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CPKC - effects on traffic flows and traffic counts?

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Posted by D.Carleton on Saturday, September 25, 2021 10:43 AM

kgbw49

Perhaps CP can convince the Ontario Teachers Pension Fund to make an investment in that doublestack-capable tunnel under the St. Clair River. CP will need some help on major capital projects for a while until their volume increases to allow them the cash flow to service more debt than the $20 billion they will be carrying after the KCS purchase is completed.

The irony here is that when the pension fund owned the majority of the Detroit River Tunnel they had proposed building a new full clearance tunnel and converting the existing bores into a tollway for transborder truck traffic. The owner of the Ambassador Bridge fought tooth-and-nail to keep that from happening and it was dropped. Now a new publicly funded bridge is being built west of the Ambassador Bridge and he died fighting that too to no avail. Had he let the tunnel plan go ahead the two lanes of competition would be less of an encumbrance than the six lanes of the new span. As a wise woman told me years ago: Chose your battles wisely.

At any rate, CP bought full control of the Detroit River Tunnel and have some sort of plan for the future. Does that future happen sooner or later? We shall see.

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Posted by kgbw49 on Saturday, September 25, 2021 10:07 AM

It will be a while before the peavine that is the former Milwaukee Road to KC becomes a robust route for IM, for sure. It is more a bulk traffic line now.

Perhaps CP is thinking that connecting all the consumer goods manufacturing in Mexico and Texas with all the markets in the Upler Midwest and Eastern Canada, as well as automotive parts traffic back and forth between Ontario and Mexico, will produce growth in IM traffic on CPKC.

 

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Posted by Ed Kyle on Saturday, September 25, 2021 9:22 AM

CP used to run intermodal trains between Chicago and Kansas City, but dropped them a few years ago.   Why does the company think it can make that route succeed now?

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Posted by kgbw49 on Friday, September 24, 2021 10:17 PM

Perhaps CP can convince the Ontario Teachers Pension Fund to make an investment in that doublestack-capable tunnel under the St. Clair River. CP will need some help on major capital projects for a while until their volume increases to allow them the cash flow to service more debt than the $20 billion they will be carrying after the KCS purchase is completed.

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Posted by MidlandMike on Friday, September 24, 2021 9:30 PM

Regarding CHI-DET, CP once used CSX's ex-PM route thru Grand Rapids.  Could be an alternate for the more crowded corridors.  CSX has sold much of their other Michigan track, maybe they would also part with this trackage.

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Posted by D.Carleton on Friday, September 24, 2021 6:15 PM

kgbw49

Actually, that is one of the reasons I think there might someday be a chance for a Wabash Speedway deal.

CP could run IM on the Wabash from KC and the Nickel Plate to Buffalo, with blocks for Detroit if necessary. This would give NS more capacity on their former NYC and they would get trackage rights fees that they otherwise would not get.

NS could barter that into potentially a Twin Cities Speedway deal of some type to access the one large Midwest metro area (5 million souls) that it does not serve and for which it's parade of trucks every day leaving for cities south and east in NS territory could possibly ride NS trains.

I should like to think, based on recent actions by CP, they intend to consolidate their operations to the least amount of trackage possible. There is one fly in the ointment: the close confines of the Detroit River Tunnel. If they do finally get a full clearance route then KC-Detroit-GTA-Montreal becomes a very attractive possibility. Trackage rights to Buffalo shouldn't be necessary after that. There will still be a need for a Chicago-Detroit route but that already exists. 

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Posted by kgbw49 on Friday, September 24, 2021 3:31 PM

Actually, that is one of the reasons I think there might someday be a chance for a Wabash Speedway deal.

CP could run IM on the Wabash from KC and the Nickel Plate to Buffalo, with blocks for Detroit if necessary. This would give NS more capacity on their former NYC and they would get trackage rights fees that they otherwise would not get.

NS could barter that into potentially a Twin Cities Speedway deal of some type to access the one large Midwest metro area (5 million souls) that it does not serve and for which it's parade of trucks every day leaving for cities south and east in NS territory could possibly ride NS trains.

