Inside today’s edition:
- What does the Canadian Pacific-Kansas City Southern merger mean to auto supply chains?
- Semiconductors, who needs them? Turns out, everyone.
CP-KCS merger would make life easier for automotive supply chain
Automotive companies may finally get the answer to their prayers: the first railroad network to span across Mexico, the United States and Canada. The combined company of Canadian Pacific and Kansas City Southern (CPKC) would operate 20,000 miles of rail within North America.
“The new competition we will inject into the North American transportation market cannot happen soon enough, as the new United States-Mexico-Canada Agreement (USMCA) trade agreement among these three countries makes the efficient integration of the continent’s supply chains more important than ever before,” said Keith Creel, president and CEO of Canadian Pacific. Creel would also be the chief executive officer of the combined companies.
Currently the pair interchange in Kansas City, Missouri, a stopping point that would be bypassed for many customers once they are merged.
“CP and KCS interchange and operate an existing shared facility in Kansas City, Missouri, which is the one point where they connect. This transaction will alleviate the need for a time-consuming and expensive interchange, improving efficiency and reducing transit times and costs,” both companies said in a joint release about the merger.
The proposed CPKC network would create a single-line connection for automotive plants. Parts that are manufactured in Ontario and Detroit could be transported to automotive production sites in central Mexico without having to interchange in Missouri.
Automotive industry leaders have increased nearshoring efforts in Mexico, which makes this merger very important to many automotive supply chains. Automotive traffic accounts for 5% of KSU’s overall traffic and 4% of CP’s total traffic and could increase immensely with a single-line connection.
The merger is currently under review by the Surface Transportation Board, with approval expected to be completed by the middle of 2022.
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Semiconductor shortage continues to shut down production lines
On Wednesday, Ford Motor Co. announced semiconductor shortages were shutting down two F-150 pickup plants in Dearborn, Michigan, and Kansas City, along with overtime cancellation, through June.
According to a recent study by IHS Markit, the auto industry has lost 1.3 million vehicles in the first quarter due to the global chip shortage. Analysts believe that this shortage could drop automotive profits by more than 25% by the end of the year.
The shortage has begun to impact heavy-duty truck production as well. Daimler Trucks North America (DTNA) announced it would begin revolving downtime at its Mount Holly, North Carolina, and Santiago, Mexico, plants through June.
“Both facilities remain open and the use of revolving downtime will be used to maintain a reduced level of output, maintain employment levels, and allow the company to move back to full-scale production immediately should the situation be resolved sooner,” said a DTNA spokesman.
The Biden administration has been on top of the shortage, pushing for tax credits for domestic semiconductor production. The Creating Helpful Incentives to Produce Semiconductors for America (CHIPS) Act is a bill expected to be reintroduced by Sens. Mark Warner, D-Va., and John Cornyn, R-Texas, to create a 40% refundable investment credit for qualified semiconductor facility or equipment expenditures.
Companies are already making moves for domestic production, including Intel, which has announced an expansion of its manufacturing facilities in Chandler, Arizona, with a $20 billion investment. It expects to build two new semiconductor fabrication plants with the investment. Intel currently operates four other chip fabrication facilities in Arizona, including Fab 42, the largest producer within the United States.
In other automotive news: