Technology Gaps May Drive Mergers, CN Head Says

Canadian National CEO Jean-Jacques Ruest predicted last week that technology and carbon footprint gaps between Class I railroads could be a force leading to the merger of two of North America’s big rail networks.

J..J. Ruest

Speaking to the Citi 2021 Global Industrial Virtual Conference, Ruest acknowledged that any such merger would have to resolve issues of competition through reciprocal switching or some other mechanism to provide shippers with access to two railroads.

Although reciprocal switching arrangement exist in some instances in Canada, U.S. Class 1 railroads have opposed efforts by shippers to get reciprocal switching agreements.

Ruest called for a new competitive model that would allow a merger to receive regulatory approval even as it affects a railroad’s pricing power.
He called that the cost of gaining efficiencies and a better service network of a merger.

Falling behind on fuel efficiency and emission reductions could be the factors that force some railroads to seek a merger partner, Ruest said.

Individual railroads that fail to make much technology progress within the next five years would be prime candidates for a merger.

CN has sought to lead the industry in fuel efficiency by exploring alternatives to the diesel-electric locomotive.

The Montreal-based carrier is looking at or testing hydrogen fuel cells and electrification as ways to reduce greenhouse gas emissions.

“People should not dismiss the importance of moving ahead with technology before it’s too late,” Ruest said.

He said environmental, social, and governance, also known as ESG criteria, will become increasingly important to investors and some railroad shippers as ways to combat climate change.

“And people should not dismiss that eventually the pressure on ESG will really catch the rail industry and the fact that we consume so much diesel. It will happen.”

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