Why did CN-UP-Ferromex wait until now? Why not years ago?
But Falcon is not the shortest way to Western Canada, or Portland and Seattle.
So…CPKCS and BNSF - will you?
Absolutely… and about why not years ago?.. good question. The timing would certainly point to this as being a response to CPKC. But if the primary objective is to take trucks off the road then two years ago…or 18 years ago when trucking capacity was tight and rates were through the roof… that would have been the time to woo shippers to rail. Right now trucking rates are tanked…
About the shortest distance… CN never seems to be shortest distance to anywhere… at least they’ve learned to deal with that over the years, and this partnership may work given that CN has a more expansive network in Canada than CP does.
But I ask the same question. Why now?.. Mexico has been there for a long time… and Mexico has been a trade partner with the US and Canada for a long time as well. Likely the renewed interest in Mexico is driven by political developments… i.e. the deterioration of the West’s relationship with China… the prospect of war with Taiwan… which could certainly result in a damper on trade with China and resultant much lower volumes on rail. Mexico in that context would be China’s replacement…
Why now? Because CPKC is stealing intermodal traffic from UP, so UP is replacing it with intermodal traffic that CN used to carry south for interchange. Nothing is coming off the roads. In fact, rail is bleeding intermodal traffic to the roads these days - probably since PSR.
PSR and the railroads since the 80’s have looked at the profitability of the traffic they haul. Not all traffic is profitable. PSR has hastened the shedding of traffic that doesn’t bring a big enough number to the bottom line.
The reasons for the change are related to changes in in global supply chains. China is less competitive than they have been in the past. Factor in the cost of shipping from China, and for many products it is cheaper to manufacture products in Mexico rather than China. Add geopolitical risk, and many companies are moving their factories to other SE Asian countries, India, or Mexico. KCS acquired 80 lease returned BNSF Dash-9 locomotives from Wabtec due to a 10% increase in rail traffic in the 4th quarter on KCSdeM.
You may have noticed that Intermodal traffic is down 8% in the 1st quarter of 2023 on a year over year basis. The big driver of that decrease is a fall of 15% in Intermodal volume in the LA - Chicago lane. and a 18% decrease in volume in the LA - DFW lane. The Port of LA/LB have lost serious volumes of containers to ports on the East and Gulf coasts, and I don’t think its going to come back.
One thing that I wish would change is that Intermodal and Carload figures for the US subsidiaries of CP (now CPKC) and CN are not included in the figures of weekly loadings reported by the AAR. As CPKC and CN operations in the US become larger the lack of these numbers may hide the shift in rail traffic trends.
BNSF can porovide CPKC a great shortcur vto Western Canada via Denver and Billings.
NP EDie, maybe youshould advise BNSF?
JayBee, you have nailed it with your analysis.
Nearshoring of manufacturing is going to accelerate and Mexico will grow in importance.
Manufacturing shifts to S.E. Asia - on the Pacific side of Asia - will still put containers in to LA/LB.
Manufacturing shifts to India will likely put containers into East Coast ports via the Suez Canal and Mediterranean Sea. Halifax and Port St John are the two closest ports to the Strait of Gibraltar.
The question is: Why would anyone want to? Why do we need a service from Mexico to Western Canada? What’s the market? Remember, Canada has about the same population as California, and Washington and Oregon have about the same population as British Columbia, Alberta, Saskatchewan, and Manitoba combined!
All this is is lines on map from CPKC: Look what we can do! Yeah you could if anyone would want to.
The post before yourd suggests the market is emerging. Possibly NPEdie is a better judge of that than me, however.
Is it a response?.. No… To expand on a few comments here. With CPKC, CN lost its friendly intermodal interchage at Jackson, MS with KCS. CP being removed from the EMP network prior to the merger which CN is now the exclusive Canadian partner. This is the impetus for the new Falcon Premium.
To JayBee’s points on traffic and trade. The Westcoast(POLA/POLB specifically)is still stocked with high inventory levels being 9% higher than pre-COVID. Add in low invetory cycle time plus labor strife bewteen Westcoast ILWU and the PMA. Has created a sour relationship with work stoppages. However recently there’s been progress in talks between the association and ILWU. Nearshoring may not be the remedy most believe it will be yet time will tell so hold the deck… Nearshoring requires a massive investment in equipment to bring production nearshore. This will take a decade to scale out possibly less. In addition pay attention to Vietnam, which recently has exploded in manufacturing and will continue to including the entirety of the ASEAN as well. Vietnam is roughly the same sailing time across Transpac as China for some lanes. Shipping from Vietnam favors POLA/POLB due to transload capacity. The Eastcoast and the Gulf have benefited from the Westcoast labor issues and clogged DC’s. Shipping to the Eastcoast/Gulf is 15-25% higher in cost than the Westcoast…Due to higher labor cost, low transload capacity, higher bunkering cost for vessels, add in tolls via the Panama Canal.
Concerning the CANAMEX(Western Canada and US to Mexico)Corridor the only IM lane is Gulf to SeaTac yet that’s even limited. The corridor is dominated by forest, energy, chemicals, and agri-business. There’s very little to no waybills for IM traffic outside the former I stated. CANAMEX is a carload biased lane. So there will be no BNSF-CPKC interline here between the borders.
