Merger Update: CN Settlement, Q2 Earnings Calls + the Importance of Chicago

Chicago has always been the bottleneck. CN’s decision to no longer oppose the UP-NS merger comes with better Mexico access for CN, terminal ownership, + a few other perks…but UP gains running rights over the all-important former EJ&E, which is conveniently the fastest way around Chicago. Harris + David unpack what that concession reveals: if the merger needed a bypass bolted onto it, perhaps the merger was never actually going to fix the problems in Chicago in the first place. 

Also on the table: Q2 earnings, where volumes are up across the board (though Harris argues the story is being written on the truck side, not the rail side, as capacity exits + rates climb), as well as data centers, the building boom they have unleashed, + how that looks with crews at a seasonal low.

Sinclair called Chicago the Jungle. The stockyards may be long gone, but the congestion remains the same.

Talk Track, hosted by Harris Ligon + David Correll of Telegraph™, is a spin-off series dedicated to timely rail industry news. From service shakeups to technology breakthroughs, each episode delivers a behind-the-scenes perspective on all the happenings shaping the future of freight rail. 

Harris + David will bring their decades of rail experience to help them parse through the latest industry headlines, evolving regulations, + the long-term forecasts for how railroads move freight across North America. Find us at telegraph.io/insights, Apple Podcasts, Spotify, or wherever you listen to your favorite podcasts. 

About Our Hosts

Harris Ligon is the co-founder + CEO of Telegraph. Prior to launching Telegraph, he spent nearly 15 years in surface transportation at Uber Freight, Norfolk Southern, + BNSF Railway. During this time, he led teams in operations, strategy, business development, + product development. 

David Correll is the Director of Freight Market Intelligence at Telegraph. He has spent two decades in transportation and logistics with the US Department of Transportation, the US Department of Energy, the Massachusetts Institute of Technology, and Clark University.

About Telegraph

Telegraph is a leader in delivering digital solutions to railroads, shippers, logistics service providers, terminals, + railcar leasing companies. With an integrated platform that prov...

Transcript

SPEAKER_00 0:06

All right, welcome back to another episode of Talk Track, the podcast where we talk about and respond to the news of the day that affects the railroad and community. And really by that, we of course mean shippers, carriers, rail car lessors, really just pretty much everyone. And we wanted to convene today's session to do sort of a news roundup because a lot has been happening this month, July 2026. And so uh our our friend, uh CEO and founder of Telegraph, Harris Ligan, is here to share his thoughts on what's going on in the news, and hopefully we'll get into an interesting back and forth on what it all means going forward. Harris, thank you so much for joining.

SPEAKER_01 0:42

Yeah, David, great to catch up as always, uh, and appreciate us being able to schedule this somewhat impromptu session uh because there has been a litany of things going on on the newsbeat, in addition to earnings calls that are just absolutely firing last week and the and this week. And so there are quite a few things that I think we're gonna need to navigate our way through. And candidly, a lot of surprises, even as late as last night.

SPEAKER_00 1:11

Gosh, no, absolutely, and I think that's kind of what prompted the news roundup. And I was thinking about how to approach it, and maybe if we go through it reverse chronologically, so we talk about what left us gobsmacked most recently and then work our way backwards. And you know, some of those conversations will probably connect organically, and some you know we might have to feel out. But I guess let's start with what happened this morning and yesterday, and just to catch people up who weren't thinking about that. You know, this morning we had both the UP and the NS earnings calls. Those were really interesting, and and I was able to listen to those. We're happy to share that. And then, you know, the night before, what really sort of got us talking, the announcement of CN and Union Pacific, and let me sort of pitch to you, I know that struck you strongly, what really stood out to you and what caught your attention when you saw that? Because you certainly raised it right away as you know something that could change things.

