By Keith Norbury
Canada’s two major railways are embarking on some cool endeavours to build their refrigerated and temperature-controlled cargo business. For instance, the larger of the two, Canadian National Railway, recently wrapped up the acquisition of a major trucking company that specializes in refrigerated cargo. Meanwhile, Canadian Pacific Railway, recently brought into service 423 new 53-foot refrigerated containers and another 363 heated 53-foot containers.
CN finalized in late March its deal to purchase Winnipeg-based TransX Group of Companies. When the deal was announced last October, CN President JJ Ruest said in a news release that the “strategic acquisition” would allow the railway to “deepen its supply chain focus” and strengthen its intermodal business “notably the specialized, fast-growing refrigerated segment.”
A month into the deal being formalized, the two companies, which are continuing to operate independently, are still in the early stages of their new relationship, said Kerwin Belle, commercial manager for CN’s cold supply chain. “So there isn’t too much to say there on the short term front,” Mr. Belle said in a phone interview. “Long-term obviously we feel it’ll be very beneficial to just learn from each other how we conduct business in the cold supply chain segment.”
Now part of the family
TransX, which has been a long-time partner and customer of CN, is now like part of family, he said. “We really want to go through with them and see what core competencies they have and vice versa,” Mr. Belle added. “They know our organization fairly well, but from the customer side of it. So now they’ll get a chance to understand more what our operating procedures are like and where our strengths are and where some of our opportunities to learn are. The list is long. It will certainly take some time but everybody on both sides is very excited about what the future holds.”
Founded in 1963 by Louie Tolaini, TransX now has 3,000 employees, 1,500 trucks, 4,000 trailers, 1,000 intermodal containers, 12 North American terminals, and 72,000 monthly shipments, according to its website. The company’s equipment includes refrigerated and heated 53-foot containers. Its truck tractors are mostly Freightliners and Mac chassis with an average age of 1.4 years. Among TransX services are “stuffing and de-stuffing for marine container movements” and “polarization and pick and sort services for both dry and temperature-sensitive freight,” the company website notes.
TempPro acquires new equipment
If Canadian Pacific has any plans to acquire a trucking company of its own, it isn’t letting on. “CP is not in a position to comment on a competitor’s strategy,” Jonathan Wahba, CP Vice-President of sales and marketing for intermodal, said by email when asked to comment on CN’s TransX deal or if CP is also looking at a similar purchase. Mr. Wahba had much more to say about other areas of CP’s cold chain strategy, though, such as the 2018 purchase of the 53-foot SlimLine reefers and the heated containers. “These additional units were important components of our overall capital spend on domestic intermodal to support the continued growth of this business,” Mr. Wahba said.
CP also announced the purchase of 41 new gensets in 2018 to replace existing ones in its fleet. Those new gensets are all now in service. Gensets are purpose-built 40-foot containers that house a pair of large generators that can each power up to 17 ocean-going containers, noted a 2017 CP news release. Together, the new containers and gensets are manifestations of CP’s TempPro brand, which “encompasses CP’s entire product offering for perishable, protective services, whether that’s shipments requiring heat in the winter months or specific temperature settings year-round,” Mr. Wahba said.
The new gensets “support international import traffic requiring temperature protection to move inland,” Mr. Wahba added. They also expand CP’s equipment offerings for domestic shipments. “For example, heavy, dense freight may not require the full space available in our SlimLine fleet,” Mr. Wahbab explained. Instead, a 40-foot refrigerated marine container can be hooked up to new genset in the domestic service.
A SlimLine container, meanwhile, has “a smaller-than-standard mechanical operations unit,” which frees up enough space for two additional pallet positions — 30 compared with 28 previously. SlimLine units also use R-452A refrigerant, which has a smaller carbon footprint than its predecessor, R-404A.
CP now has 1,500 53-foot heated containers, having added 400 more since 2018. It also has 900 refrigerated containers. Growth areas that those containers support include chocolate/confectionary and beverages/juices, Mr. Wahba said.
