NEW YORK — What will it take for railroad stocks to outperform the broader market again? Is the industry stuck in a particularly long and challenging cyclical downturn — or has something fundamentally changed within the Class I railroads?
Wolfe Research analyst Scott Group put these questions to CPKC CEO Keith Creel at the Wall Street firm’s conference this week, noting that the railroads have not been able to generate sustainable earnings growth over the past few years.
Creel, the longest-tenured chief executive at a Class I, says that over the past five years the economy and the rail industry have gone through an unprecedented series of shocks.
Among them: A bumpy implementation of the Precision Scheduled Railroading operating model at U.S. railroads, the pandemic downturn, widespread crew shortages and service problems as rail traffic rebounded from pandemic lows, and now the uncertainty caused by tariffs and trade wars.
“It’s a unique set of … 100-year storms that have occurred in a very condensed time frame that’s left us with a very anemic economy,” Creel says.
But he sees better economic weather ahead thanks to new, prosperity-focused governments in the U.S., Canada, and Mexico. “I think we are uniquely set up for stability, as crazy as that sounds,” Creel says.
The tariffs the U.S. has threatened, imposed, raised, lowered, withdrawn, and paused this year has sown chaos and uncertainty in global supply chains.
Creel’s stability argument goes like this: President Donald Trump aims to bring manufacturing jobs and economic growth back to the U.S. by rebalancing trade. The new leaders in Canada and Mexico — Prime Minister Mark Carney and President Claudia Sheinbaum, respectively — also favor economic growth and want to find new markets for their exports as part of an effort to reduce their dependence on the U.S. Meanwhile, Mexico remains a good location for near-shoring manufacturing from China and elsewhere in Asia.
“With leadership in all three nations trying to create growth and prosperity, I think the economy overall is on the precipice – once we get through settlement of all these tariff tribulations – of actually experiencing growth again,” Creel says. “So I think that changes the next five years versus the last five years.”
The rail industry, meanwhile, is becoming a more reliable supply chain partner. “We have an industry that is more focused on being truck-like and reliable,” Creel says.
“I think that puts us in a place where the service offering’s going to be better,” he adds.
Turning to his own railroad, Creel says CPKC will generate outsized growth thanks to merger synergies on its network that uniquely serves Canada, the U.S., and Mexico. CPKC is running a year ahead of schedule on raking in $1 billion in new revenue by the end of 2026.
CPKC’s flagship cross-border intermodal service linking Chicago with points in Mexico is rapidly growing. The 180/181 hotshots launched in May 2023 with 3,000 feet of traffic and now routinely run 8,000 feet.
The growth is expected to accelerate thanks to new auto parts shipments as well as temperature-controlled shipments that will begin this summer from a new Americold cold storage warehouse that’s under construction at the railroad’s intermodal terminal in Kansas City.
The Americold warehouse capacity is already nearly sold out, Creel says, and Americold has begun construction of a cold storage facility at the Port of Saint John in New Brunswick, Canada, and just got the green light to build a warehouse in Salinas Victoria, Mexico, near Monterrey.
CPKC also expects international intermodal growth in Canada and Mexico with partners Maersk and Hapag-Lloyd, and domestic intermodal growth with retail partners in Canada. The railway also is banking on increased shipments of Canadian grain and energy, chemicals, and plastics to Mexico.
And with major auto contracts coming up for bid in the next two years, CPKC expects to land more finished vehicle business. CPKC’s automotive volume was up 23% last year thanks to its closed-loop auto rack service.
Automakers load auto racks at Canadian assembly plants with vehicles bound for CPKC’s Wylie, Texas, terminal outside Dallas. CPKC then takes the empty racks to assembly plants in Mexico, where they’re loaded to destinations in the U.S. and Canada, where they’re reloaded to start the loop all over again.
The captive service has solved chronic auto rack supply problems at participating automakers’ Mexican assembly plants.
