Canadian Pacific Railway locomotives move cars at a rail yard in Calgary, in a May 16, 2012 photo.Jeff McIntosh/The Canadian Press
The chief operating officer of Canadian Pacific Railway Ltd. says rail mergers are bound to happen, but refused to confirm that CP is in talks to buy Virginia-based Norfolk Southern Corp.
Keith Creel, speaking at a transportation conference in Toronto on Tuesday, said rising freight volumes, a growing economy and customer demands for better rail service through streamlined networks will drive mergers and help convince the U.S. regulator, the Surface Transportation Board (STB), that bigger railways are good for everybody.
"When it comes to consolidation, it' s not if, it's when," said Mr. Creel, 47. "So regardless what the naysayers say, there's only so many railroads. You are not going to build new railroads. The economy is dependent upon the railways. Population is going to grow in the States. Population is going to grow in Canada. There is a need to move more stuff as the world evolves. The highway systems between the two countries can't sustain it. It's got to go somewhere. It's going to go on the railroad."
Norfolk Southern on Monday declined to comment on reports it had been approached by CP about a deal that would create North America's biggest railway, with 53,000 kilometres of track and access to three coasts.
There have been reports the company is not keen on the takeover approach, which comes a year after CP tried and failed to merge with Norfolk Southern's eastern rival, CSX Corp. of Florida. Shares in Norfolk Southern fell by 3 per cent on Tuesday morning in trading on the New York Stock Exchange.
Mr. Creel said support from customers and the takeover target is needed before any hypothetical deal could be approved by the STB, which in 2000 blocked a merger between Burlington Northern Santa Fe and Canadian National Railway Co. The regulator responded to complaints from shippers about deteriorating service and higher freight rates by imposing new conditions on any merger, requiring that the rail companies demonstrate a deal would enhance – not merely preserve – competition.
"I think that if you were to get two railroads to agree, they had that same voice, that gives you the argument to go to the STB and say, 'Listen, this is pro-service this is pro-competitive," Mr. Creel said. "You've got customers on side. You got some that are begging for service improvements. You've got some that are begging for competitive options. You've got some that are begging for more reach into particular networks for additional revenue streams. That's what it takes in my mind to get the deal done. Is it a lot of work? Is it going to be easy? No, it's not going to be easy. Nothing in life is easy."
It is believed any merger would face two years' of scrutiny in the United States and Canada.
Speaking at the same conference, Jean-Jacques Ruest, chief marketing officer for CN, declined to be drawn into speculation over how consolidation would change the North American industry, which is dominated by seven major railways.
He said CN has a list of short lines that it would like to add to its network in Canada and the United States, but would not say whether the company would join the large-scale consolidation game if CP's reported merger dreams come true.
"Every marketing man's dream is to have a bigger map," Mr. Ruest said.
Eric Atkins