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CPKC - effects on traffic flows and traffic counts?

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CPKC - effects on traffic flows and traffic counts?
Posted by Ajsik on Wednesday, September 15, 2021 8:06 PM

This thread is intended as a general discussion of what effects the CPKC merger will have on existing traffic flows and traffic counts.  I'll get the ball rolling with a selfish question regarding whether this means any reductions through Milwaukee (Watertown and C&M subs).

One of the merger maps includes a text box declaring 'Bypass Chicago - Creates New Capacity'.  Can I assume this refers to traffic which currently interchanges in Chicago for which CPKC will now have the full (or at least longer) haul?  Anyone have any estimate of how big this effect might be?

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Posted by DJMF on Thursday, September 16, 2021 12:25 PM

In reviewing the CP-KCS merger map, it would appear the ex-Milwaukee Road River Line is in for a substantial increase in traffic.  It ought to be especially interesting to see what changes are in store for the section of line south of La Crescent, MN which is unsignalled and with few sidings.

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Posted by CMStPnP on Thursday, September 16, 2021 1:03 PM

I live close to the line each time I am in Wisconsin visiting.    Most of what CP hauls to Chicago is sent to Bensenville for classification and as we discussed in a seperate thread, very little of it transits to Kansas City    Someone said at most on the Chicago to KC CP line there are 2-3 through freights to KC that belong to CP.   I am guessing most of the traffic in these is from the East Coast or points directly East to Northeast of Chicago.     The Twin Cities to KC traffic I believe even in the Milwaukee Road's time used the River line and was never sent East to Chicago to my knowledge.

So I believe what they are referring too is new KC - CP interchange traffic, not existing. 

BTW, Twin Cities to Chicago traffic is set to increase with new Oil Train traffic last I heard based on the haulage contracts that CP signed.     If CP was smart it would help pay for upgrade of the Watertown to Madison line and possibly swipe the Unit Grain Train that now transits BNSF to Chicago.....maybe?      Seems to me that might be a shorter and possibly faster route with a track upgrade.

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Posted by MP173 on Thursday, September 16, 2021 4:14 PM

So what is the new "oil train traffic"?

That river line will need some investment.  Nice scenery, but not for high speed or volume.

Ed

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Posted by SD60MAC9500 on Thursday, September 16, 2021 9:12 PM
 

MP173

So what is the new "oil train traffic"?

That river line will need some investment.  Nice scenery, but not for high speed or volume.

Ed

 

Alberta crude moving to the gulf. Which this merger will only benefit bulk traffic. CPKC is also planning new Chicago-Dallas IM service. Yet with a horrible route between those two points vs the vastly better BNSF, and UP routes.....All I can say is good luck....

 
 
 
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Posted by MP173 on Friday, September 17, 2021 5:10 PM

I dont see them CPKCS picking up much Chicago - Dallas intermodal.  That would almost all be domestic.  My lord, what a slow route.

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Posted by Los Angeles Rams Guy on Saturday, September 18, 2021 12:25 PM

The real core of the combined CPKC system will be from St Paul down to Shreveport and being familiar with both the CPRS River and Marquette Sub mainlines, I can tell you that there will be substantial work and upgrades done; particularly on the Marquette Sub mainline where you'll probably see some new sidings added (Brownsville and between Bellevue and Dubuque) and CTC will be installed which will not only help speed things up but will probably allow crew districts to be extended where you will likely see St Paul down to Dubuque and Dubuque to Muscatine and Muscatine to KCITY.  

I think one could also make the argument that putting the double track back in on the River Sub between St Croix and River Junction - especially if the second Chicago - Twin Cities passenger train becomes a reality - is certainly a possibility as well; at least in sections anyway.  Some of the newer bridges on the River Sub were done for single track only but there's several sections where having double track will make a big difference.

And there's also going to be a big uptick in intermodal traffic as well.  :) 

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Posted by Ed Kyle on Saturday, September 18, 2021 1:18 PM

I expect that any gain CPKC gets will be between Kansas City and Minneapolis/St. Paul and it won't come at the expense of the line through Milwaukee.  The losers would have to be the only other competitors between KC and the Twin Cities:  UP and BNSF.  BNSF through Sioux City and the UP Spine Line seem targeted here.  But honestly, how much traffic can be fought over in this lane?  Is it even enough to require new trains?

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Posted by greyhounds on Saturday, September 18, 2021 2:20 PM

Ed Kyle
I expect that any gain CPKC gets will be between Kansas City and Minneapolis/St. Paul and it won't come at the expense of the line through Milwaukee.  The losers would have to be the only other competitors between KC and the Twin Cities:  UP and BNSF.  BNSF through Sioux City and the UP Spine Line seem targeted here.  But honestly, how much traffic can be fought over in this lane?  Is it even enough to require new trains?  - Ed Kyle

Alberta has a whole lot of oil and they can't get it to markets.  The proposed XL pipeline was blocked.  This could take it to Gulf Coast refineries and ports.

I remember reading that two unit trains per day of solidified Alberta crude were to start running CP-KCS to gulf refineries this month.  I don't know the status of that.  But CP had a reason for doing this.

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Posted by kgbw49 on Saturday, September 18, 2021 2:26 PM

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.

 

 

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Posted by beaulieu on Saturday, September 18, 2021 8:33 PM

I would expect that the Chicago to Dallas IM train would be mainly just forwarding Canadian traffic from Canadian sources and Canadian ports, obviously a small amount of traffic will originate in Chicago where a company might give all its business to CP where CP serves. As others have noted I would expect bulk traffic to dominate, corn from Northern Iowa and Southern Minnesota, Ethanol, DDG, various specialty grains from Canada like Barley and Rye. Plus of course the big elephant Canadian heavy crude oil. The contract between CP, KCS and ConocoPhillips began July 1st. It covers up to two 120 cars trains per day. Currently I would say it is moving about 5 trains every six days due to teething issues unloading the product. The  product called DRUbit involves removing almost all the diluent at Hardesty, AB and loading the now heavy thick crude, hot into insulated and coiled tankcars for rail movement to Port Arthur, TX where steam is used to reheat the product for unloading. Removing the diluent at Hardesty reduces the ignition and explosion hazard, and the diluent is pipelined back to the mines for reuse.

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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.

 

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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 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 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 8:43 PM

Thanks 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 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 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 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 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 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 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 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 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 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 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 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 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 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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