SPEAKER_01 2:05

You know, it's it's interesting because when CN came out and said that they were in in effect, dropping their opposition to the merger because they were gaining concessions as a result of maybe some routing on some former lines, um, they were gaining some some operating rights and kind of sharing that. Uh, it's it candidly surprised me because I classically the two narratives have been the best way to serve the overall rail market is to generate basically a new round of mergers, or where BNSF and CSX and and even you know some smaller short lines have been playing in that space. All of this can basically be done through operating agreements, trackage rights, and commercial partnerships, right? There are ways to price and kind of operate those things. What was most surprising to me, embedded in the Canadian national announcement, was really the EJ and E lines and that deal specifically. Because behind the scenes, what it told me is that the merger isn't actually designed to solve what is going on here in Chicago, which is a lot of heavy dwell. It typically takes quite a while to actually do the interchange. And so uh, because the transcon doesn't really like in intentionally like remove that, yeah, sure, it opens up potentially other gateways. But what I what I thought it was was interesting is that CN can help kind of navigate around the city, and so kind of from a joint perspective, this offers a little bit of this told me that Chicago is very important to the network. It also told me that Chicago continues to be a bottleneck in any discussion, and if there are ways to kind of route around it and create concessions maybe across the broader chess table, maybe those are some things that that need to be considered. And so I I just didn't see it coming. Candidly, I was I was just really, really surprised. And look, that that former EJNE track is is fast, like it is it is known for being a very quick move. So uh kudos to to seeing this out there.

SPEAKER_00 4:07

You know, the the the earnings call this morning I think really supports that view, and that one of the things Venice said is he sort of articulated, and and this was an interesting connection, back to his time at CN. So for you know, people who don't know, he previously has a lot of experience leading that railroad too. He spoke to his experience in routing through Chicago, starting in Canada, and how it could take equally as long to get from Canada down to Chicago as it could to get through Chicago without something like that service. So he's had his eye on this service, you know, for a long time, specifically to address that problem that you described. Do you think it changes anything in in terms of merger approval? And and you can probably you know already guessed that all the analysts asked him that. But I wonder do you think this changes anything? Um, you know, will it be approved? The timeline, do you think that this was a play? I really like your take. You know, this shows us that the Chicago uh fluidity problem isn't solved by the merger. Do you think it solved any you know merger issues or increased the likelihood of a timely merger approval in your mind?

SPEAKER_01 5:15

That's a very interesting question. To be completely honest with you and anybody else who's listening, I have tried to curtail my thinking about the merger. Because there's so many other things that are going on out there. Um this this forced it kind of back to the forefront. And so I put on my unknown analyst hat. I don't know that it changes really the overall calculus of merger approval or disapproval. Because fundamentally, I at the at the end of the day, this is really about does the STB feel that there is sufficient evidence in the merger application? And we'll talk about that, I know, in a minute or two. But this is really a way to say and kind of address the lack of concessions that showed up in application one and application two, and this is a way to maybe not maybe I think adjudicate the concessions, but actually keep those commercial conversations between those two kind of operating partners. The way that I the that I view this is that um there's a really fast way to get through Chicago, and that has basically been leveraged in a commercial agreement. What I think it it does really do, and maybe less from the merger approval standpoint, it does somewhat raise up the idea: do we really need a merger? Or can all the folks around the table on the chessboard actually just figure this out through operating agreements? I I don't I I don't I I don't know that to be fundamentally true because if if those operating agreements had worked previously, I'm not sure why we why they they wouldn't be working more in the future. So it's this creates another wrinkle in the in the overall process to give a long-winded answer to your question.

SPEAKER_00 7:02

No, I like it, and I think you're speaking to something that probably everyone who would take the time to listen to this podcast feels there's a bit of maybe merger fatigue. Like there's just so much ink has been spilled on it. Um and and frankly, um, you know, none of us have really special unique insight there. That I wonder though, so so let's put on a shipper's hat. I think the first take on this is like, wow, I can get from north-south pretty fast now. Like if this works out, there's a service opportunity there. But if I'm CPKC, I'm thinking, oh really? Right? Like, there's got to be an angle on this there too.

