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Canadian Railroads > CP buys full ownership of the Detroit River Rail Tunnel


Date: 10/16/20 09:39
CP buys full ownership of the Detroit River Rail Tunnel
Author: Marcus

CP plans to buy out their partner in the Detroit River Rail Tunnel,
which runs between Windsor, Ontario and Detroit, Michigan.
CP owns 16.5 percent of the tunnel,
with the remainder owned by OMERS, the Ontario Municipal Employees Retirement System.
CP will spend US$ 312 million.

https://www.cpr.ca/en/media/cp-to-acquire-full-ownership-of-the-detroit-river-rail-tunnel

Perhaps someone is familiar with the colourful history of the tunnel.
Does anyone other than CP use this tunnel anymore ?



Edited 1 time(s). Last edit at 10/16/20 09:48 by Marcus.



Date: 10/17/20 18:42
Re: CP buys full ownership of the Detroit River Rail Tunnel
Author: Steinzeit2

How can CP save enough on operations to offset $US312 million ?  There must be a pretty hefty per car charge -- or is it something else ?

SZ



Date: 10/18/20 10:23
Re: CP buys full ownership of the Detroit River Rail Tunnel
Author: ironmtn

Steinzeit2 Wrote:
-------------------------------------------------------
> How can CP save enough on operations to offset
> $US312 million ?  There must be a pretty hefty
> per car charge -- or is it something else ?
>
> SZ

Good question. They must really want to be able to control their own fate with regard to this route, and not be subject to any other potentially adverse contingencies. Makes you wonder if they have other cards up their sleeve.



Date: 10/18/20 11:49
Re: CP buys full ownership of the Detroit River Rail Tunnel
Author: Lackawanna484

It's possible the Ontario fund was required to offer CP a right of refusal before other buyers were considered.

If Blackstone or Macquarie bought the 87.5%, tolls might go way up.

Posted from Android



Date: 10/18/20 13:03
Re: CP buys full ownership of the Detroit River Rail Tunnel
Author: Steinzeit2

Lackawanna484 Wrote:
-------------------------------------------------------
> It's possible the Ontario fund was required to
> offer CP a right of refusal before other buyers
> were considered.

I hadn't thought about that possibility -- but another possibility I had not considered was a long term project to rebuilt one of the tunnels, perhaps the south one, for full doublestack operation [ which, as I understand it, will not fit through the reworked north tunnel.]  The Gordie Howe bridge was probably the death knell for converting the existing tunnels to truck operation and building a new rail tunnel from scratch, and perhaps OMERS thought its capital could be more robustly used elsewhere than tunnel super sizing -- like repairing the Chicago Skyway.....

Detroit River Tunnel Partners seems to have been the only 100% rail operation in OMERS portfolio -- smart people.

SZ
 



Date: 10/18/20 13:22
Re: CP buys full ownership of the Detroit River Rail Tunnel
Author: ironmtn

Lackawanna484 Wrote:
-------------------------------------------------------
> It's possible the Ontario fund was required to
> offer CP a right of refusal before other buyers
> were considered.
>
> If Blackstone or Macquarie bought the 87.5%, tolls
> might go way up.
>
> Posted from Android

Good point. If so, it may have been a good move by both the fund which was selling, and CP as the buyer. Seems a tad pricey, but could still be a good move on that basis by both.

The fund earns some political and PR capital perhaps by selling to the actual user, who has the status of being a key supplier of transportation services to Canada's economy. As opposed to selling to an investment group that has neither of those functions. And the fund earns some cash to reinvest, and/or to help fund cash payout obligations to pension recipients.

And CP also earns a little political and PR capital perhaps by being the buyer / user and a major piece of the Canadian transport infrastructure, and properly taking care of its business obligations by making sure that the infrastructure it needs to perform is properly in its own care. Again, as opposed to the tunnel being controlled by some investment group that does not have the same business status, and not the same business interests as the actual user. And by buying from a Canadian governmental pension fund, rather than from a private entity.



Date: 10/18/20 13:57
Re: CP buys full ownership of the Detroit River Rail Tunnel
Author: Lackawanna484

If CP plans to invest funds to update the tunnel, it might be worthwhile to capture all the depreciation and tax incentives. Rather than let some incentives fall unused by the pension fund.

Just guessing.

Posted from Android



Date: 10/19/20 07:59
Re: CP buys full ownership of the Detroit River Rail Tunnel
Author: Walla183

ironmtn Wrote:
-------------------------------------------------------
> Steinzeit2 Wrote:
> --------------------------------------------------
> -----
> > How can CP save enough on operations to offset
> > $US312 million ?  There must be a pretty hefty
> > per car charge -- or is it something else ?
> >
> > SZ
>
> Good question. They must really want to be able to
> control their own fate with regard to this route,
> and not be subject to any other potentially
> adverse contingencies. Makes you wonder if they
> have other cards up their sleeve.

Without knowing the financials when it comes to charges CP incurred as a tenant, I think your last statement hits the nail on the head. RUMINT there are rumblings that CP has opted to not renew their trackage rights agreement with NS. Some have speculated that this puts the CSX Plymouth sub in play. Not as a purchase, as someone commented that the N800 coal train traffic provides enough revenue to cover the entire Plymouth sub. CSX D705 and D706 have been massive as of late, often making 60-80 car interchanges with GLC at AnnPere in Howell. With excess capacity, would not surprise me if CP went back to CSX route through Grand Rapids.

If I were a betting man, i'd speculate that CP went this route to greater enhance their presence in the Nova Scotia/Montreal/Toronto/Chicago lane.



Date: 10/25/20 09:16
Re: CP buys full ownership of the Detroit River Rail Tunnel
Author: ironmtn

Sorry that I did not see your post earlier, Walla183. Thanks for your comments, and yes, for sticking your neck out a bit. I for one have suggested in the past that CP might be interested in returning to the CSX Plymouth Sub across Michigan. I took some heat for that hypothesis, particularly from TO member Typhoon.

It is speculative in any case, and we shall see what happens. It is at the least an interesting scenario.

MC



Date: 10/26/20 12:05
Re: CP buys full ownership of the Detroit River Rail Tunnel
Author: Walla183

ironmtn Wrote:
-------------------------------------------------------
> Sorry that I did not see your post earlier,
> Walla183. Thanks for your comments, and yes, for
> sticking your neck out a bit. I for one have
> suggested in the past that CP might be interested
> in returning to the CSX Plymouth Sub across
> Michigan. I took some heat for that hypothesis,
> particularly from TO member Typhoon.
>
> It is speculative in any case, and we shall see
> what happens. It is at the least an interesting
> scenario.
>
> MC

No worries at all for seeing anything late. I ran the CP trackage rights issue through a few people in the Chicago area and all have heard similar rumblings. At the end of the day, the only thing we can do is speculate based on the information that is provided. I pay no attention to the armchair quarterbacks, as any idea, albeit how good or bad it is, is potentially viable until proven otherwise. Personally, a diamond at cp482 linking the CSX Michigan line to the CSX Porter branch would one heck-uva move. That would negate any need to run CP trains on the NS Chcago line, as the IHB traffic that exits at 502 and the BRC traffic that exits at 509 can be done via Porter Branch.



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