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Canadian Pacific locomotives sit in a rail yard in Montreal in this file photo.

Ryan Remiorz/The Canadian Press

Canadian Pacific Railway Ltd.'s chief executive officer, Hunter Harrison, is pondering the next move in his bid to build a transcontinental network now that talks with potential takeover target CSX Corp. have ended.

On Monday, Calgary-based CP said "exploratory conversations held with CSX Corp. about a possible business combination have ended. No further talks are planned."

The fact that CP went on at length about the virtues of rail mergers in its news release Monday indicates that Mr. Harrison – a long-time promoter of railroad mergers – is not done kicking the steel wheels of North American railway players.

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"CP continues to believe there may be the potential for rail M&A," Canaccord Genuity analyst David Tyerman said in a research note Monday.

The regulatory hurdles to a takeover of a large U.S. rail company are high. "While regulatory concerns appear to be a major deterrent for many railroads considering combinations, CP believes that given the right structure between the right players, and having thoughtful considerations and remedies to address shipper concerns, regulatory approvals are achievable," CP said.

Finding the right partner amid the right conditions also won't be easy.

Ben Hartford, a rail analyst with Robert W. Baird & Co. in Milwaukee, said there are major barriers to mergers between the big North American railways given the generally unfavourable view of such deals by the U.S. Surface Transportation Board (STB), which regulates the industry.

Among the powerful lobby groups opposed to rail mergers and acquisitions among the seven "Class 1" railways is the trucking industry. Shippers have also been complaining about the quality of North American rail service.

Independent rail analyst Anthony Hatch says the timing for a big acquisition is terrible right now, "with shippers already on the warpath" against the railways, perhaps not least CP.

But if Mr. Harrison and his team are still keen on trying to make a deal happen, Kansas City Southern Railway Co. might make sense as a target, Mr. Hatch said in an e-mail.

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The Kansas City, Mo.-based rail operator – owned by holding company Kansas City Southern – is the smallest of the Class 1 railroads and its Mexican sister company is the largest railway in that rapidly growing country, analysts have pointed out.

BMO Nesbitt Burns Inc. analyst Fadi Chamoun said recently that another acquisition possibility – for either CP or Canadian National Railway Co. – is Norfolk Southern Corp. of Norfolk, Va.

Both Kansas City Southern and Norfolk Southern have networks east of the Mississippi River that reach refineries and ocean ports, a big plus that CSX also boasts; CP is keen to win a bigger share of the growing volumes of crude oil now moving by rail.

CP and CSX did not say why the talks regarding a "possible business combination" failed.

North America's rail sector faces significant challenges in moving more freight than ever. The need to move even more as oil production, crop yields and consumer demand grow will only heighten existing problems – such as bottlenecks – if "solutions aren't put in place immediately," CP said in its statement.

"A pro-competition, customer-friendly, safety-focused railway combination is one such solution that could not be ignored on its merits by regulators."

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Mr. Harrison is scheduled to address the issue on a conference call for analysts and media Tuesday after CP's third-quarter financial results are unveiled.

Mr. Harrison and other rail executives have been particularly critical of the heavily congested Chicago hub, which plays havoc with trains' operations and delivery schedules.

In a conference call with analysts last week, CSX CEO Michael Ward said the STB would be "cautious" about railway mergers at a time when shippers are complaining about poor service.

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