Canadian Pacific Kansas City reported stronger third-quarter results, posting higher profits and revenue despite tariffs that have slowed steel shipments and created uncertainty for cross-border trade.
BNN Bloomberg spoke with Jeffrey Kauffman, partner of logistics, transportation and equipment research at Vertical Research Partners, about the company’s efficiency gains, tariff challenges and why he sees longer-term growth opportunities ahead despite industry merger speculation.
Key Takeaways
- CPKC’s third-quarter adjusted earnings came in slightly below consensus but showed strong operating margin gains.
- Efficiency improvements, including lower terminal dwell and longer trains, boosted productivity and safety metrics.
- U.S. tariffs on steel have cut cross-border shipments by about 50 per cent, though domestic and Mexico trade offset losses.
- A proposed Union Pacific–Norfolk Southern merger could reshape North American rail competition and raise regulatory concerns.
- Vertical Research maintains a buy rating on CPKC with a $125 price target, citing long-term cost savings and network expansion potential.
Read the full transcript below:
ROGER: We’re watching shares of Canadian Pacific Kansas City this morning after the company reported a big boost in profit despite tariff challenges. You can see it’s pretty much flat right now, up a touch. Grain, potash and container volumes rose from the same time last year, but cross-border steel trade is about 50 per cent lower as tariffs slow shipments. Here to tell us more is Jeffrey Kauffman, partner of logistics, transportation and equipment research at Vertical Research Partners. Jeffrey, thanks very much for joining us.
JEFFREY: Thank you, good morning.
ROGER: Is this a good year for CPKC — or I should say, a good report?
JEFFREY: Yeah, it’s probably the best of the rail reports in terms of margin improvement. We saw about a 260-basis-point improvement in margins. It’s one of the few railroads that actually improved margins, so that alone stands out. But it’s been a very difficult year for freight. You’ve got trade headwinds that have shifted import and export volumes to times you wouldn’t normally see. And as you mentioned, steel has been hit hard — because of the steel and aluminum tariffs, a lot of companies are sourcing locally. Then there’s the question of whether we’re moving our grain overseas or not. So there have been a lot of real challenges this year, and I think CP has navigated them very well in a difficult environment.
ROGER: Yeah, about a 50 per cent drop in cross-border steel — where did they make that up? How did they manage that?
JEFFREY: Well, you don’t really make it up, but you can reallocate those cars to other areas. I wouldn’t take a steel car and put it in a grain field, but their auto traffic, for instance, was up. So there are areas where you can redeploy assets. Railroads are also good at parking excess equipment — putting cars on the side track — and reallocating locomotives to other parts of the network.
ROGER: And that saves them money by sidelining cars but keeping locomotives working?
JEFFREY: Exactly. Then you generate revenue in other areas. That’s railroading 101. You’d see the same thing in a weak or strong economy, or if a coal mine went offline and capacity had to be shifted. Railroads are very good at bobbing and weaving when these kinds of things happen.
ROGER: How much bobbing and weaving will they need to do in the year ahead? I guess it depends on what happens with tariffs and trade deals, right?
JEFFREY: Some of it does, but there are still opportunities. You can move Canadian traffic through Vancouver to Southeast Asia, which is less affected, whereas U.S. soybean exports may face more difficulty if the U.S. and China don’t reach an agreement. But I’d focus more on the new opportunities CPKC has to generate traffic. For instance, the Meridian Speedway — part of the Kansas City Southern line between Dallas and Atlanta — now has a raised speed limit to 49 miles an hour, up from the 20s or 30s. That lets them move more freight through the corridor.
They’ve also announced new intermodal agreements with BNSF and CSX in the Southeast. CP has been talking to both about new projects. There are also ongoing cost efficiencies and integration benefits from combining the Canadian Pacific and Kansas City Southern networks, including new train efficiencies and added volume in and out of Mexico. So apart from trade or tariff uncertainty, there’s a lot of opportunity over the next two to three years for CP to grow revenue, improve efficiency and lift earnings.
ROGER: As a non-railway guy, I’m curious — when you raise the speed limit from, say, 25 to 49 miles an hour, how much difference does that make?
JEFFREY: I wouldn’t say it doubles capacity, but maybe a 30 to 50 per cent increase on the same line. You’re moving traffic faster and more efficiently, and in theory, with fewer assets if you can run longer trains.
ROGER: All right, and what about the potential Norfolk Southern–Union Pacific merger? What’s happening with that right now?
JEFFREY: I think investors appreciate Keith Creel’s perspective on that. He was more accurate than Canadian National during the Kansas City Southern process, and people trust that he has a good sense of where regulators are leaning. His view is that this merger isn’t a done deal. There are some high hurdles to clear — not just for the 10 or 15 customers that could lose competition, but for the broader network impacts.
He doesn’t see it being approved quickly or without concessions. Those concessions could include allowing CP or BNSF to bid on certain traffic, or letting CSX participate to promote competition. Keith’s view is that regulators could take 16 to 18 months to review it and might create new opportunities for other railroads, such as CPKC or CSX, if they push for more open access as part of the approval process.
ROGER: Okay. Jeffrey, thank you very much for joining us.
JEFFREY: Thank you.
ROGER: Jeffrey Kauffman is a partner of logistics, transportation and equipment research at Vertical Research Partners.
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This BNN Bloomberg summary and transcript of the Oct. 30, 2025 interview with Jeffrey Kauffman are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