“CP is in the process of equipping its entire 53-foot refrigerated and SlimLine fleet with 24/7 real-time tracking telematics,” Mr. Wahba said. “This technology tracks the container’s location via GPS, plus fuel levels and engine statistics via a cellular signal. Any mechanical issues with the refrigeration unit will trigger an alarm to CP’s TempPro team so it can be serviced immediately.”
CP’s 2018 fourth-quarter earnings report doesn’t make any mention of TempPro volumes. However, it notes that intermodal revenues increased 13 per cent over 2017 to $1.538 billion, or 21.5 per cent of total freight revenues. “CP continues to see strong demand for temperature-sensitive service in the food/grocery space, and we expect that to continue,” Mr. Wahba said.
An important segment
CN has a program similar to TempPro, called CargoCool. And it added 500 40-foot EcoTherm super-insulated containers — that share many of the same attributes as CP’s SlimLine containers — to its fleet a few years ago. CN also has 820 53-foot refrigerated containers in its fleet, Mr. Belle said. The railway added 100 new reefers in 2018, according to its annual report.
CN’s 2018 annual report doesn’t break out CargoCool revenues. However, its intermodal revenues increased eight percent in 2018 to $3.5 billion or 25.5 per cent of $13.5 billion total freight revenues. Mr. Belle said CoolCargo is a fast-growing revenue segment of intermodal. “It’s definitely a segment that’s very important for CN,” said Mr. Belle, citing the TransX acquisition as an example.
“I think just in general for intermodal, whatever segment you want to talk about, temperature controlled or dry, truck capacity is really the driving factor,” Mr. Belle said.
That capacity itself is constrained by an aging driver population, rising fuel costs, and new requirements for electronic logs that also limit drivers’ hours of service. “If you’re going to talk about going into business and buying reefers you probably need deep pockets to do that, to have the latest technology to protect the cargo, to make sure you can run in markets where there are more stringent emissions and regulatory affairs that you’re going to have to deal with,” Mr. Belle said.
Despite those challenges, Mr. Belle sees CN intermodal business poised to grow in 2019. “We have been able to grow the cold supply chain since we heavily invested in it on the international side roughly around 2011, and now the domestic side roughly around 2013,” Mr. Belle said. CargoCool has been a big contributor to the growth, not only on the international side but in CN’s relationship with port operators.
Much of the segment’s growth comes from over-the-road transport but also from tighter regulations and practices that have resulted in cargos now being shipped with temperature control that previously didn’t require it. “We think there’s a lot of opportunity here that’s still sitting in front of us,” Mr. Belle said. “We’re just scratching the surface at this point.” Examples include over-the-counter medications like cough syrup and ointments, which were found to be breaking down without controlled temperatures. “They don’t want them getting too cold in the winter and they certainly don’t want them getting too hot during the summer months,” Mr. Belle said.
Aside from medicines, cosmetics, and other perishable items like meat, seafood and vegetables, a newcomer to CargoCool is craft beer. “Traditionally it would go with heat in winter and nothing in the summer. Now they would like to keep the same temperature all year round, which requires a reefer,” Mr. Belle said. “So again that’s great news for someone like CN who’s continuously investing in the temp-control segment.”
Mr. Belle concluded by saying that CN is proud to connect people with goods and commodities around the world, such as the variety of foods now found in ethnic foods aisles of supermarkets — products that require temperature control during transit. “To be able to bring all those commodities together and bring them into one spot where those from abroad living here can access them, we think it’s a great thing,” Mr. Belle said. “It’s only something that’s going to continue to grow.”
One key difference between CN and CP is that CN also utilizes clip-on gensets whereas CP doesn’t see the need for them. CP also maintains that its recent genset acquisition allows it to have the most departures from Canada’s two largest ports — which are Vancouver and Montreal.
However, CN is the only one of the two that has service to Halifax, which is “incredibly important” to that port’s reefer-handling ability, Port of Halifax spokesperson Lane Farguson said. Over 60 per cent of Halifax’s container cargo is rail-based, coming from and going to Ontario, Quebec, and the U.S. Midwest, he said. “It’s important to have all three working together – ship, shore, rail – to maintain the integrity of the cargo and ensure there is capacity for future growth,” Mr. Farguson said.