad and use that single-linehaul advantage,” Brooks said. “They saw the opportunity to make headway on their own greenhouse gas emission savings opportunities with their own truck fleets, and to go after some of those pieces of the business that I think the rail sector has long sought to get after but just haven’t been able to demonstrate the service to really compete.”
CP President and CEO Keith Creel defended the arrangements, especially following the Monday announcement of a new service offering provided by rival CN (NYSE: CNI), Union Pacific (NYSE: UNP) and Grupo México’s (GMTX) Ferromex. That new service, Falcon Premium, seeks to connect CN’s network in eastern and western Canada with Chicago and UP’s network before heading south to GMTX terminals throughout Mexico.
CN officials said during its first-quarter 2023 earnings call that the Falcon Premium route has a shorter distance between Canada and Mexico, but Creel touted CPKC’s shorter distances within Mexico.
“We’re not surprised that our combination … triggered competition. We said from the very beginning this combination [of CP and Kansas City Southern] would create new competition. It’s going to create new options for shippers and that’s exactly what this is,” Creel said.
He continued, “Just because it might be a shorter distance, if you don’t convert it, does it really make a difference?” While the Falcon service has a shorter distance between Chicago and Salinas Victoria in Mexico, CPKC trains are able to complete that journey within a shorter time frame, Creel said.
CPKC has been preparing to integrate CP’s and KCS’ operations for months in order to facilitate a smoother transition, especially because prior mergers between large freight rail companies have been known to have experienced rough transitions. Activities have included creating an integration management office, organizing business segments into eight different groups and working with employees on integrating customers.
“We did not underestimate the magnitude of this. This team has been hard at work with our counterparts at KCS. … We hit the ground running,” Creel said.
Said James Clements, executive vice president of strategic planning and technology, “When you look at the integration, what we said to the [Surface Transportation Board] is that we were going to go through a very measured approach. We were going to make sure that we tested everything before we launched it and put it in place.”
Canadian Pacific’s Q1 2023 results
Net profit in the first quarter of 2023 was CA$800 million (US$587 million), or 86 cents per diluted share, compared with $590 million, or 63 cents per diluted share, in the first quarter of 2022. (All financial figures are in Canadian dollars.)
Revenue rose 23% year over year to nearly $2.3 billion amid “a robust Canadian grain harvest, plus competitive service offerings in intermodal,” Creel said in a news release.
Expenses increased by 10% to $1.4 billion on higher costs for fuel, materials and purchased services.
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