NEW YORK – The RailTrends conference in New York has been called the greatest single collection of rail investors in one place, and it has featured in recent years a level of introspection by an industry that hasn’t grown much despite regular promises to do so.
But the event this year wrapped up Friday with presentations from two Class 1 railroad CEOs – Keith Creel of Canadian Pacific Kansas City (CPKC) and Jim Vena of Union Pacific – that were generally upbeat after a year or more of railroad performance that most industry members would agree could signal better days ahead.
This is the second RailTrends conference following the formal merger of Canadian Pacific (NASDAQ: CP) and Kansas City Southern in March 2023. Creel received the Railroad Innovator award at the conference from Progressive Railroading, one of the sponsors of RailTrends. His acceptance speech gave him an opportunity to talk about the service offerings that came from the combination of CP with its Canadian system and Kansas City Southern’s north-south orientation from the U.S. Midwest down into Mexico.
The Midwest Mexico Express – “a train that originates in Chicago every day, goes deep into Mexico to a place called San Luis Potosi, deep into the industrial heartland of Mexico” – takes four days and is “trucklike reliable,” Creel said.
“That’s a key word if you want to enjoy growth in this industry, shaking our age-old probably earned and deserved reputation of being unreliable,” Creel said. Putting the Mexico Express into the market has yielded “tremendous growth,” he added.
But more significantly, according to Creel, it has established “the gold star for what is possible and allowed us an innovative platform to go into customers, go into business partners, some of whom we’ve never had business with before, to talk about new opportunities.”
Creel went further, talking about a 6,000-mile trip that also would be possible with the merger of the two railways.
He began in Saint John, a city in New Brunswick, Canada, across the border with Maine. He said it was the closest “tidewater” port to several cities, including Toronto, Montreal and Chicago and therefore more competitive in some ways with the larger Canadian Port of Halifax.
Creel imagined a container of diapers coming into Saint John, “putting it in a CPKC box car, taking it all the way down to Texas.”
“There are a lot of diapers being consumed with babies in Texas, which is a growing population center,” he added. “Think about down in Texas, when that container gets empty, you can take the same container and fill it with cotton that is being consumed at Mexican textile facilities that are in and around San Luis Potosi.”
When that trip is finished, the railcar can be filled with some of the products being manufactured in that industrial center, Creel said, ticking off “televisions, they make a lot of refrigerators, a lot of washers and dryers.”
The container doesn’t just need to go to Chicago to service the U.S. market, Creel said; it can go all the way to Toronto.
And in Toronto, he said, CPKC has “a very key customer that produces cereals that are consumed guess where?” That location: Saint John. Creel sees that possibility as a 6,000-mile round trip with no deadheading.
“That is something that was never possible without the innovation of this network and without a marketing team that was hungry and humbled to go to the customer to identify solutions that not only serve the environment, but it serves the commerce among these three nations,” Creel said.
That sort of contained trip – one railroad, thousands of round-trip miles – stood in contrast to when Vena, in his RailTrends address, said 40% of the freight Union Pacific (NYSE: UP) handles has a hand-off between either another Class 1 railroad or a short line. It is a notable fact that what Vena describes is an industry in which railroads are fierce competitors but are also highly dependent on each other to get the job done.
Vena’s unconventional speech asked a question: What is service? He said when that question was posed to UP staff members, he got several different answers. “One person said it’s dwell,” Vena said. “Another said it’s transit time. Another one said it’s end to end.”
But Vena’s response was that service is “what we sold the customer.” That led to a wide-ranging soliloquy about the difference between eating in an expensive steakhouse and ordering through the drive-in window at McDonald’s – which Vena suggested he liked to do – and what one expects in return.
“Find out what the customer wants,” Vena said. “We have customers who want high-speed, fast movement. Make sure that they’re there on time and making cutoffs. We provide that service.”
Vena also dismissed the criticism that the rail industry had become too focused on operating ratio, of how it has been negatively portrayed as “the cult of the OR.” The UP CEO’s view is that OR reflects “getting the maximum use of your assets” and is necessary for a high level of service.
Vena displayed a slide containing recent operating data showing improved performance on numerous key metrics. “Our velocity is better, our car dwell is better, and our locomotive productivity is better,” he said, in particular citing a 33% year-on-year increase in international intermodal revenue.
UP currently has 500 locomotives “parked and ready to go,” Vena said. “If something happened, we can move on it.”
CPKC’s Mexican business is going to get a boost next year with the opening of a new bridge across the Rio Grande near the border city of Laredo, Texas. That bridge was first announced by Kansas City Southern under the leadership of then-CEO Patrick Ortmeyer, who led the merger with Canadian Pacific and passed away last summer.
Creel was greeted with a long round of applause when he announced that the bridge would be named after Ortmeyer.
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