“We’re looking at other ways to actually bring more business on the railroad,” CEO Jean-Jacques Ruest told investors and analysts on the railway’s fourth-quarter earnings call this week.
The first was TransX, a Canadian trucking and intermodal company CN announced it would purchase in October. The deal is awaiting regulatory approval. “We believe they can help us to bring more business to the CN railroad using our network,” Ruest says of potential new domestic intermodal traffic in Canada.
CN aims to bring more international intermodal traffic to the Eastern portion of its system through the Port of Halifax, Nova Scotia. CN is the sole railroad to serve the port, which is Canada’s fourth busiest.
In December, CN said it and a partner were bidding to acquire the Halterm container terminal at the Port of Halifax. The partnership would expand the terminal, so it could handle two large container ships simultaneously.
“We are going to market it as the Prince Rupert of the east,” says Keith Reardon, senior vice president of consumer product supply chain growth.
The Port of Prince Rupert, B.C., is the fastest-growing container port in North America, with most of its traffic bound for the U.S. Midwest on CN stack trains. The balance of the traffic moves to Canadian markets via CN, the lone railroad to serve the port.
A Halifax terminal deal could be finalized in the next few months, Ruest says.
Halifax has advantages over Montreal, the busiest container port in Eastern Canada. Halifax is an ice-free, deepwater port that can handle today’s big containerships and is on direct global trade routes, Reardon says.
“We’re planning on that to be big ship, big train ready,” he says.
More manufacturing plants are being built in Malaysia, Indonesia, and Vietnam as costs rise in China, a trend that may boost the fortunes of the Port of Halifax.
“As that trade moves further south, that gets right into the wheelhouse of the Halifax-Suez Canal connection and we feel very, very comfortable that we would be able to play in that market,” Reardon says. “That’s one of the reasons why we are looking at Halifax so extensively.”
The Halifax traffic would not cannibalize CN’s current international business at Montreal, which is more of a niche market.
“They are two separate markets,” Reardon says. “We look at them in two different ways. And I believe our customers do as well.”
Intermodal analyst Larry Gross says CN’s plan could work by shifting some container volumes that currently land at the Port of New York and New Jersey and are bound for the Midwest.
Halifax is about 20 hours of sailing time closer to the Mediterranean than New York, he points out. “Plus, you will get through Halifax and onto the train much faster and cheaper than congested New York,” Gross says. “So, it would be a contender for volume moving into the upper Midwest and Ontario, particularly Toronto, Detroit, and Chicago.”
CN is at a significant mileage disadvantage, however, when measured against either CSX Transportation or Norfolk Southern between New Jersey and Chicago. It’s around 1,700 miles from Halifax to Chicago, versus 900 or so from New Jersey to Chicago.
“Of course, nothing prevents the CN from pricing the service more aggressively, which is certainly what they have done with Prince Rupert,” Gross says, adding that while CN’s plans aren’t a “slam dunk,” he wouldn’t bet against the railway.
CN is the fastest-growing of the big six Class I systems, but its growth is concentrated in Western Canada, where the railroad is making major investments in new sections of double-track and new and extended passing sidings.
It’s a different story in the East, where CN has underused capacity between Halifax, Montreal, Toronto, and Chicago.
“Our objective, our appetite is to find ways to make more use of the existing network,” Ruest says.
