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Brooke Sutherland

Suez Ship Grounding Makes Case for Big Rail Merger

A blockbuster tie-up between Canadian Pacific and Kansas City Southern is a bet that supply-chain breakdowns like the Suez Canal blockage will keep happening.

Unlike this ship, a Kansas City Southern rail car has zero chance of getting stuck in the Suez canal.

Unlike this ship, a Kansas City Southern rail car has zero chance of getting stuck in the Suez canal.

Photographer: Suez Canal Authority/via AP Photo

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It’s no coincidence that the two biggest industrial news events of the week involved a blockbuster North American railroad merger and a 200,000-ton container ship that got wedged into the Suez Canal, halting an estimated $9.6 billion worth of global trade on every day that it’s stuck. The former is a bet that events like the latter will keep snarling globalized supply chains and boost the appeal of more localized freight routes. 

Canadian Pacific Railway Ltd. agreed on Sunday to buy Kansas City Southern for $29 billion including debt to create the first major rail network that runs the gamut of North America. The combined tracks form a “T” that stretches from Kansas City Southern’s legacy routes deep into Mexico across the U.S. Midwest and up along the Canadian border, creating the opportunity to ferry grain, chemicals, energy products, cars and consumer goods seamlessly between the three countries. If the deal is approved by regulators, the more efficient railroad would be in a stronger position to take market share from the trucking industry. It could also change the freight calculus for companies contemplating moving parts of their supply chains into North America.