CP/CMQ Transaction: Analysis

Thoughts on CP+CMQ

This was always the plan: FTAI bought CMQ with a plan to fix it up and make a nice return. Apparently it has. No surprise. Good on them.

That CP is the one to win the bidding war is also not a surprise. The logic of a CP connection was there since the 1800s. The line, including its connection to the Irving roads toward St. John, complements CN’s network and brings long-haul traffic into CP’s network west of Montreal.

CP gains an eastern port, which was always the major goal of this line. Historically St. John was CP’s eastern port, and will still be the primary facilitator of that role. But Searsport has suddenly become more significant than its size. As the port’s sole carrier, CP has a considerable interest in its development. What will that mean?

CP’s move echoes CN’s purchase of the CSX Massena line to Syracuse. Both lines extend the Canadian carriers’ core network into the US. Both could involve eastern ports (Syracuse being in a good position to receive containers from Halifax). Both seem to provide the big Canadian carriers a way to hold on to traffic and avoid the routes’ reliance on third parties. Presumably, both carriers believed that a direct connection to their network was worth a premium over what other bidders would offer. Under Hunter Harrison, CN started making small purchases to extend its network, some of which were strategically significant. Perhaps CP has picked up some of that same DNA.

Having a direct connection between CP and NBM should improve the competitive balance between the two carriers.

One wonders about the future CP ties with Irving’s railroads and the Vermont Rail System. If CP is in an expanding move, both now offer obvious synergies and historical connections.

Effects on Traffic

Historically, CP ran two trains a day from Montreal to St. John, and three from Montreal to a B&M connection with New England. Historically CP handled part of a trainload of containers to St.John. One could imagine this traffic returning. Historically, CP handled auto business to St. John. Word is this will be moving back from CN to CP. Historically CP traffic to New England include large amounts of milled-in-transit feed grain from mills in Richford and Saint Johnsbury VT which are now much reduced and gone, respectively.

Vermont Rail System’s Connecticut River Line between Newport and White River Junction VT. Vermont connects with CP’s new US connection into New England. In recent years VRS had move connecting traffic from Maine to customers in Southern New England and had moved some bridge traffic between CMQ and NS or CSX. The bridge traffic seems to have moved back to CP in recent months. VRS has been handling traffic interchanged with CMQ for their US customers in Vermont which may be re-routed over CP’s network for a longer CP haul.

CMQ Management

CMQ management has done well, lifting the railroad into a more valuable property with more traffic a solid safety record and better relations with its community. Since the retirement of John Giles, Ryan Ratledge has served as President & CEO, Gaynor Ryan as Cheif Administrative Officer and Chad Mowery as General Manager and then V.P. of operations. They have much to be proud of. Presumably they are now dusting off their resumes, as typically these kinds of transactions make them “redundant,” as the Brits would say. Their resumes can now include their good work increasing the value of their property many fold. They have been good members of the New England railroad community. Whoever can snag them next will be lucky to have them.