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Posted by D.Carleton on Friday, September 24, 2021 11:23 AM

MP173

There is a pair of intermodal which runs Chicago to Buffalo via CSX and crosses.

NS has several (perhaps 3 each way) of combo general freight/auto.

Also a frequent ethanol movement via NS...not sure if trackage rights or hand off.

So, the usual count is 6-8 scheduled freights plus the ethanol.

Ed

Thank you. (I forgot the ethanol.)

And so the next questions: How much KCS/KCSdeM traffic to the Windsor-QC corridor will get single-line service with the new CPKC? Some is already there with interchange from UP/BNSF to CP at Chicago and will continue to ride on trackage rights over NS/CSX. But will they be able to pry traffic away from CN? How many more ton/miles will NS/CSX want to deal with on what is arguably their heaviest use corridors?

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Posted by MP173 on Friday, September 24, 2021 9:11 AM

There is a pair of intermodal which runs Chicago to Buffalo via CSX and crosses.

NS has several (perhaps 3 each way) of combo general freight/auto.

Also a frequent ethanol movement via NS...not sure if trackage rights or hand off.

So, the usual count is 6-8 scheduled freights plus the ethanol.

Ed

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Posted by D.Carleton on Friday, September 24, 2021 6:48 AM

My next question is: How many trackage rights trains does CP field east out of Chicago to eastern Canada via NS/CSX? Between CBR, intermodal, finished autos and mechandise it's at least a half dozen.

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Posted by SD60MAC9500 on Thursday, September 23, 2021 10:19 PM
 

D.Carleton

My question in all of this is: How much 'stuff' (consumer goods) goes to eastern Canada (GTA & Quebec) from Mexico?

 

Perishables, Finished Autos, Appliances.. Eastern Canada holds over 60% of the country's population.

U.S. map showing corridors along the routes listed on the components of corridors map, reaching all portions of the country except Montana, northwestern Wyoming, eastern Nevada, southern Colorado, Vermont, and northern Maine.

 
 
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Posted by tree68 on Thursday, September 23, 2021 8:50 PM

MidlandMike
(I presume GTA stands for greater Toronto area). 

Yes.  There's a lot of auto manufacturing in the area.

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Posted by MidlandMike on Thursday, September 23, 2021 7:54 PM

D.Carleton

My question in all of this is: How much 'stuff' (consumer goods) goes to eastern Canada (GTA & Quebec) from Mexico?

 

It's been mentioned, auto parts from Mexico to the auto plant in Ontario (I presume GTA stands for greater Toronto area).  They are currently extending I-69 to be part of a "NAFTA" corridor between the Mich.-Canada border to the Texas-Mexico border, and they expect a lot of trucks to use it.

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Posted by D.Carleton on Thursday, September 23, 2021 6:49 PM

My question in all of this is: How much 'stuff' (consumer goods) goes to eastern Canada (GTA & Quebec) from Mexico?

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Posted by kgbw49 on Wednesday, September 22, 2021 9:13 PM

Could be a possibility if CPKC could work a "Wabash Speedway" deal with NS.

Or, perhaps it could form directional running along with the Wabash in a "Wabash Speedway" deal.

Fun to "war game" the different theoretical possibilities and then see what really happens!

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Posted by atrainguy60 on Wednesday, September 22, 2021 8:57 PM

MidlandMike

Maybe CPKC would spin-off Kansas City-Springfield.  Maybe CN would buy it back (ex-ICG).

 

Is it possible UP could be interested in the route?  According to this Trains article from two years ago, they wanted trackage rights between KC and Springfield over the Wabash line.  I'm not sure if they got the rights or if it fell through, but is it possible they may end up wanting their own route rather than rights over someone elses tracks?  Pure speculation on my end, please correct me if that's an unrealistic idea.  

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Posted by MidlandMike on Wednesday, September 22, 2021 8:27 PM

Maybe CPKC would spin-off Kansas City-Springfield.  Maybe CN would buy it back (ex-ICG).

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Posted by kgbw49 on Wednesday, September 22, 2021 3:57 PM

MP173

YesYes

It sure will be fun to watch. The Jiffy Pop (with butter) is on the burner and starting to puff up!

