A move by Canadian Pacific Railway Ltd. to acquire U.S. rail company CSX Corp. would bring untold benefits to CP, including completing its rail network to East Coast refineries and ports.

Neither CP nor CSX will comment on recent reports the Florida-based company has rejected a takeover offer from CP. But a look at a map of North American railways shows why the Calgary-based carrier needs a merger if it is to fully benefit from soaring volumes of crude oil moving by rail. Thanks to CP's recent soaring stock price, both companies have similar market values of about $36-billion. But CSX's annual sales of $12-billion (U.S.) and work force of 31,000 are double those of CP.

CP's network of roughly 22,000 kilometres of track begins in Vancouver and runs eastward, largely mirroring that of Montreal-based rival Canadian National Railway Co. But CP's Canadian railway ends in Montreal, while CN's continues up the St. Lawrence River to several deep-water ports and oil refineries.

Story continues below advertisement

In the United States, CP has extensive tracks in the Midwest, including the oil-rich Bakken formation, but it relies on a patchwork of connections over other railroads. Oil is a key commodity for CP and it expects to haul around 200,000 carloads in total next year, but it must hand over those cars to other carriers to reach major U.S. refineries.

By contrast, CSX has a large rail network along the Eastern seaboard and down the coast to several refineries.

And then there's Chicago, a heavily congested hub used by six major railways to handle 25 per cent of all U.S. rail freight.

Mr. Harrison and other railway executives have long complained about the problems a clogged Chicago poses for their operations and delivery schedules. Last week, he said CP has offered to buy or run the two Chicago switching yards that link the various railroads; the Indiana Harbor Belt Railroad and the Belt Railway Co. of Chicago.

Christian Wetherbee, a Citi Research analyst, said the CSX deal would let CP bypass Chicago by travelling east through Winnipeg, around the Great Lakes and into Montreal, before heading south to Albany, N.Y. From there, CP could take CSX's tracks to refineries in New Jersey and the Gulf Coast.

The CSX deal would also give CP direct routes into Philadelphia, New York, Boston and Washington – densely populated cities with major ports, Mr. Wetherbee said. However, he added that it could take as long as 22 months for the regulator to decide if any merger could go ahead.

In a conference call with analysts Wednesday, Michael Ward, CSX's CEO, did not address reports of an offer from CP. But he said the U.S. regulator, the Surface Transportation Board, would be "cautious" about railway mergers at a time shippers are complaining about poor service.

Story continues below advertisement

When asked if he believed consolidation could improve fluidity on the U.S. rail network, Mr. Ward said railways are working to improve their capacity on their own, and that mergers would mean a "step back."

"In the past, [mergers] have created disruptions. And the industry is already slowed down because of the increased [freight] volumes," he said.

During the conference call, CSX's chief operating officer Oscar Munoz called Chicago a "complex spider's network" facing heavy volumes of freight traffic from carriers that do not always effectively communicate with each other. He said there were "tensions" among some of the railways, but that better co-ordination and round-the-clock operations should reduce the time it takes to move freight through the city.

CN long ago dealt with the Chicago bottleneck by purchasing the Elgin, Joliet and Eastern Railway, a small company with tracks that surround the city. CN has since spent $140-million (U.S.) expanding and updating the system, and it has slashed the time it takes to move a rail car through Chicago to about six hours from more than 24.

In addition to CSX, analysts point to two other railways as a good fit for CP and Mr. Harrison's ambition of forming a transcontinental network: Kansas City Southern and Norfolk Southern. Both have networks east of the Mississippi River that reach refineries and ocean ports.