KCS’ Ottensmeyer: USMCA, CN merger afford traffic-growth opportunities
7/15/2021
By Jeff Stagl, Managing Editor
When Kansas City Southern President and Chief Executive Officer Patrick Ottensmeyer addresses a rail industry event these days, many attendees expect him to talk about the proposed CN-KCS merger.
During his July 13 keynote at the Midwest Association of Rail Shippers summer meeting in Lake Geneva, Wisconsin, Ottensmeyer didn’t disappoint. But he didn’t address CN-KCS — which has been a hot and polarizing topic for several months — right away.
Instead, he first described why the United States-Mexico-Canada Agreement (USMCA) and a confluence of recent events present a unique opportunity for freight haulers in North America. The pact — which just marked its first year of existence on July 1 — will help the continent become a more powerful manufacturing force, Ottensmeyer believes.
Covering intellectual property, digital trade and a host of other topics, the USMCA removed the dark cloud of uncertainty that surrounded the former North American Free Trade Agreement (NAFTA), he said. To be in force at least 16 years, the agreement promises to evolve and benefit all partners as long as there’s a high degree of engagement.
“It’s a living and breathing agreement. It will be an inclusive dialogue,” Ottensmeyer said. “The USMCA process will be ongoing and dynamic, which is good because NAFTA was stale.”
The USMCA is important to KCS because half its business is generated in Mexico and its growth prospects are heavily impacted by political agendas in both the United States and Mexico.
It’s clear that supply chain strategies are changing due to trade tensions between the United States and China — leading to an Anywhere but China or ABC sourcing strategy — the pandemic and other factors, Ottensmeyer said. Global supply chains are being de-risked and demand is increasing for reshoring and investments in domestic facilities to reduce dependence on Chinese manufacturing.
However, China still rules North American sourcing — 40% of the cargo coming to Los Angeles-area ports originates in that Asian manufacturing powerhouse, Ottensmeyer said.
Therefore, the private sector and policymakers in the domestic arena need to be more engaged, he believes. For example, the U.S.-Mexico High Level Economic Dialogue that was launched in 2013 eventually disappeared. It was designed as a flexible platform to advance strategic economic and commercial priorities central to promoting mutual economic growth, job creation and global competitiveness.
When U.S. President Joe Biden and Mexico President Andres Manuel Lopez Obrador held their first bilateral meeting March 1, they agreed to restart the U.S.-Mexico High Level Economic Dialogue. “We need to bring Canada into it,” KCS’ Pat Ottensmeyer said.When U.S. President Joe Biden and Mexico President Andres Manuel Lopez Obrador held their first bilateral meeting March 1, they agreed to restart the economic dialogue, Ottensmeyer said.
“We need to bring Canada into it,” he said.
KCS is trying to bring Canada into its own horizons by pursuing the merger with CN. The proposed combination ties into the USMCA and the golden opportunity for freight haulage in North America, Ottensmeyer said.
CN-KCS will drive new investments, facilitate near-shoring, strengthen supply chains and divert truck traffic.
“It plays into ‘Together We Grow,’ which is the theme of this conference,” Ottensmeyer said. “It’s all about growth for shippers, employees, railroads, communities and nations.”
There is enough growth for everyone in CN-KCS’ proposed north-south routing, which is a huge freight corridor, he said.
The railroads plan to provide new single-line service mainly between Detroit, Chicago and Jackson, Mississippi, and between Chicago, Kansas City, Shreveport, Louisiana, and Laredo, Texas. End-to-end single-owner, single-operator services from Mexico to Canada will be faster — including Laredo to Detroit in 85 hours — resulting in improved efficiency, enhanced competition and greater options for shippers, CN and KCS officials say.
“It will be a more direct gateway. Our connections will create new east-west competition,” Ottensmeyer said. “There will be new access to the CN-KCS multimodal footprint, which is in areas that now are dominated by truck.”
KCS is committed to working with the Surface Transportation Board (STB) to address any merger concerns, and to keeping all gateways open. CN and KCS anticipate a final STB decision on the merger either late in 2022 or possibly into 2023, Ottensmeyer said.
The combination has widespread support, including more than 1,750 favorable letters sent to the STB, he added.
