A Canadian freight fight is on

CP executives say they'll compete for major intermodal contracts CN gained from them in 2013 and 2014
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BOSTON — Longtime rivals Canadian National and Canadian Pacific are gearing up to compete for several major international intermodal contracts.

CP had long held the contracts but lost the business to CN in 2013 and 2014. Now CP aims to regain the traffic — which CN intends to retain.

“It’s a big chunk of business,” Keith Creel, CP’s president and chief operating officer, told Wall Street analysts last week at the Citi Industrials Conference.

The three contracts are worth about $300 million annually. Last year CP’s overall intermodal revenue was $1.3 billion.

Creel says CP hopes to win back at least some of the traffic based on the railway’s dependable service and shorter routes from Vancouver to Calgary, Chicago, and Toronto. About 70 percent of CP’s international intermodal traffic flows in or out of Vancouver.

“If I can run 225 miles shorter and I can do it 20 percent faster, it’s compelling from a service standpoint, it’s compelling from a cost standpoint, and it’s compelling from a competitive option standpoint,” Creel says.

CP had a different cost structure when it “walked away” from the contracts, Creel says, and was unable to make an acceptable profit on the traffic.

Creel says he has met with his counterpart at one of the international steamship lines in Hong Kong.

“I’ve got to re-establish trust and respect,” he says. “And I’ve got to show them that the CP they knew four years ago is not the CP of today.”

CP hauled 677,000 international containers in 2012, the year E. Hunter Harrison became CEO and began transforming the railway’s operations. With the loss of the three contracts, CP’s international container traffic dropped 19 percent between 2012 and 2014. It rebounded slightly last year. (CP’s domestic intermodal business, meanwhile, grew 19 percent between 2012 and 2015.)

CN does not provide separate tallies for its international and domestic intermodal traffic. But international business accounts for about 60 percent of CN’s intermodal revenue. CN’s overall intermodal traffic grew by 19.7 percent from 2012 through 2015.

“We have had tremendous success in building our franchise on the overseas intermodal front,” says CN Chief Financial Officer Luc Jobin, who is set to become CEO on July 1.

He credits the work CN has done to forge alliances with ports and terminals. The railway has reciprocal scorecards with ports and terminals that are used to monitor performance on a daily basis. CN also works to find backhaul moves for empty containers, which benefits its shipping line partners as well as the railway.

Jobin says CN’s consistent service also plays a role in gaining and holding international intermodal business. He touted the service improvements that have flowed from CN’s 2009 acquisition of the Elgin, Joliet & Eastern belt route around Chicago.

CN has more than doubled train speed through Chicago since the EJ&E acquisition, which tied together CN’s former Wisconsin Central, Illinois Central, and Grand Trunk Western routes. About half of the international intermodal traffic CN originates from Canada’s West Coast ports is bound for U.S. markets, including Chicago and Memphis, Tenn. The balance remains in Canada.

CN doesn’t expect to sustain the pace of its gains in international intermodal market share, Jobin says. But the railway does expect to retain the business it wrestled away from CP.

“We are reasonably comfortable … that we will hold share,” Jobin told the conference. “It’s a very competitive market. There’s no question about it.”

NEWSWIRETrains News Wire

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