Canadian National Railway Eyes Mexico Growth With Union Pacific Deal

Canadian National Railway is pursuing growth opportunities in Mexico, energy, agriculture and selected domestic markets while relying on prior infrastructure investments to support volume gains without a major increase in capital spending. The company's agreement with Union Pacific would extend its network access to Mexico through Memphis and a connection with Ferromex, or FXE. This arrangement is described as a “once-in-a-generation opportunity,” citing approximately C$45 billion in Canada-Mexico trade across commodities. Traffic that had moved through Chicago to reach Mexico can be rerouted through Memphis, extending CN’s haul and providing an immediate revenue benefit. CN plans to pursue rail traffic already moving between Canada and Mexico, particularly into Eastern Canada, where the route could offer a three- to four-day transit-time advantage. The company also sees an opportunity to convert freight from trucking to rail, estimating the Canada-Mexico truck market at C$3.5 billion and noting that trucking economics, including fuel and labor costs, could make rail a more attractive alternative. CN expects to work with FXE on near-, medium- and long-term commercial plans. CN also has an agreement involving potential access to Kansas City if a pending merger receives approval, which would include a haulage and trackage route into Kansas City, first rights to purchase the line under certain circumstances, and access to Neff Yard. The company expects the route would immediately extend its haul from Chicago to Kansas City, though it remains contingent on the merger proceeding. CN remains bullish on energy and agricultural freight, emphasizing that several opportunities are tied to long-term infrastructure investment and global demand rather than solely to the North American economic cycle. The company pointed to development in the Western Canadian energy complex, including natural gas liquids, crude and related products, citing investments and projects involving AltaGas facilities in Prince Rupert, Keyera's ACE Rail Terminal, the Strathcona crude facility, Dow's Path2Zero project in Edmonton, the CANXPORT facility in Prince Rupert and BHP's Jansen potash mine. Natural gas liquids exports through Prince Rupert have increased at an annualized rate of about 8% over the past three years, and CN expects that growth rate to double over the next three years. CN reported 4.5% growth in revenue ton-miles so far this year, though growth would moderate in the fourth quarter because of a more difficult comparison period. The railroad gained grain market share during a record crop year and has capacity in place to handle future demand.