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Posted by MP173 on Wednesday, September 22, 2021 10:38 AM

kgbw:

Thanks for that back of the envelope explanation.  What I didnt realize (and should have looked up) was the structure of the purchase...cash/debt/equity.

What will be interesting to watch is:

1.  Can the new entity increase revenue?  In other words, will the new route map lead to new traffic?  If so, what will be the mix?  Intermodal which is low margin or the good stuff?

2.  The new entity will have debt to revenue ratio of roughly 2.02 to 1.  In other words $2 of debt for each $1 of revenue.  Compare to CN - .86 to 1.  CP is obviously leveraging their balance sheet.  If CP can maintain their current profitability, then the debt can be serviced.  However, at 5% interest on debt, that would consume $1B per year.  Free cash flow will obviously cover this, but will restrict dividend growth, share repurchase, cap ex, etc.  

3.  The OR for CP in 2020 was 57.1% adn KCS was 60.7%.  It will be interesting to see how much lower that can go.  Obviously there can be non operating expense cut, which do not affect the OR, but $1B per year?  They are obviously counting on something else than cutting the OR into the 40's...arent they?

These are just my thoughts on this purchase.

Full disclosure...long term CN shareholder and not disappointed that we were not the "winner" of this.

Ed

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Posted by kgbw49 on Tuesday, September 21, 2021 11:20 PM

CP is borrowing $8.5 billion to cover the cash portion of the $31 billion, is assuming $3.8 billion KCS long term debt, and is issuing CP stock for the other $18.7 billion.

In 2020 KCS earned $616 million in net income on revenue of $2.632 billion.

In 2020 CP earned $2.444 billion in net income on revenue of $7.710 billion.

Combined and not adjusting for foreign exchange to Canadian dollars, that is $3.060 billion on revenues of $10.342 billion.

Very simplistically, CPKC thinks they can drop another $1 billion to the bottom line annually three years after the merger. That would be about a 33% increase in net income after covering added operating costs, interest expense on the debt, and taxes, to bring net income up to $4 billion, or more if they exceed their plan targets.

At 12/31/20 CP had $8.585 billion of outstanding debt so they will about double their long term debt to about $17.1 billion with this transaction, plus assume $3.8 billion of KCS debt for a total of $20.9 billion long term debt at the transaction completion.

Again simplistically, if CPKC earns $1.0 billion each year over and above CP and KCS "normal" net income of $3.0 billion, and the former KCS continues to contribute $600 million of net income that now comes to CP, then in theory after about 8 years CP would have received more added net income, at about $1.6 billion more annually, than the amount of borrowing they had done and the amount of debt they had assumed from KCS to purchase KCS. ($12.3 billion divided by $1.6 billion is about 8)

 Again, very simplified to give a general idea of the major considerations.

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Posted by greyhounds on Monday, September 20, 2021 4:05 PM

MP173
Greyhound or someone...please explain how this will work, not with new maps, but with new returns. Ed

I'll give it a shot.

KCS is generating earnings and cash flow.  That money will soon go to CP.  That money supported the investment in the KCS and will continue to do so when KCS is part of CP.

What CP needs to do is cover the premium it paid for the KCS with new business and new efficiencies.  It does not have to cover the entire cost (which is rather large) out of increased earnings.

 

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Posted by SD60MAC9500 on Monday, September 20, 2021 11:47 AM
 

kgbw49

There is the potential for a lot of automotive parts to Mexico from Southern Ontario.

Perhaps CP can work out a pair of Meridian Speedway-type deals with NS. Pair a "Wabash Speedway" co-ownership 30% CP-70% NS with a "Twin Cities Speedway" co-ownership 70% CP-30% NS. CP gets a bypass of Chicago to speed up Ontario traffic both ways, and NS gets access to the Twin Cities for intermodal traffic. (I-90 Chicago-Madison and then I-94 Madison-Twin Cities is practically wall-to-wall trucks.) Both of those would help each of them span the mid-America "dead zone" in a way that each can benefit from.

