Competition Bureau statement regarding Canadian National Railway Company’s proposed acquisition of H&R Transport Limited

Position Statement

See the news release that corresponds to this position statement.

GATINEAU, QC, April 22, 2020 - The purpose of this position statement is to provide information regarding the Bureau’s first experience with its draft model timing agreementFootnote 1 and outline the analysis undertaken regarding Canadian National Railway Company’s (CN) acquisition of H&R Transport Limited (H&R). On November 18, 2019, the Bureau informed representatives of CN and H&R that the Commissioner of Competition decided to discontinue its investigation in respect of CN’s proposed acquisition of H&R (the Proposed Transaction).

On July 19, 2019, the Commissioner entered into a Timing Agreement (the Agreement) with CN and H&R (the Parties) further to the draft model published. The model is intended to permit a reasonable period for merging parties to provide evidence to substantiate efficiencies claims and for the Bureau to assess both the anti-competitive effects and efficiencies claims before the Commissioner decides whether to file an application challenging a transaction before the Competition Tribunal.

The Parties fulfilled their obligation under the Agreement to provide all supporting documents and data on efficiencies that would be lost if a remedial order were made in markets of concern identified by the Bureau. In addition, a representative from each of CN and H&R was examined under oath in regards to the claimed efficiencies. The Bureau fulfilled its obligations under the Agreement to provide the Parties with an estimate of deadweight loss in each market of concern, as well as an estimate of the efficiencies that the Bureau believed were substantiated as likely to be lost in the event of a remedy.

The Bureau concluded that the Proposed Transaction would likely result in a substantial lessening of competition for full truckload refrigerated intermodal services in eight relevant markets in Canada. In particular, the Bureau concluded that CN would have the ability to charge customers materially higher prices and offer materially lower service quality in the relevant markets as a result of the Proposed Transaction. However, the Bureau also concluded, based upon its evaluation of the totality of the evidence gathered by the end of the Agreement, that the efficiency exception under section 96 of the Competition Act (Act) applied. Section 96 of the Act mandates that the Competition Tribunal shall not make an order in respect of an anti-competitive merger where the merger is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition that are likely to result from the merger, and that the gains in efficiency would not likely be attained if the order were made.

In conducting its investigation, the Bureau obtained information from multiple sources, including interviews with numerous stakeholders, information provided by CN, H&R and third parties, as well as analyses conducted by an independent efficiencies expert.

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On May 9, 2019, CN publically announced that it had reached an agreement to acquire certain intermodal shipping assets of H&R. H&R sold its over-the-road transportation division earlier in the year to a third party not affiliated with CN. The Proposed Transaction was not notifiable under Part IX of the Act.

CN and H&R are both providers of intermodal transportation services in Canada. For domestic intermodal shipments, goods are transported in containers, using two (or more) modes of transportation, such as trucking and rail services. Intermodal service providers require access to intermodal equipment, trucking assets, as well as a relationship with a rail service provider (in Canada, either CN or Canadian Pacific Railway (CP)).

CN’s rail services portfolio includes a separate intermodal division. CN has its own fleet of intermodal containers, including refrigerated containers for the shipment of temperature-sensitive, perishable goods like food. CN recently expanded its fleet through the acquisition of The TransX Group of Companies (TransX). Apart from directly providing retail customers with intermodal services, CN also supplies third party wholesale customers like H&R with rail services.

Prior to the transaction, H&R specialized in the provision of refrigerated intermodal services and had its own fleet of refrigerated intermodal containers to support its retail customer base.


A. Relevant markets

Customers choosing to ship intermodally demand a complete door-to-door pick-up and delivery service. In domestic shipments, Containers are loaded at the designated pick-up location of a customer and trucked to a rail terminal for the rail portion of the movement. In the destination city, containers are offloaded and trucked from rail terminal to the customer’s “final delivery” location. When shipping perishable goods like certain foods, the use of a refrigerated intermodal container is required to prevent spoilage.

Shipping intermodally is typically cheaper than shipping strictly over-the-road, but transit time is longer. This trade-off is especially evident the greater the distance shipped, where the rail portion of the intermodal movement is particularly cost effective compared to long distance trucking.

