A railroad company could be the unintended victim of a North American tariff war

Under threat

Last year, a buyout merged the seventh and sixth largest North American railroad companies. The fusion yielded great results for a year, but now it is under the threat of a commercial war.

$28 billion investment

Canadian Pacific invested $28 billion to buy Kansas City Southern. According to Reuters, the buyout caused Canadian Pacific's shares to rise around 6% on the Toronto Stock Exchange.

First single-line service

The excitement was justified: the merger created the first single-line railroad service connecting Canada with Mexico and the US, effectively covering all of North America.

US' largest trading partners

The new Canada Pacific Kansas City (CPKC) connected Canada and Mexico, the US’s most significant trading. Both countries are a part of the Canada-United States-Mexico Agreement (USMCA).

Yielding results

According to the Wall Street Journal, the new single-line service provided 42% growth for the new company and revenue of nearly $8.9 billion in 2023. The company has invested millions in infrastructure.

Taking share from trucks

The company has moved to take market share from trucks, responsible for about two-thirds of the transportation of goods between the three countries.

Trading of goods

According to the newspaper, the company is also pushing to increase its presence in Mexico, where it now sends about 24 trains a day. The most significant infrastructure investments aim toward that goal.

40% of the companie's revenue

It makes sense. Around 40% of the company’s revenue comes from moving goods between the three North American countries. Its second service in terms of revenue is intra-US movements, but it only makes up 19%.

Calming the waters

The WSJ said the company's director and executive team have spent weeks trying to calm investors' concerns about a potential North American trade war and increased tariffs. Tensions between Mexico and Canada have been high.

Tariff threat

President-elect Trump's 25% tariff plan would make CPKC operations much more expensive. However, the company expects the final import taxes to be lower after negotiations.

Only 'Made in Mexico'

The company also clarified that most goods it transports from Mexico to the US are made in the country and not imported by third parties. There have been concerns about Chinese products entering from Mexico.

Union Pacific

Other railroad companies, like Union Pacific, are having an easier time since Mr. Trump won the election, the WSJ said. Its shares are up 5% since the victory.