News / CP-KCS merger sparks intermodal US-Mexico race

Photo: GMXT

Rail flows connecting Mexico with its US, Mexico Canada Agreement (USMCA) neighbours look set for a strong intermodal component.

Within days of the official merger between Canadian Pacific and Kansas City Southern to form CPKC, a race for strategic intermodal partnerships targeting USMCA business has erupted.

The newly formed Class I carrier has struck agreements with Schneider and Knight-Swift, while Union Pacific (UP) aligned itself with Canadian National (CN) and Mexican operator GMXT.

The full integration of the CPKC venture is expected to take three years to complete, but that has not stopped the newly minted outfit from making an aggressive push for intermodal business to and from Mexico. It also intends to invest millions in Mexico to beef up capabilities.

One week after the official marriage, CPKC announced an agreement with Schneider National, which designates the provider of truckload, intermodal and logistics services as the rail firm’s “strategic intermodal carrier” for the corridor between Chicago and all major points in Mexico.

Schneider expects to start moving volume on the CPKC network by mid-May.

In the announcement, Schneider president and CEO Mark Rourke described the alliance as a “natural fit”, pointing to the firm’s more-than-three decades of experience in Mexico.

The alignment raised some eyebrows in the industry, though. At the end of last year Schneider dropped BNSF after 30 years to start a new west coast intermodal partnership with UP. Management said it saw more opportunities to grow its intermodal traffic with UP.

Its declared aim is to double its intermodal business by 2030. Last year Schneider moved more than 450,000 loads to generate $1.3bn in intermodal revenues. Its total revenues for 2022 amounted to $6.6bn.

UP had lobbied against the CP-KCS merger and kicked the Canadian carrier out of a shared container programme in Canada last year.

The US rail giant countered the CPKC-Schneider alliance on Monday – three days after it had been announced – with the creation of a new intermodal service spanning the USMCA. In tandem with CN and GMXT it is setting up a ‘Falcon Premium’ service connecting all CN points in Canada and Detroit with GMXT’s terminals in Mexico.

This combines GMXT’s service from Mexican points to the Mexico-Texas border, UP’s route from Texas to Chicago and CN’s operations from Chicago into Canada. With a seamless rail connection in Chicago, the trio claims that this will be the fastest, most reliable intermodal service between Mexico and Canada.

“Falcon Premium service is a game changer for intermodal customers. By leveraging each partner’s best services and routes, we are creating a transformational new product,” declared Tracy Robinson, president and CEO of CN.

On Tuesday CPKC struck back with the unveiling of another intermodal deal reaching into Mexico. It signed a multi-year agreement with Knight-Swift Transportation for a Mexico-to-Chicago train scheduled for launch in mid-May.

The deal will give Knight-Swift’s customers new options for their supply chains, stated Swift president Adam Miller.

A key element in the race for intermodal business will be transit times between the US-Mexico border and Chicago. UP, whose route is shorter than CPKC’s, offers four-day transits for the sector.

According to numbers from the Intermodal Association of North America, 70% of the containers moving up from Mexico terminate in the midwestern US.

Intermodal constitutes a single digit share of flows between Mexico and the US, with about 178,000 containers moving north in a year. Northbound flows are more than 50% higher than southbound container volume.

CPKC CEO Keith Creel is confident that the emerging services will boost volumes by generating new business.

“The CPKC combination creates compelling new transportation solutions for Schneider’s current and future customers looking for more reliability and increased capacity in their supply chains,” he commented.

The rising nearshoring trend has sparked moves by manufacturers to set up production facilities in Mexico to serve the USMCA market, which stands to boost cargo flows in and out of Mexico.

CPKC is looking to invest $573m in Mexico over the next two years, according to Oscar Del Cueto, president of its Mexican arm. He mentioned systems integration as the likely first target, adding that a number of other aspects are under the spotlight, such as faster transits and a possible reefer cargo service between Kansas City and Monterrey.