Customers requiring the use of an entire intermodal container are typically charged a flat rate (a per container rate). Customers that require less container space have their items consolidated and shipped with those of other customers and are typically charged a per pound rate. Flat rate movements are known as “truckload” or TL shipments while per pound rate movements are known as “less-than truckload” or LTL shipmentsFootnote 2.

The Bureau concluded the following with respect to market definition:

  1. The demand for intermodal services is specific to distinct pick up and final delivery locations;
  2. The demand for intermodal services is distinct from the demand for strictly over-the-road services. Price-sensitive customers have a strong preference for shipping intermodally (and time- sensitive customers have a strong preference for shipping strictly over-the-road);
  3. The demand for TL shipments is distinct from that of LTL shipments from both a price and service perspective; and
  4. The demand for refrigerated intermodal shipments is distinct from that of non-refrigerated shipments. Retailers such as foodstuff manufacturers and grocers shipping perishable products have a strong preference for the use of refrigerated intermodal containers.

B. Competitive Effects

CN and H&R competed to supply full truckload refrigerated intermodal services. In order to facilitate the estimation of market shares, the competitive overlap amongst service providers was assessed in terms of the volume of container shipments through rail terminal locations, broken down by specific origin-destination (O-D) rail terminal pairs.

The Bureau concluded that the Proposed Transaction would likely result in a substantial lessening of competition across eight of these O-D pairsFootnote 3 based on the following:

  1. Closeness of competition between CN and H&R (especially between TransX and H&R);
  2. A limited number of competing suppliers, one of which is CP, the only other upstream provider of rail services in Canada;
  3. Market shares in excess of 50%; and
  4. High barriers to entry (CN and CP are both vertically-integrated suppliers charging an unregulated rail rate to their downstream competitors, including to rival wholesalers of H&R and TransX).

The Bureau concluded that these factors would give CN the ability to charge customers materially higher prices and offer materially lower service quality in the relevant markets as a result of the Proposed Transaction.

C. The Efficiency Exception under the Act

Having concluded that the Proposed Transaction was likely to be anti-competitive, the Bureau turned to consider whether the efficiency exception set out section 96 of the Act applied, as claimed by the Parties. In this case, a full block of the Proposed Transaction was postulated as the only effective remedial order, and as such, the Bureau considered the efficiencies that would be lost as a result of such an order.

In particular, the Bureau considered efficiencies related to the elimination of overhead costs, the elimination of duplicative facilities, and the elimination of duplicative IT systems and software licenses. The Bureau retained the services of an external efficiencies expert to evaluate CN’s efficiency claims. The Bureau's assessment of CN's efficiencies claims related to the likelihood of the efficiencies being realized, whether or not it was the transaction that would generate the efficiencies, and the underlying calculations behind the efficiencies quantification. Among other things, the Bureau found that certain efficiencies being claimed were in fact generated by another prior transaction, and that the quantification of the claimed efficiencies did not consistently account for implementation delays or costs that needed to be incurred to achieve the efficiencies. However, even after accounting for these shortcomings, the Bureau concluded that the efficiency gains from the Proposed Transaction outweighed the anti-competitive effects of the merger, and therefore, that the section 96 exception applied to the Proposed Transaction.

As stated by the Supreme Court of Canada in Tervita,Footnote 4 the evidence suggests that “the efficiencies defence was created in recognition of the size of Canada’s domestic market and with an eye toward supporting operation at efficient levels of production and the realization of economies of scale, particularly with reference to international competition”. The Bureau notes that this case involves purely domestic markets without any pretext of the Proposed Transaction being necessary for the merged entity to operate at efficient levels of production or to compete effectively in international markets.


The Bureau concluded that the Proposed Transaction would likely result in a substantial lessening of competition in eight relevant markets in Canada. However, after assessing the efficiencies that are likely to arise from the Proposed Transaction, the Bureau concluded that the efficiency gains would be greater than the likely anti competitive effects of the transaction.

The Bureau is continuing to evaluate the draft model timing agreement and expects to provide additional updates as it develops further experiences with it.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.

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