SPEAKER_01 7:40

Yeah, you know, the CPKC has a great history of playing to win. So I can only imagine if you had to battle hard to acquire another property to connect the dots that then allow you to basically serve three distinct um bodies of water, you would also be a little confounded by the news that came out last night. I'm all for more competition because I think, again, to your point, putting on the shipper hat, yes, let's create more access, let's create faster opportunities, let's reduce the transit time. Because candidly, I think as we we both know and everybody I think is becoming aware of, there is more volume coming to rail, both on car load and definitely intermodal. And so any way that we can incentivize that, I'm pro doing that. So we we should we should continue that that thought. Look, Chicago is is has always been somewhat of a of a of the jungle, right? Uh even quote, you know, Upton Sinclair. Uh, and I especially think about it as, you know, when we think about big drayage markets, right, we tend to think about the coast: Savannah, Norfolk, Charleston, LA, Long Beach, right? Um, Seattle, Tacoma. Chicago is a massive drayage market, but not in the same way that I think, especially on the coast. A lot of the drayage activity here in Chicago, and I would argue maybe half of it, is just literally drayage from one ramp to another. So literally just crosstowning back and forth. So if this allows better interchange or allows you to move in and out of homewood faster, all for it. I think that's that's a great win for shippers.

SPEAKER_00 9:19

You know, the other point that I'll put on it, just you know, as maybe listeners of the podcast who might be thinking to get caught up quickly. You know, so there is, I think, the the headline point around essentially the concession of UP is going to help CN get to Mexico. In exchange, CN is gonna help UP get around Chicago. I think that's the you know the core of the deal on offer. But there's a second um component to that agreement, which is around ownership stakes and two key assets at Kansas City and at St. Louis. And as I read it, it's basically saying if the STB approves this, we are going to give CN Norfolk Southern's ownership stake in those ventures so that the TransCon itself doesn't have over half uh of the shares. Which are you know, I I think one, that's you know, contingent upon approval. But two, I think it kind of speaks to the idea of like this is the interesting wrinkles of the story were always going to be about the concessions and and UP and NS know that, and they're just starting to put out the ones that they're comfortable with first to get that to get those early steps taken care of.

SPEAKER_01 10:27

I I've always laughed a little bit at uh the way that the railroads kind of self-regulate and form these committees, and they're gonna like, you know, you know, we we have a joint shared interest in the in the operational effectiveness of the TRRA or TTX from a rail car sharing standpoint. Because it is very hard to imagine, it's it's possible, maybe not plausible, that you could see people you know putting their foot down or having you know majority voting share and saying this is the new direction of kind of the joint venture. The challenge with that is because of the interoperability and the interconnectedness of the rail network, I mean, at the end of the day, like the cars need to move, things need to get switched, and and that's just like fundamentally like what's gonna drive the on-the-ground activity. And so I've always felt that this you know, percentage ownership, voting rights, all of those different things, when it really comes down to the hardcore, get it done, throw some switches, kick some dirt, I this was something that I like, I've always just kind of kept to the side. I I've always wondered like what is the core value prop here? And so even if you adjust the percentages on the table of like ownership, does anything fundamentally change in St. Louis or Kansas City on a day-to-day basis? I I'm not a hundred percent convinced that it is. At BNSF, when when I was there and we went from a publicly traded entity to a private entity, do you think any anything changed on a day-to-day basis? No, we still ran a lot of trains and it was a lot of fun.

SPEAKER_00 12:04

That's fair, that's fair. And and you know, that was one of the things, maybe we'll pivot to the earnings calls, but you know, the the earnings call had, of course, information about earnings and volumes, and a lot of, particularly in the UP case, uh, talking points.

SPEAKER_01 12:18

Let me guess, did they talk a lot about train speed?

