A Canadian National Railway train pulls a line of cars through the Macmillan Yard in Vaughan, Ont.Norm Betts/Bloomberg
Canadian National Railway Co. has forged a train-swap agreement with U.S. rail carrier Norfolk Southern Corp. that skirts the congested hub of Chicago.
The deal cuts transit time between CN territory in Western Canada and Norfolk Southern terminals in cities in the Eastern United States by one or two days, the railroads said in a statement announcing the partnership on Friday.
"This isn't the first agreement with interline service but we think it's unique, because we're looking beyond traditional interchange points and saying, 'What's the best route? What gives you the best service?'" Patrick Waldron, a CN spokesman, said in an interview. "And what routes minimize the number of times cars have to be handled?"
The railways began interchanging four trains daily in August at Norfolk Southern's yard in Elkhart, Ind., to avoid handling freight cars in Chicago, a busy rail hub known for traffic tie-ups.
"If you're able to save transit times, it should be positive for both parties," Benoit Poirier, a stock analyst with Desjardins Securities, said by telephone.
The major North American railways converge at Chicago, through which about 25 per cent of U.S. rail freight passes. This leads to traffic snarls that have long frustrated rail executives and their customers.
Chicago's congestion is frequently cited as the driving force behind recent failed merger attempts between Canadian Pacific Railway Ltd. and, at various times, Norfolk and CSX Corp.
Walter Spracklin, a stock analyst with Royal Bank of Canada, said in a note to clients the deal should ease congestion in Chicago. "We could see further [similar] agreements in the future given rising long-term demand for rail and the challenges to meet this demand, namely capital costs to lay new rail and uncertainty on executing mergers," he said.
In 2007, CN found a way around the Chicago mess, with the purchase of the Elgin, Joliet and Eastern Railway. But customers whose goods were handed over to other railways in Chicago for the final leg of the trip faced delays.
Moving the hand-off east of Chicago to Norfolk's yard reduces any delay, Mr. Waldron said.
CP has said it is considering a similar agreement with CSX to hand over rail cars south of Chicago. A CP spokesman did not immediately respond to a request for comment.
Eric Atkins