 

 

 

CP has access deals to negotiate with both UP and NS. CP can commit to capacity enhancement in the Rosenberg-Houston Terminal-Beaumont corridor in exchange for keeping the Laredo Gateway fluid for UP. CP would be best off getting trackage rights from Shreveport up the Cotton Belt/MP via Thebes to East St Louis. I can see NS giving CP rights from Springfield all the way to Detroit. Possibly rights to Louisville via East St. Louis. Louisville originates significant amounts of autoparts for Mexico.

 
 
 
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Posted by Ajsik on Monday, September 20, 2021 9:59 AM

MP173
With a purchase price of $31B, that oil business will write off that cost in 77500 days or 212 years.

I'm not a financial expert by any means, but my take is that the $31B investment doesn't just bring new profits.  The CP investment also buys them significant KCS tangible, fixed assets as well.

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Posted by MP173 on Monday, September 20, 2021 8:53 AM

Thanks for the oil update.  If and when CP/KCS can get up to 2 - 120 car trains a day, that will be nearly $1million of revenue per day, perhaps more assuming $4000 per carload.  With an assumed operating ratio of 60% for this business, that yields $400,000 of cash flow to the coffers.

With a purchase price of $31B, that oil business will write off that cost in 77500 days or 212 years.

Granted, there will be other revenue enhancements, but hopefully this will give the scope of needed revenue and profits to pay this purchase off. 

Granted, it is "OPM" (other peoples money) but it doesnt make sense to me.

Greyhound or someone...please explain how this will work, not with new maps, but with new returns.

Ed

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Posted by SD60MAC9500 on Sunday, September 19, 2021 8:44 PM
 

Jim611

I heard that NS does not run any through freights between Butler, IN and Detroit on th ex Wabash anymore, only locals and CP trains.  NS runs all their Detroit traffic via Toledo.  Does anybody know if this is true. 

 

Where did you hear this from???... Anyhow there's still mostly automotive traffic with a couple manifest on the Wabash. Plus the last pair of Triple Crowns between Melvindale and Voltz (KCMO). 

 
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Posted by Jim611 on Sunday, September 19, 2021 8:43 PM

Thanks Ed

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Posted by Ed Kyle on Sunday, September 19, 2021 7:15 PM

The federal crossings database shows 11 to 13 trains per day between Butler and Detroit on NS and 9 per day between Toledo and Detroit on NS.

Jim611

I heard that NS does not run any through freights between Butler, IN and Detroit on th ex Wabash anymore, only locals and CP trains.  NS runs all their Detroit traffic via Toledo.  Does anybody know if this is true. 

 

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Posted by Jim611 on Sunday, September 19, 2021 6:56 PM

I heard that NS does not run any through freights between Butler, IN and Detroit on th ex Wabash anymore, only locals and CP trains.  NS runs all their Detroit traffic via Toledo.  Does anybody know if this is true. 

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Posted by Jim611 on Sunday, September 19, 2021 6:17 PM

kgbw49

There is the potential for a lot of automotive parts to Mexico from Southern Ontario.

Perhaps CP can work out a pair of Meridian Speedway-type deals with NS. Pair a "Wabash Speedway" co-ownership 30% CP-70% NS with a "Twin Cities Speedway" co-ownership 70% CP-30% NS. CP gets a bypass of Chicago to speed up Ontario traffic both ways, and NS gets access to the Twin Cities for intermodal traffic. (I-90 Chicago-Madison and then I-94 Madison-Twin Cities is practically wall-to-wall trucks.) Both of those would help each of them span the mid-America "dead zone" in a way that each can benefit from.

 

 I heard that NS does not run any through freights between Butler, IN and Detroit on th ex Wabash anymore, only locals and CP trains.  NS runs all their Detroit traffic via Toledo.  Does anybody know if this is true. 

 

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Posted by greyhounds on Saturday, September 18, 2021 9:10 PM

beaulieu
Plus of course the big elephant Canadian heavy crude oil.

Mexico is importing refined petroleum products.  So now, they've got a railroad that can moved crude oil to a refinery and then move the refined products well into Mexico.

 

"By many measures, the U.S. freight rail system is the safest, most efficient and cost effective in the world." - Federal Railroad Administration, October, 2009. I'm just your average, everyday, uncivilized howling "anti-government" critic of mass government expenditures for "High Speed Rail" in the US. And I'm gosh darn proud of that.

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