SPEAKER_00 12:20

No, actually, not so much, a little bit. You know who did? NS talked a lot about train speed. UP, I I think they knew. I mean, it was a good call. They kind of said, we've got 45 minutes scheduled, and we're gonna give the first 15 to what we want to say, and the rest for you to ask us about the merger was uh the structure that I read from it. But I I guess I just did want to highlight that they, you know, in the the points that they wanted to get across about the merger to your point about ownership, you know, they said we said when we started this that every single one of our junctions would remain open, um as open as it is now, it will be with the potential merger of the transcon. We're not closing anything off with this. And so I think that kind of speaks to your point that like there's at least not an outward, you know, we're gonna box people out of certain opportunities as part of this this this effort. So so I guess you know, pivoting to the earnings calls, uh, a couple things that that struck me. One, you know, the volume up story has been across the board. So so far, um, at least, you know, what what I've listened to is WABTEC, UP, NS, CSX, and then CN tomorrow morning. And you know, volumes up in Q2 is pretty much the story across the board.

SPEAKER_01 13:30

Yeah. And so what it what I've found to be a really interesting part of the whole volume up story is yes, there's there's always a seasonal flow of QT to Q2 to Q3 to like you know a trail off in Q4. Some of the volume story has actually not been about getting aggressive on pricing or fundamentally having like significantly better service in Q2 versus Q1. I think what the what the interesting story has really been is actually more driven from the truck side. And I don't want to I don't want to speak for you, but my my sense, Dave, has been that there has been a massive amount of capacity that has had to exit the market for a variety of reasons, and as a result of that, rates have basically gone exponential. Like they, I mean, rates are drastically off up and away. And so, as you've said in many many episodes, smart shippers are always thinking about allocation and diversification.

SPEAKER_00 14:37

You know, and I wonder if we could kind of to to pick to your experience there working with railroads, because that is exactly where a lot of the conversation went. And particularly when you think about from the investment banking side where they were asking the questions, everyone said, Okay, volumes up, we've seen headlines about, and I'll put the usual air quotes around driver shortage or the capacity that's missing. Uh, you know, basically people would really push the railroads. So you're gonna raise price, right? And then they would say something to the effect of I can't answer that, but trust that we will when it's appropriate. Uh, but but could you maybe lay out from your experience, you know, what is the realistic timeline for a class one to change its rates, you know, to change its quotes to its customers. You know, things have been going up depending on who you ask. Um the the freight market, particularly trucking rates, changed in let's say December of last year or as late as early spring of this year. So we haven't had a whole lot of time in this new market. Is it too soon for the class ones to renegotiate rates with shippers, or do you think now's the time?

SPEAKER_01 15:46

It's definitely not too soon. So I think there are there are two sides of this. So from the rail perspective, there's always a time delay. And I think there are charts ad nauseum that will show truck rates will accelerate at a certain point, and then eventually, weeks, months, many months later, rail rates will begin to climb. Structurally, the way a lot of car load rates specifically are structured on multi-year contracts. They have built-in escalators, and so in many cases, a railroad is actually not going to reach out to renegotiate those because candidly, a lot of the direct head-to-head competing volume between intermodal and truckload is simply OTR, right? It's it's over the road, it's it's you know somewhat interchangeable. It's in a if it's in a 53-foot drive-and versus a 53-foot container. You know, a lot of that stuff is interchangeable depending on the service requirements. Where it is interesting is that many of the railroads, and candidly they've been working on this for a while, have gotten really smart with their market intelligence around knowing where truck rates are going and establishing a little bit of a gap, wanting to maintain that gap, but obviously climb up where they can. And so this is where the spot market, yes, and trucking is absolutely not a great place to be. Spot intermodal, probably not even any more exciting because there's this whole kind of behind-the-scenes process within intermodal that you have to kind of work through to be ready. And so, if containers and chassis have been stacked for some time, and they have, you can drive around Chicago and see it for yourself, those are now starting to get unstacked and placed into service or reallocated around the network. And so those costs are now going to be showing up in some of those rates, right? So, hey, it's it's cost us some money to actually put these back into service. We're gonna go get that by some rates. So, you know, I I would say if you haven't renegotiated your contractual rates for intermodal yet, you probably want to figure out the best way to go do that because guess what? It's only gonna go up from here.

