Over the weekend, President Donald Trump announced 25% tariffs on Mexican and Canadian imports; stocks sold off in pre-market trading before Trump issued a one-month delay on the new Mexican duties, while leaving the Canadian tariffs intact.
Still, capital markets’ quick reaction provided a glimpse of which sectors of the economy are thought to be most at risk in the event the tariffs do go through, and one of those sectors was transportation companies with significant cross-border exposure. The poster child might be Canadian Pacific Kansas City (NYSE: CP).
The railroad’s shares tumbled Monday as investors reacted to Trump’s announcement of sweeping tariffs. The stock was down 5%-7% in morning trading, significantly underperforming the broader market decline of around 1% for the S&P 500.
CPKC, formed last year through the merger of Canadian Pacific and Kansas City Southern, operates a 20,000-mile rail network spanning Canada, the United States and Mexico. As the only single-line railroad connecting all three countries, CPKC is uniquely exposed to disruptions in North American trade flows.
The tariffs, set to take effect on Tuesday, impose a 25% levy on most goods imported from Canada and Mexico, with a partial carve-out for Canadian energy exports, which will face a 10% tariff. Trump framed the move as necessary to address what he called a “national emergency” related to immigration and drug trafficking.
However, economists warn the tariffs are likely to have significant negative impacts on economic growth and inflation across North America. For CPKC, the immediate concern is a potential sharp drop in cross-border freight volumes as higher costs crimp demand for imported goods.
(Daily intermodal rail container movements from Canada to the U.S. [in white] and Mexico to the U.S. [in orange[]. Chart: SONAR. To learn more about SONAR, click here)
CPKC derives substantial revenue from cross-border intermodal container traffic and automotive shipments among the three countries. The company had been projecting mid-single-digit volume growth for 2025, driven in part by new cross-border service offerings. Those forecasts now look increasingly uncertain.
On the automotive front, major carmakers like General Motors, Ford and Stellantis rely heavily on integrated supply chains spanning all three countries. The 25% tariff could severely disrupt those networks, potentially leading to plant shutdowns and reduced production. CPKC moves finished vehicles and auto parts for these manufacturers and others.
The railroad’s bulk commodity business may fare somewhat better. Canadian grain exports to the U.S., a key volume driver, could see less impact given tight global grain supplies. However, U.S. agricultural exports to Mexico may decline if Mexico retaliates with its own tariffs, as expected.
CPKC management had not yet commented publicly on the tariffs as of Monday morning. However, in its most recent earnings call in late January, CEO Keith Creel struck an optimistic tone on the company’s ability to drive growth despite economic headwinds.
“We expect strong midteens adjusted EPS growth for FY25,” Creel told analysts at the time, citing expectations for “mid-single-digit percentage [revenue ton-mile] growth” driven by both organic expansion and merger synergies.
Those projections will likely need to be revisited in light of the new tariffs. Wall Street analysts were already trimming their CPKC earnings forecasts Monday morning, with several houses cutting 2025 EPS estimates by 5%-10%.
The tariffs also cast doubt on the longer-term strategic rationale for last year’s CP-KCS merger. The $31 billion deal was predicated in large part on capturing a greater share of growing North American trade flows. A prolonged trade dispute between the U.S. and its neighbors could undermine those ambitions.
Adding to the uncertainty, Trump has threatened to impose additional tariffs on European Union imports in the coming weeks. Such a move would likely invite more retaliation and could push the global economy closer to recession, further pressuring rail volumes.
For now, investors and CPKC management alike will be closely watching for signs of how shippers adjust to the new tariffs. The coming weeks will be crucial in assessing whether cross-border freight flows see a short-term disruption or a more lasting realignment.
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