Unpacking Rail Earnings: How Volume Growth Fuels Merger Talks

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6}#fwtv_2lFERRd9Fw. fwtv-panel p{margin:0 0 12px}#fwtv_2lFERRd9Fw. fwtv-transcript p{margin:0 0 12px}SummaryView TranscriptRailroads are seeing a significant upturn in Q2 earnings, with most Class 1 carriers raising their guidance.

But the big story is the revelation of strategic deals between Union Pacific and Canadian National, directly tied to the CPKC merger. Discover how these competitive shifts will redefine domestic and cross-border rail operations, bypassing congested hubs and expanding market access for key commodities.

Canadian National Railway will not oppose the proposed Norfolk Southern-Union Pacific merger after reaching two separate agreements with Union Pacific — one tied directly to the merger and one that stands on its own — that give CN a faster route to Mexico and a first-ever foothold in Kansas City, rail analyst Bill Stevens told FreightWaves.

The deal that is independent of the merger grants CN haulage rights over Union Pacific’s tracks between Memphis and the Mexican border crossing at Eagle Pass, Texas, covering traffic moving between Canadian origins or destinations and Mexico.

The arrangement gives CN a faster, more direct route to compete against CPKC, which already offers single-line service across Canada, the U. S. , and Mexico. Currently, CN hands traffic to Union Pacific in Chicago, resulting in a shorter length of haul.

In exchange, Union Pacific gains rights to use CN’s Chicago bypass — the EJ&E corridor acquired in 2009 — to avoid the city’s notoriously congested rail network. “CEO Jim Vena said at times when he was at CN, they could get a train faster from British Columbia to Chicago than it took to get from one side of town to the other.”

The merger-contingent piece grants CN trackage rights over Union Pacific through Missouri, running two parallel routes across the state. CN gains access to the Kansas City market for the first time operating its own trains and gets the use of Union Pacific’s underutilized Neff Yard in Kansas City.

The arrangement addresses competitive concerns for roughly five shippers whose railroad options would drop from two to one under a NS-UP combination, and approximately two dozen shippers — mostly in the St. Louis area — who would go from three options to two. “CN said, hey, this solves our competitive concerns about the merger.

We get growth opportunities out of it, and as a result, we will not oppose the merger,” Stevens said. The merger developments come as four of the six Class 1 railroads reported earnings this week showing broad-based volume improvement. CSX volumes were up 6%, Norfolk Southern up 4%, Canadian National up 5% on a revenue-ton-mile basis (flat at 0.

35% on a carload basis), and Union Pacific up 2%. Three of the four railroads raised their financial or volume outlooks for the year.

Intermodal led the gains: CSX intermodal rose 9%, Union Pacific domestic intermodal posted its fourth straight quarterly volume record with double-digit growth, and Norfolk Southern intermodal climbed 5%, driven in part by truck-to-rail conversions tied to high fuel prices. Coal results diverged sharply by railroad.

Norfolk Southern coal was up significantly on exports of metallurgical coal, while Union Pacific coal fell due to high utility stockpiles and low natural gas prices. CN’s Chief Commercial Officer Janet Drysdale noted on the railroad’s earnings call that truck capacity in Canada is not as tight as in the U. S.

, explaining why CN’s domestic intermodal performance lagged its American peers. CN flagged tariff uncertainty, forest products weakness tied to slow U. S. housing starts, and strength in petroleum, chemicals, and grain as the key variables shaping its outlook.

On the industrial side, Norfolk Southern said new plant openings and expansions across its network are running at double last year’s pace, while CSX cited data center construction as a driver of construction-related traffic.

Union Pacific also pointed to manufacturing gains it expects will outpace overall industrial production — implying market share gains from truck. The Surface Transportation Board is set to receive a supplemental merger filing from Norfolk Southern and Union Pacific on Monda