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The Alabama State Port Authority, which runs the Mobile port, has spent $50-million building a container transfer terminal that can be serviced by four of CN’s rivals: CSX Corp., Norfolk Southern Corp., Kansas City Southern and BNSF Railway Corp.APM Terminals

The expansion of the Panama Canal has spurred Canadian National Railway Co.'s push into the U.S. South.

In early July, the Montreal-based railway is expected to begin hauling trains loaded with containers that made the trip from Asia to Alabama's Port of Mobile, home to a new terminal built to handle the larger ships that can use the expanded canal.

"We wanted to find a way to exploit the Gulf Coast as the canal gets widened," says JJ Ruest, CN's chief marketing officer.

"With a wider canal there will be bigger ships going through the canal. There will be a market push by some players who will look to serve the east side of the United States by the all-water route."

The $5.2-billion (U.S.) expansion of the Panama Canal, which opened in late June, more than doubles the capacity of the water route that links the Pacific and Atlantic oceans. Ships that carry as many as 13,000 containers can now traverse the canal, compared with the previous limit of about 5,000.

The new locks provide larger ships with a link between Asia and the U.S. Gulf and East coasts, and could allow East Coast ports to increase their share of Asian container traffic by 10 per cent by 2020, a Boston Consulting Group study says.

"It will certainly make going through to East Coast compared to the West Coast more competitive. But one of the big unknown factors is how the railroads will react because clearly the railroads serving the West Coast will want to defend their market, so their pricing policy in the years to come will be very significant in determining the balance between West Coast and East Coast," said Neil Davidson, an analyst with London-based Drewry Shipping Consultants Ltd.

The opening of the wider canal comes at a time of low freight volumes for shipping lines and railways. In 2016, the number of rail carloads in the United States has fallen by 13 per cent, including a 2-per-cent drop in containers, amid economic weakness and a drop in demand for commodities.

CN has spent the past three years forging agreements with shipping lines and the port's container terminal operator that allow it to offer customers a two-day service to the main hub of Chicago, more than twice as fast as the rail trip from the West Coast. Until now, CN's business in Mobile was restricted to the dwindling businesses of coal, and other goods.

The agreements are similar to those the railway used to transform the once-small port of Prince Rupert, B.C., into a key shipping port on the West Coast.

"In order to attract customers to using a port as a rail gateway to the hinterland, you need to have a level of service which is combined between the shipping line, the terminal operator and the railroad because the importer is looking at the journey of the container. They don't care about the speed of the train, they don't care about the time on the ocean," Mr. Ruest said in an interview. What they care about is how long it takes to get their goods to the warehouse, he said.

"From a service point of view that's a key aspect. None of us are going to be pointing a finger at the other about service failure. It's more about how we will work together to deliver a promise of two days from ship to rail," Mr. Ruest says.

APM Terminals, the Port of Mobile's container handler, has spent $40-million to add two larger cranes able to service the larger ships, and expanded the container facility. The Alabama State Port Authority, which runs the Mobile port, has spent $50-million building a container transfer terminal that can be serviced by four of CN's rivals: CSX Corp., Norfolk Southern Corp., Kansas City Southern and BNSF Railway Corp.

CN's terminal agreements heighten the competition with the other railways at the port.

Florida-based railway CSX serves Mobile from a separate container terminal. Rob Doolittle, a spokesman for CSX, said the railway has been preparing for greater container volumes by upgrading its network to handle rail cars with double-stacked containers.

But it's not clear the bigger canal will bring new business that can overcome the decline in cargo that has left CSX and other railways with excess capacity, Mr. Doolittle said from Washington, D.C.

"It's hard to predict what might come," he said.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 24/05/24 4:00pm EDT.

SymbolName% changeLast
CNI-N
Canadian National Railway
+0.44%126.91
CNR-T
Canadian National Railway Co.
-0.08%173.35
CP-T
Canadian Pacific Kansas City Ltd
+0.17%109.15
CSX-Q
CSX Corp
+0.84%33.78
NSC-N
Norfolk Southern Corp
+0.25%226.86

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