Facing a battle it seemed destined to lose, Canadian Pacific Railway (CP) said today it would end its efforts to acquire Norfolk Southern Corp. (NS) for US$28 billion to create North America's first end-to-end transcontinental railroad network.
In a terse statement, Calgary-based Canadian Pacific said it would also withdraw a resolution it was to present May 12 at NS' shareholders meeting to call for Norfolk Southern's board to engage in good-faith merger talks with CP. Canadian Pacific CEO E. Hunter Harrison had said CP would withdraw its merger bid if the nonbinding resolution failed to win NS shareholder approval.
Canadian Pacific did not state a specific reason for ending its quest for Norfolk Southern. But it may have been triggered by the U.S. Justice Department's announcement Friday urging the Surface Transportation Board (STB), the U.S. agency that oversees rail mergers, to reject a CP proposal to place itself in a voting trust in an effort to insulate itself from controlling NS while the STB evaluated the merits of the integration. Under the CP proposal, Harrison would have run NS, while his-second-in-command, Keith Creel, would have headed CP. Justice said the proposal would "fail to preserve the independence of the merging railroads" prior to regulatory review by the STB, a process that could take as long as 22 months.
"We have long recognized that consolidation is necessary for the North American rail industry to meet the demands of a growing economy, but with no clear path to a friendly merger at this time, we will turn all of our focus and energy to serving our customers and creating long-term value for CP shareholders," Harrison said in the statement calling off the deal.
Norfolk Southern's statement was equally terse and bereft of any explanation. The railroad said it was on track to execute its five-year plan of hitting a 65-percent operating ratio— a company's operating expenses as a percentage of its revenue—by achieving $650 million in annualized productivity savings by 2020. Its fourth-quarter operating ratio stood at 74.6 percent, one of the highest in the industry. For 2015, NS posted an operating ratio of 72.6 percent.
Canadian Pacific, which had made three buyout offers for Norfolk Southern since mid-November, faced stiff opposition from the start. Several railroads, as well as lawmakers, unions, and shippers said the merger and subsequent integration would severely disrupt a continental rail network that has faced its share of service challenges during the past two years. There was also concern that merger approval would further reduce competitive options for shippers, and perhaps trigger a final round of consolidation among the remaining large North American railroads that would leave as few as four left.
CP maintained that it could dramatically improve NS' operating efficiency, leading to more efficient service both on the new network and across the continent's rail system in general. To allay fears that rail shippers would be harmed by the deal, it proposed that if the combined CP-NS failed to provide adequate service or offer competitive rates, it would allow another railroad to operate from a point of connection over the combined company's tracks and into its terminals. Shippers of the combined company could also decide where their freight would interline with another railroad along that carrier's network. CP also said it would end a practice in the U.S. under which an origin railroad dictates where it interchanges a customer's freight with another carrier, even if other interchange points are more advantageous to the shipper. The practice is illegal in Canada.
The decision to withdraw its merger proposal is the second blow to CP's efforts to consolidate North America's rail system through mergers and acquisitions. CP had begun very preliminary efforts in late 2014 to acquire NS' chief rival in the East, Jacksonville, Fla.-based CSX Corp., but quickly withdrew the offer after being rebuffed. Harrison then turned his attention to Norfolk Southern, and seemed to be far more determined to consummate this deal, despite the NS board's repeated rejections.
Harrison has said for some time that consolidation is the only logical path to alleviating network congestion, which will only get worse as volumes continue to grow.
On Thursday, CP released a white paper arguing that its approach to "precision railroading," which it defined as the constant monitoring and optimization of every asset across the entire organization, could be successfully applied to wring efficiencies out of what it called an "underperforming" NS.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The U.S. manufacturing sector has become an engine of new job creation over the past four years, thanks to a combination of federal incentives and mega-trends like nearshoring and the clean energy boom, according to the industrial real estate firm Savills.
While those manufacturing announcements have softened slightly from their 2022 high point, they remain historically elevated. And the sector’s growth outlook remains strong, regardless of the results of the November U.S. presidential election, the company said in its September “Savills Manufacturing Report.”
From 2021 to 2024, over 995,000 new U.S. manufacturing jobs were announced, with two thirds in advanced sectors like electric vehicles (EVs) and batteries, semiconductors, clean energy, and biomanufacturing. After peaking at 350,000 news jobs in 2022, the growth pace has slowed, with 2024 expected to see just over half that number.
But the ingredients are in place to sustain the hot temperature of American manufacturing expansion in 2025 and beyond, the company said. According to Savills, that’s because the U.S. manufacturing revival is fueled by $910 billion in federal incentives—including the Inflation Reduction Act, CHIPS and Science Act, and Infrastructure Investment and Jobs Act—much of which has not yet been spent. Domestic production is also expected to be boosted by new tariffs, including a planned rise in semiconductor tariffs to 50% in 2025 and an increase in tariffs on Chinese EVs from 25% to 100%.
Certain geographical regions will see greater manufacturing growth than others, since just eight states account for 47% of new manufacturing jobs and over 6.3 billion square feet of industrial space, with 197 million more square feet under development. They are: Arizona, Georgia, Michigan, Ohio, North Carolina, South Carolina, Texas, and Tennessee.
Across the border, Mexico’s manufacturing sector has also seen “revolutionary” growth driven by nearshoring strategies targeting U.S. markets and offering lower-cost labor, with a workforce that is now even cheaper than in China. Over the past four years, that country has launched 27 new plants, each creating over 500 jobs. Unlike the U.S. focus on tech manufacturing, Mexico focuses on traditional sectors such as automative parts, appliances, and consumer goods.
Looking at the future, the U.S. manufacturing sector’s growth outlook remains strong, regardless of the results of November’s presidential election, Savills said. That’s because both candidates favor protectionist trade policies, and since significant change to federal incentives would require a single party to control both the legislative and executive branches. Rather than relying on changes in political leadership, future growth of U.S. manufacturing now hinges on finding affordable, reliable power amid increasing competition between manufacturing sites and data centers, Savills said.
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.