The Surface Transportation Board on Wednesday approved the $31 billion merger of Canadian Pacific and Kansas City Southern, creating the first railroad to provide single-line service from Canada to Mexico.
The board cited the merger's impact on safety, environment and competition in agreeing to CP’s acquisition of KCS, allowing it to take effect as of April 14.
“This decision clearly recognizes the many benefits of this historic combination," CP President and Chief Executive Officer Keith Creel said. "As the STB found, it will stimulate new competition, create jobs, lead to new investment in our rail network, and drive economic growth.”
The new company, Canadian Pacific Kansas City (CPKC), will still be the smallest of six Class I railroads, “with a network that is a few thousand route miles shorter than the next smallest Class I and half the size of the Western railroads,” STB said.
In its announcement, STB said it was imposing an unprecedented seven-year oversight period to ensure compliance with conditions.
“If problems arise as a result of the merger – for example – if CPKC’s traffic increases prove to be understated and unduly impact communities or other railroads – the board stands ready to modify the required environmental mitigation measures and to issue supplemental orders addressing capacity and maintaining fluidity in Houston, Chicago, and other congested areas, and specifically remedying problems with (Chicago) Metra’s service, if the facts warrant,” the board said.
“Shipping of grain, automotive parts and vehicles, and intermodal goods will improve with new single-line options, and shippers will have opportunities to expand their market reach,” the STB said. “Imposed conditions will ensure shippers’ options are not reduced.”
Groups representing wheat producers, U.S. Wheat Associates and the National Association of Wheat Growers, expressed disappointment at the board’s decision. They had raised concerns that the merger would reduce competition and lead to higher rail rates.
“U.S. rail industry consolidation has led to poorer, not improved, service for agricultural shippers,” said USW President Vince Peterson.
“In addition, we see extreme disparity in rates for wheat shippers. Rail rates over the last decade have increased exponentially and rates for wheat are higher than rates for other commodities even with similar handling characteristics. Those higher rates make U.S. wheat less competitive in the global market at a time when higher prices already hurt our competitiveness.”
But the board said shippers mostly backed the union of the two companies.
"The transaction will make possible improved single-line service for many shippers and will result in merger synergies that are likely to allow CPKC to be a vigorous competitor to other (Class I railroads) by providing improved service at lower cost," the board said.
“The transaction will reduce travel time for traffic moving over the single-line service; it should result in increased incentives for investment; and it will eliminate the need for the two now-separate CP and KCS systems to interchange traffic moving from one system to the other,” STB said in its announcement.
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The National Grain and Feed Association, which represents grain processors and elevators, said in a statement to Agri-Pulse that the board included "several meaningful conditions on the merger designed to maintain competitive opportunities for rail shippers – most notably, an arbitration option and a seven-year oversight period."
NGFA said the seven-year oversight period the board plans is "longer than the five-year period that was anticipated based on past precedent."
The board said opposition from other Class I railroads, STB said, appears to be “aimed at protecting their own traffic from competition with CPKC and at limiting the ability of the combined CPKC to meet its potential."
“Consistent with the board’s policy to protect competition and not competitors, the board is denying those requests while also ensuring that existing competitive gateway options are preserved.”
Recognizing public concern related to the recent derailment in East Palestine, Ohio, and subsequent air and water pollution, STB said “it is important to underscore that rail is by far the safest means of transporting any freight, including hazardous materials.
“Moving 64,000 truckloads off the highways and onto rail will result in a decrease in CO2 emissions of 127,113 tons per year,” STB said. “It will also reduce – not increase – the risk of dangerous hazardous material spills. According to the Bureau of Transportation Statistics, in 2022, trucks experienced 94% of all hazardous materials incidents while in the same year, railroads experienced a little more than 1% of all hazardous materials incidents.”
STB also noted that over the last 15 years, “CP has had the best safety record of any Class I railroad.”
STB said its oversight “will include specific reporting requirements on numerous service, operational, competition-related, and other metrics, as well as data retention requirements. For example, the board will be collecting data not routinely required including metrics on train lengths so that the agency can monitor community concerns about blocked crossings. The board may extend its oversight period if conditions warrant.”
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