Questions that should be asked… What is CPKC doing about the Houston Terminal? Your core route has to rely on trackage rights on UP in t
For what it is worth, here is a link to the UP press release for Falcon Premium Intermodal Service.
https://www.up.com/customers/premium/mexico-to-canada/index.htm
Find the link in that page to download the initial schedule (it is a PDF and I can’t figure out how paste its URL directly in a post) and compare it with what CPKC is going to provide. (Then we can have the real railroaders comment on how well the UP/CN/GdM service can actually deliver month after month…)
I wonder why there is no expedited service shown to Prince Rupert (which was one of the shortest great-circle routes to significant Asian markets). One interesting thing would be production from the maquiladores in the Monterrey area going via Halifax to EC markets… they’ll need a very carefully assured transit across the Chicago region to do that right.
Here is the Falcon Premium Intermodal Service Schedule that Overmod noted:
SD60…
Love that analysis. Thanks for posting that.
CP certainly doesnt have a strong Chicago to eastern Canada route, one could extend that to KC to eastern Canada. Hats off to EHH for the EJE purchase and integration.
As stated previously, perhaps the best alternative is trackage rights on NS across the old Wabash to KC. A connection could be made just west of St. Joe, In. carving up more of that fertile Hoosier farmland. Still wouldnt address the Chicago issue and it would require splitting Eastern Canada intermodal into two trains or a block set out. Doubt if the volume would be worth the effort, or as they say at Stanford “is the juice worth the squeeze?”
It is fun looking at maps.
Ed
It may be difficult to appraise the competitiveness of Falcon Service until we see actual and achievable service times for the CPKC ‘alternative’. To me, looking at the published schedule, the CN/UP/GdM service is not named for a bird (or a C&NW train) but a certain model Ford.
“Time” from Monterrey to Halifax is a blistering 10.9 days… that’s a 16:30 cutoff Monday to Friday, and 15:34 availability likewise, but they don’t mention if that’s local or Zulu time.
Going the other way, it’s 11.6 days, but listed as daily service: gate cutoff 17:30 and available at 5:00.
That represents 261 hours northbound and a blistering 278 southbound.
To your points on Nearshoring;
The cost to build new plant in Vietnam, Thailand, Malaysia, or Indonesia will be only slightly less than in Mexico. Second, only Indonesia has a population even slightly close to that of China at 273 million. Vietnam and Malaysia are both under 100 million people. Moving production to the South Asian countries like Bangladesh, Thailand, or India favors East Coast ports. Separately there is Canada’s plan to double capacity at the Deltaport terminal south of Vancouver. A major reason why nearshoring is beginning is the Geopolitical risk is increasing in China. You may or may not be aware that the Chinese government in recent months has been investigating various financal services companies like Mintz Grou
Looking between Vietnam and Mexico,
Plant build out cost:
Vietnam $412USD/sqm
Mexico $562/sqm
27% that’s a pretty substantial cost difference…
It’s not only cost to build plants its; labor, cheap abundant energy, and government policy investment. When it comes to labor:
Vietnam comes in at $2.73USD/H
Mexico $4.45USD/H
Mexico is also curently battling high energy cost as it has been for years.
Also to some ASEAN ports favoring the USEC. This is for a majority of IPI not transload traffic…
Both BNSF and UP have a premium segment of intermodal traffic called Z trains that CPKC lack’s. These trains carry time sensitive freight not transloaded waterborne freight. Hence
A UP-KCS merger? I don’t think so. When the STB denied the voting trust for the CN-KCS merger, they signaled to the industry that even large mergers with far less overlap were not going to be approved. UP-KCS would not have a snowball’s chance…
UP would have to divest most of KCS. They would have to get rid of the Springfield Line; the “main stem” from Kansas City down through Shreveport to New Orleans; the Shreveport to Fort Worth line; the combination of trackage rights and owned lines down from Beaumont to Laredo. Take a look at a map and the amount of direct overlap is staggering.
At that point what is UP buying? KSCM and the Meridian Speedway. Not surprisingly, these are the parts of the KCS network that UP made the most use of. As previously mentioned 60% of pre-merger traffic coming off KCSM at Laredo was handed over to UP. UP, while they don’t have any ownership, is still a heavy user of the Speedway. I also think they could have retained the Shreveport to Beaumont line with its chemical traffic if they gave trackage rights to another railroad.
If UP wanted to buy KCS, the right time was in the late 1990s or very early 2000s when the mood regarding mergers was different.
MV, agree with that analysis.
The UP play is a last ditch effort to divide up KCS amongst several and grab the parts it wants for itself.
Basically a “Conrail-lite”.
The Meridian Speedway helps them penetrate the south where population growth is happening the most and a business-friendly climate is driving economic growth. It gets them awfully close to Atlanta.
CN already expressed its interest in the Springfield line.
If the proceeding was reopened you would see BNSF jump in.
The opportunity to haul freight from the growing number of factories in Mexico to the high population growth region of the US is a significant one.
It is likely to be a growth engine for CPKC that has largely been overlooked.
UP has nothing to lose in trying to reopen the proceedings so they are going for it but it does seem like trying to get the results of the last Super Bowl thrown out so it can be replayed.
I was more responding to SD90MAC’s opinion that UP-KCS would have been preferable.
During the STB hearings, UP wanted the STB to establish what they call a “rate mechanism” for freight moving through the Laredo border crossing. As once again mentioned 60% of KSCM traffic at Laredo was handed over to UP. The merger means that CPKC doesn’t have to give as much traffic to UP at Laredo anymore. UP’s “rate mechanism” would have prevented CPKC from diverting a lot of this traffic over its own network since it would lock in the pre-merger rates. If I were to guess implementing this “rate mechanism” would be UP’s main goal in this lawsuit, not splitting KCS Conrail-style.
A Conrail-syle split of KCS would have been interesting. Of course with CPKC being a done deal now, all of it is simply alternate history. It’s still f