Merger Forms Canada-Mexico Rail Network


Merger Forms Canada-Mexico Rail Network
A line of tanker cars at a rail station. © Yana Vasileva

Canadian Pacific Railway acquired Kansas City Southern, one of the largest transporters of base oil and lubricants from the United States into Mexico, for $25 billion, the companies announced earlier this week. The deal combines each company’s railways to form the first network that extends from Canada to Mexico.

Canadian Pacific’s system extends across Canada and the Upper Midwest United States, and Kansas City Southern’s network runs through the Southeast United States and Mexico. The two systems will connect in Kansas City, Missouri, where they already interchange and operate a shared facility.

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“The transaction will combine the two railroads to create the first rail network connecting the U.S., Mexico and Canada,” the companies said in a joint press release. “The combined network’s new single-line offerings will deliver dramatically expanded market reach for customers served by CP and KCS.”

The combined business will be named Canadian Pacific Kansas City. The deal is still subject to final regulatory approval.

Such a merger could potentially impact the North American lubricants and base oils market. Canada-based manufacturers could have easier access to Mexico markets. Likewise, Mexican lube producers may enjoy a wider range of base oil options. Mexico typically buys around 30% of U.S. base oil exports, according to data from the U.S. Energy Information Administration.

Over the years, carriers such as Kansas City Southern de Mexico, Ferromex and Union Pacific have added facilities around the country that can handle base oils. Kansas City Southern de Mexico serves northeastern and central Mexico and the port cities of Lzaro Crdenas, Tampico and Veracruz.

In early 2012 Mexico’s Raloy Lubricants and Kansas City Southern de Mexico opened the Diamond International transload center, a storage terminal – not intended exclusively for Raloy’s use – primarily used for lubricants, base oil, additives, antifreeze and brake fluids. Diamond International operates the transload center, which has capacity to handle 400 rail cars and 27,000 tons annually at its location in Mexico City. Kansas City Southern de Mexico helped to develop the project by taking advantage of unused real estate and rail facilities in the area. At the time, KCS stated its primary goal for the center was to expand its business into the specialized lubricants market.

By deadline, Kansas City Southern did not respond to questions about its lube and base oil transportation volumes or its customers. The company does report on weekly carloads but not for individual products. So far in the month of March, Kansas City Southern has transported an average of 5,335 carloads of petroleum products each week.

Larger base oil manufacturers in the U.S. with close access to the expanded railway network include Motiva and its 40,300 b/d capacity API Group II facility in Port Arthur, Texas; ExxonMobil and its Group I and Group II plant in Baytown, Texas; and a handful of manufacturers with facilities in Louisiana and Mississippi, including Ergon and Excel Paralubes.

In Canada, Petro-Canada operates a Group II and Group III facility with a combined 15,600 b/d capacity in Mississauga.

Mexican state-owned oil company Pemex operates a 6,000 b/d Group I plant in Salamanca, near where the network extends into Mexico City. All capacity numbers are from the 2020 Lubes’n’Greases Guide to Global Base Oil Refining.

“Grain, automotive, auto-parts, energy, intermodal and other shippers will benefit from the increased efficiency and simplicity of the combined network, which is expected to spur greater rail-to-rail competition and support customers in growing their rail volumes,” the companies stated in the press release.