Canadian National has agreed not to oppose the proposed Union Pacific–Norfolk Southern rail merger under a comprehensive settlement that grants CN enhanced access to the U.S. Midwest and Mexico. The agreement removes a potentially significant objector from the regulatory review process at the Surface Transportation Board, where opposition from rival railroads has historically influenced the conditions imposed on consolidation deals.

Under the agreement, Union Pacific (NYSE: UNP) will obtain operating rights over CN's key asset, the former Elgin, Joliet & Eastern (EJ&E). This will provide UP with a congestion-free bypass route around Chicago — North America's largest rail hub, where the majority of the continent's Class I railroads converge to interchange traffic — enabling it to connect with Norfolk Southern's Chicago Line to the East Coast.

In return, CN (NYSE: CNI) will gain operating rights over UP's network between Memphis and the Eagle Pass, Texas, gateway to Mexico. This strengthens CN's competitive position against rival Canadian Pacific Kansas City (CPKC) (NYSE: CP), which already offers single-line service between Canada and Mexico following its 2023 merger. That deal, the first combination of two U.S. Class I railroads in over two decades, reshaped the competitive map by creating the first rail network linking Canada, the United States, and Mexico on a single line — and left CN without direct access to the fast-growing cross-border Mexican freight market.

"We are thrilled to have an agreement with Union Pacific to expand CN's access to Mexico. This is a natural extension of our north-south franchise and will open new routes for customers, provide greater choice and strengthen connections between Canada and Mexico," CN Chief Executive Tracy Robinson said in a statement. "By extending our reach, we are creating new opportunities for growth while continuing to deliver the safe, reliable service our customers expect. This is another example of CN's commitment to strengthening rail competitiveness across North America."

UP CEO Jim Vena, who served as CN's chief operating officer from 2013 to 2016, emphasized that the EJ&E offers the fastest route around Chicago. CN acquired the carrier in 2009 to link its routes from Western Canada, Eastern Canada, and the Gulf Coast. The route provides transit times of 12 hours or less, compared with the average Chicago-area transit time of 35 hours.

"I've seen the benefits first-hand of what the EJ&E route around Chicago can do for a railroad, and we look forward to having access to the quickest way around Chicago," Vena said in a statement.

UP and CN intend to implement the Mexico and EJ&E agreements as soon as possible. These components are not contingent on the UP–Norfolk Southern (NYSE: NSC) merger receiving regulatory approval.

The remaining elements of the UP–CN agreements, however, depend on UP and NS successfully closing their merger. Under the settlement with UP — which is subject to Surface Transportation Board (STB) approval — CN would:

• Gain access to shipper facilities where Class I railroad options would be reduced from two to one or three to two, "where commercially and operationally feasible."
• Acquire NS ownership interests in the Kansas City Terminal Railway and the Terminal Railroad Association of St. Louis.
• Gain new Midwest access through overhead rights between Tuscola, Illinois, and East St. Louis, Illinois, plus rights to serve customers between St. Louis and Kansas City, Missouri, via UP.
• Establish a presence in Kansas City through usage of UP's Neff Yard.

"From day one, we've said our merger with Norfolk Southern will preserve and enhance competitive options and create a stronger railroad industry that delivers better service for customers," Vena said. "This settlement agreement reinforces those commitments by giving expanded access and operating rights to a tough competitor."

The UP–NS merger would give UP parallel routes across Missouri, including Norfolk Southern's former Wabash lines alongside UP's own former Missouri Pacific main line. UP has previously indicated it would seek to divest one of its St. Louis–Kansas City routes.

CN had previously — and unsuccessfully — sought access to Kansas City while opposing the CP–KCS merger. CN had asked the STB to order CP to divest the KCS Springfield, Illinois–Kansas City route, a request the STB rejected.

Robinson stressed the importance of rail customers benefiting from competition and choice.

"This framework would preserve competitive access to key markets, including Kansas City, while positioning CN to continue providing reliable and efficient options for customers across North America," she said.

The UP–CN deal involving the EJ&E brings UP full circle. UP had considered acquiring the EJ&E in 1995, viewing it as a way to improve the fluidity of its interchange operations in Chicago. At the time, the route would have been valuable for moving Powder River Basin coal traffic to eastern railroads. However, UP was simultaneously pursuing a merger with Southern Pacific, and determined that taking on an EJ&E transaction alongside the larger SP acquisition would be too much to manage — a judgment that proved correct given the subsequently troubled UP–SP integration, which triggered months of service disruptions and prompted the STB to tighten its merger review standards.

UP and NS have argued that eliminating interchange in Chicago will reduce existing transit times by 24 to 48 hours. Routing traffic around Chicago via the EJ&E would further reduce transit times through the region while also improving service consistency due to the absence of congestion.