SPEAKER_00 17:49

You know, and and and just as sort of an interesting confirmation of that, I was really struck by um, you know, WABTEX performance, and they had a great quarter two, and one of the things they pointed out is like that whole chain of events from essentially, you know, I think the dominant narrative is um regulation around trucking, taking capacity out of the market, causing modal conversion onto rail, has translated to the term they used was unparking rail cars, which then translates to you know rail park component sales. So it's been really interesting to see that follow through, kind of through through this whole story. I I wonder if you have uh a thought on so that so that kind of gives away with the narrative of what most of the companies we follow are talking about in the Q2 earnings call. It's big volumes and it's big volumes because of a tightening trucking market. The next question that to my mind no one has really sufficiently answered, although happy to share kind of the the points that people brought up was like, all right, well then is that sustainable, right? Did did we just have this really quick policy-driven change in trucking that caused a lot of sort of um nervous shippers to move things to intermodal rail where they could? Is this sustained growth? And then people would come back and say, you know, to sort of build on that. How much real industrial growth can we say is data centers? Is that enough to uptick railroad volumes?

SPEAKER_01 19:21

I believe yes, because data centers are uh, I mean, that is the biggest story in construction, industrial production. I mean, I mean, think about the amount of aggregates and concrete and steel, and I mean just so many. It has been so long since our country has had a building boom in the way that we are seeing today. Now, for many of us who who are fortunate to hang out in Chicago every once in a while, I mean, architecturally, it's a really diverse city. I wish we were getting that kind of architectural styling out of data centers, you know, regardless of where they're popping up, but we haven't had this kind of demand in a in a really long time. And so, yes, those those big, bulky, like lumpy, big items are gonna move a lot in rail cars. And so if if capacity is now being taken up and more rail cars are in motion, we're super thumbs up on that. Um, going back to trucking for a second, I think one of the fair things to talk about there is like if capacity has come out of the market and there is increased demand for moving a variety of things in addition to like the day-to-day things that we normally see in the market, then yeah, you're gonna be looking for capacity wherever you can find it. And I think that is also leading back people more into intermodal. The question that I have is going to be is the network set up in a way structurally today, after a couple of quarters and a period of softness, to handle that increased volume consistently? A couple of factors to put into play there. I'm certain there are rail cars that have been in storage with the WebTech call kind of confirmed that they're now coming out of storage, they're gonna need to be repaired, set back into motion. There are probably locomotives that have also been in storage. They will need to also be you know taken care of as well. There are crews that to a you know a varying degree have either been furloughed or have been set back on a retention board. They're gonna need to be brought in. All of these things are happening in the middle of a fairly nice summer in the United States. And guess what happens in summer in the United States and especially in Europe? People take time off. So your availability of crews to even operate the the trains themselves is probably at a at a lower point, which is not a great place to be met with rising volume. My prediction is that whatever service issues customers are currently feeling today, miss switches at that, you know, at their you know, end of the stub track or you know, having to reset multiple appointments to pick up a container. Uh yeah, I think we're gonna continue to see more of that. And and I don't think that you know this isn't like some massive import boom, it's just like structurally where the network is at today.

SPEAKER_00 21:58

You know, and and just to To follow up on that, that was I think something that really came out of the CSX call. So basically, everyone has been wondering all right, do you have the staffing appropriate to handle the growth that you're projecting? Because every single one of these companies has raised their earnings expectations this quarter. And and I think it was CSX who said it right to that point that they said, um, you know, everyone has said, well, we might need more people, but we don't want to say how many more people we're gonna hire. But they did bring up the seasonality, uh, exactly as you mentioned, that like, you know, the the the bottleneck to me seems to be, and this goes back to some other conversations and research work that you and I have done, that that it there really is a staffing component to this or a people component to this that that perhaps the class ones, you know, are struggling to keep up with the best, and having this sort of out-of-season surge hit at a very awkward moment for that network.

