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CPKC poised to benefit from ‘nearshoring’ amid tariff concerns: analyst

Jeff Kauffman, partner at Vertical Research Partners, shares his analysis on CP Kansas City as it ramps up operation improvements.

One analyst says growing trade interdependence in North America presents an opportunity for Canadian Pacific Kansas City Ltd., despite the near-term threat of tariffs from U.S. President Donald Trump’s administration.

Shares of CPKC were trading over three per cent higher late morning Thursday after the rail company reported fourth quarter earnings a day earlier, which showed gains in profit and revenue. In November, Trump initially threated to impose a 25 per cent tariff on all Canadian imports during his first day in office. He did not follow through but has subsequently floated the idea of levying tariffs on Feb. 1.

Jeff Kauffman, a partner of transportation and logistics at Vertical Research Partners, said in an interview with BNN Bloomberg Thursday that Canadian Pacific’s takeover of Kansas City Southern in December 2021 has positioned the company to benefit from nearshoring and onshoring in North America.

“Despite maybe some short-term risk, we think this is a big long-term opportunity. And CP really kind of puts itself right at the center of that discussion with almost 41 per cent of their traffic either cross border Canada or cross-border Mexico,” he said.

Kauffman noted that tariffs were a major point of discussion during the first Trump administration, culminating in the signing of the United States-Mexico-Canada Agreement (USMCA) in 2020, “and we saw trade grow 20 per cent in the three years after that.”

“I think people believe that this is more a tool like it was in Trump 1.0 to get people to the table and negotiate some things such as in the case of the administration here in the U.S. they’re looking for protections against Chinese expansion to get around Southeast Asia tariffs by going through Mexico or Canada and a little bit more border security, I think that is what they’re looking for,” he said.

CPKC’s net income rose 18 per cent during quarter, coming in at $1.2 billion compared to $1.02 billion during the same period last year. Meanwhile revenue during the quarter rose by three per cent to $3.87 billion from $3.78 billion a year earlier.

According to Kauffman, the company is trending toward operational improvements following the integration of Kansas City Southern.

“For example, this hasn’t hit the numbers yet, but they just finished an expansion of the bridge over Laredo, which is one of the largest cross-border, destinations (from) Mexico to the U.S. So that’s going to double their ability to take traffic over that route,” Kauffman said.

“So, what that’s resulting in is longer trains, fewer crews, faster network speed, more efficiency, and then as the network gets better you see the drop in personal injuries, you’ll see the return of excess locomotives and excess assets back to storage.”