PERSPECTIVE | March 14, 2024

The merger of two major North American railroads will create a rail network that reaches both coasts and runs through the middle of the continent.

The long-sought combination of Canadian Pacific and Kansas City Southern—now known as CPKC—promises to make a seamless, faster supply network that will benefit Canada, Mexico and the United States.

The integrated North American auto supply chain already shows the advantages of trade policies that benefit all parties. This new rail network will further integrate the continental supply chain, which should result in efficiencies and cost savings across all areas of cross-border trade.

Despite increasing political friction between Mexico and the United States because of immigration, the US$31 billion merger represents an evolution of trade, financial and economic relationships that will be tested during a period of global populism. Rising nationalism, emerging industrial policy and increasingly restrictive trade policies will almost certainly shape the evolution of regional economic integration.

The April 2023 merger signals the private sector’s interest in fostering growth beyond the use of tariffs, particularly given the trade tensions of recent years and their impact on the American agricultural sector.

As the largest rail merger since the 1990s, the merger also ignited competition in the railroad industry, with Canadian National Railway (CN) acquiring Iowa Northern Railway in December.

The two largest companies in the Canadian rail network, and two of the seven largest in North America, have now grown to provide an enhanced supply network for businesses throughout North America.

Benefits of mergers like this can hardly be overstated. The single-line network improves efficiency by streamlining the transportation of goods, leading to reduced transit times and optimized routes. It also increases safety and reduces carbon emissions by removing goods from highways onto railroads.

In the broader picture, this merger represents businesses’ desire to grow through means beyond tariffs. Tariffs and trade restrictions have a place, such as when it comes to issues of national security. But they also come at steep costs, and within North America, it often makes sense to make trade flow more seamlessly rather than less.

The merger is a part of the global reconfiguration of supply chains. The pandemic, coupled with geopolitical conflicts, led to supply chain struggles that crippled Canadian businesses, frustrated consumers and contributed to high inflation. Clearly, global supply chains needed change.

But rather than moving all production to domestic sources, businesses and entire industries are moving closer to home. And there are few places where onshoring, nearshoring, and friendshoring—call it what you like—are more appropriate than in Canada, the United States and Mexico, where geographical proximity and close relationships foster trade.

While the U.S. has always been Canada’s largest trade partner, accounting for two-thirds of Canada’s total trade, in recent years, Canada has also become the U.S.’s top trade partner alongside Mexico. The volume of trade between Canada and the U.S. grew substantially in 2021 through 2023, and imports from Mexico also rose nearly 25% over the same period.

The takeaway

The CPKC merger highlights the theme of growth of Canadian railroads. It represents a catalyst for economic progress and is part of a journey toward a more connected North America.

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