CN and UP reach settlement on Norfolk Southern merger

UP CEO Jim Vena, who served as CN’s chief operating officer from 2013 to 2016, noted that the EJ&E is the fastest route around Chicago. CN acquired the carrier in 2009 to connect its routes from Western Canada, Eastern Canada, and the Gulf Coast. The route provides transit time of 12 hours or less compared to the average Chicago-area time of 35 hours.

“I’ve seen the benefits first-hand of what the EJ&E route around Chicago can do for a railroad, and we look forward to having access to the quickest way around Chicago,” Vena said in a statement.

UP and CN aim to move forward with the Mexico and EJ&E deals as soon as possible. They are not contingent upon the UP-NS (NYSE: NSC) merger gaining regulatory approval.

The other elements of the UP-CN agreements, however, are dependent on UP and NS closing their merger deal. Under the settlement agreement with UP, which is subject to Surface Transportation Board approval, CN would:

• Gain access to the handful of shipper facilities where Class I railroad options would be reduced from 2-to-1 or 3-to-2, “where commercially and operationally feasible.”
• Acquire NS ownership interests in the Kansas City Terminal Railway and the Terminal Railroad Association of St. Louis.
• Gain new access in the Midwest through overhead rights between Tuscola, Ill., and East St. Louis, Ill., and rights to serve customers between St. Louis and Kansas City, Mo., via UP.
• Have a presence in Kansas City, with usage of UP’s Neff Yard.

“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,” Vena said. “This settlement agreement reinforces those commitments by giving expanded access and operating rights to a tough competitor.”

The UP-NS merger would give UP parallel routes across Missouri, including Norfolk Southern’s former Wabash lines as well as its own former Missouri Pacific main. UP previously has said it would look to divest one of its St. Louis-Kansas City routes.

CN, meanwhile, unsuccessfully sought access to Kansas City while opposing the CP-KCS merger. CN had asked the STB to order CP to divest the KCS Springfield, Ill.-Kansas City route, a request the STB rejected.

Robinson said it’s important that rail customers benefit from competition and choice.

“This framework would preserve competitive access to key markets, including Kansas City, while positioning CN to continue providing reliable and efficient options for customers across North America,” she said.

The UP-CN deal involving the EJ&E brings UP full circle.

UP had considered acquiring the EJ&E in 1995, seeing it as a way to improve the fluidity of its interchange options in Chicago. At the time, the route would have been valuable as a way for Powder River Basin coal traffic to reach eastern railroads. But UP had a bigger goal: It also was in pursuit of a merger with Southern Pacific. At the time, Omaha thought an EJ&E transaction would be too much for the railroad to handle given the larger and more important SP acquisition, which proved true given the later troubled UP-SP integration.

UP and NS have argued that eliminating interchange in Chicago will shave 24 to 48 hours off of existing transit times. The ability to route traffic around Chicago via the EJ&E would further reduce transit times around the Windy City while also making service more consistent due to the lack of congestion.

Subscribe to FreightWaves’ Rail e-newsletter and get the latest insights on rail freight right in your inbox.

Read more:

First look: Union Pacific earnings

First look: Norfolk Southern earnings

First look: CSX earnings

Street flip: Intermodal rail charges ahead in latest data