Canadian National Railway and Norfolk Southern strike joint-service deal

October 27, 2017 - Canadian National Railway Co. has struck a deal to interchange trains with Norfolk Southern Corp. outside of the key Chicago rail hub in a move that will ease congestion and save up to two days of travel time for the railroads, the companies said Friday.

CN and Norfolk Southern are among six major U.S. and Canadian railroads that converge in Chicago to exchange railcars and reassemble them onto new trains headed to various destinations.

The Belt Railway Co.’s 265 miles of tracks around the Chicago area switch about one million railcars a year, making Chicago the busiest interchange in North America. It is frequently cited by railroad executives as a congestion-heavy pinch point that often leads to delays.

Norfolk and CN said they would hand off trains at Norfolk’s Elkhart, Ind., rail terminal instead of within the Chicago rail terminal network. For Norfolk trains heading westbound, CN will manage the train and drive it through a bypass around Chicago.

The move will help the rail companies lure customers, said Anthony Hatch, an independent railroad analyst.

The agreement is a “jab in the great heavyweight fight for freight in the railroad world,” Mr. Hatch said in an interview.

“To avoid traffic through Chicago is a big plus. It’s a big boost to both companies,” he said.

The deal between the railroad companies will begin with two eastbound and two westbound mixed freight trains each as part of the new service, and will consider adding new traffic in the future, said CN Chief Marketing Officer JJ Ruest, in an interview. Roughly one-quarter of all of CN’s rail traffic goes through Chicago, according to the company.

“It’s a much higher level of cooperation that we normally have in Chicago,” Mr. Ruest said. “It provides faster transit times and when we get to the wintertime when Chicago becomes busier, [this deal] will help improve our consistency as well.”

CN’s move to streamline any congestion issues comes at an “intriguing” time that likely shows the railroad is trying to clear up unnecessary bottlenecks in its network as it has taken on significant growth this past year, said Steve Hansen, a rail analyst with Raymond James.

The new so-called “interline” service agreement also comes as Norfolk Southern aims to win over customers as rival CSX undergoes a major revamp of its operations after railroad industry veteran Hunter Harrison took over as CSX chief executive earlier this year.

“If we are able to improve the fluidity in Chicago, it will improve the fluidity throughout our network,” said Norfolk Southern Chief Marketing Officer Alan Shaw.

Some CSX customers have complained about the railroad’s service amid delays as Mr. Harrison implements the precision railroading system he previously operated at his former companies, CN and Canadian Pacific Railroad Ltd.

The CN-owned Chicago bypass route that Norfolk Southern’s trains will now be able to access was acquired in 2007 for $300 million when Mr. Harrison was chief executive for the Montreal-based company.

Solving Chicago’s congestion issues was a focal point of Mr. Harrison’s unsuccessful bid to acquire Norfolk Southern in November 2015 when he was chief executive of Canadian Pacific.

Mr. Hatch, the railroad analyst, said it is likely that both railroads would be able to charge a premium to customers if they can ensure a reliable service that could be consistent in reducing travel time. Both CN and Norfolk Southern executives declined to comment on whether the railroads would be able to charge higher rates for the quicker service around Chicago.

Mr. Hatch noted that Norfolk’s ability to strike an interchange agreement without seeking a merger or acquisition shows how the railroad is embracing a more “customer-friendly” and collaborative approach that contrasts to the precision railroading concept pioneered by Mr. Harrison several decades ago.

“This is a sign of railroads thinking of the bigger picture and a level of cooperation that other railroad companies are now likely to consider replicating,” he said.

Norfolk Southern reported third-quarter results on Wednesday that beat analyst expectations driven by an improvement in coal shipments. The Virginia-based company reported profits of $506 million or $1.75 a share, beating analyst expectations of $1.64, according to Thomson Reuters.

Source: The Wall Street Journal