SPEAKER_01 22:50

So the the challenge from a staffing standpoint is obviously um, you know, PSR kind of killed the idea of a work retention board, which was classically where you would you would place people in periods of like uncertainty around volume, and they would they would go away for a little bit and they would come back and their seniority would climb and they would become more regular. That's just classically how it was. I'm not arguing that that is a great work-life balance. I'm not arguing and saying that that is the right way. Historically, that's how it was handled. As those work retention boards diminished or got eliminated completely, we always we always find executive teams at railroads talking about their hiring pipelines, how long it takes to train a conductor and to get somebody certified as a locomotive engineer, ad nauseum now. And so, much in the same way that I feel fatigue around merger discussion, I feel the same fatigue around hearing people talking about the hiring process, especially in a relatively competitive job market for this type of work-life balance role. And so I yeah, I think it's it's gonna be a challenge. One of the interesting things on this point to kind of dovetail again back into the merger is Union Pacific and Norfolk Southern coming out and publicly and reinforcing and buying ads to communicate that everyone who has a job at the time of the merger will have a job of life for life, which is a very interesting phrasing to kind of think about. I'm interested to see where that goes because the SCB also came out, I don't know, two days ago with a uh an interesting ruling basically requesting, as a part of this merger review process, share more confidential employee data. I'm not sure what the SDB is is doing with that, but I noticed that that was an initial ask and also some very strongly worded, multiply referenced uh citations around uh all parties avoiding retaliation. And so that was that I was surprised uh to see those things kind of shape up.

SPEAKER_00 24:47

I I think you're right that the you know you and I went back and forth about it. The language there did feel certainly um non-conciliatory, like it was basically saying It was very direct. It was a scolding, you know. Yes, but but I to my mind it doesn't change the outlook on you know, I've always said I think the STB is gonna approve this thing. And that case got so much stronger, you know, there's still so much more news to talk about, but we needn't even get to the slaughter decision. People that haven't followed that, it was a Supreme Court case that, and I don't think I'm exaggerating, and I encourage anyone to look it up to find other takes on it, really sort of does away with the notion of independent boards in federal governments. Correct. Uh the idea being that like, you know, if if it's sort of uh if you're not with us, you're against us. Uh and and people can be fired for um you know not supporting the the the position of the administration. I think we know where this administration sits on this merger and the slaughter decision just makes it even clearer that that the SDB's role has been diminished there. So I think you know what what is going on with the the pushback if I'm in that position, and and you know, there may be very good reason to approve it. I don't even mean to say that there's not. I guess I just mean to say like if I know my independence has been taken away on the decision itself, what do I have left to do in that role? I can make sure that the evidentiary record is as complete as is possible. Right? If I don't get to decide, I can at least make sure that everything is out there. You know, that is the power that I have to bring to this very important moment. And I think to me that's how it reads.

SPEAKER_01 26:32

Yeah, I I I I I think like I don't think you're reading it incorrectly. I think the application of the implication, I don't agree with. And this is where we've consistently diverged, right? You think it's going one way, I think it's going another. Um, and despite our best efforts, we find ourselves on yet another talk track talking about the merger. Um, I I'm super excited about the next episode that we're gonna do because we're gonna be extracting a ton of late night conversations that you and I have had, a ton of research that that you you went super deep on, and I'm excited to kind of bring that up more publicly. Because I know that there is a there is a looming July 27th kind of like reveal announcement, further you know, discussion from the STB. I'm sure we're all gonna be watching for that. But boy, in the meantime, it'll be great to talk about some other very intellectually stimulating things in rail. So excited about that. Thanks, thanks again for the time today, David.

SPEAKER_00 27:31

No, thank you, and thank you to everyone for listening to another episode of TalkTrack. If you'd like more of this content or more of these discussions, follow us on LinkedIn or check us out at telegraph.io.