Market Matters Blog
Canadian Pacific and Kansas City Merger Still in Limbo
It's been well over a year since the Canadian Pacific Railway (CP) wooed the Kansas City Southern (KCS) away from the Canadian Nation Railroads, and after a long courtship, CP finally won the battle in September 2021. However, no wedding bells are ringing yet. The final approval for the marriage of the two railroads will come from the U.S. Surface Transportation Board (STB).
CP did complete its acquisition of KCS on Dec. 14, 2021. Immediately upon the closing of the acquisition, the shares of KCS were placed into a voting trust that ensures KCS will operate independently of CP while the STB completes its regulatory review of the companies' joint railroad control application to create Canadian Pacific Kansas City (CPKC), the only single-line railroad linking the United States, Mexico and Canada, noted CP on their website.
Since that time, the STB has accepted comments from anyone in support of and/or opposed to the proposed CP-KCS merger. Given the many comments from shippers, railroads and even members of Congress, the STB announced it would hold a public hearing on the CP-KCS merger Sept. 28-30. On Sept. 30, STB announced that the hearing would resume on Oc. 3-4 and Oct. 6. However, the hearings did not end until Friday, Oct. 7.
For seven days, the STB heard testimony from shippers, communities, public officials and other railroads who all testified why they supported or did not support the merger.
Much of the seventh day of testimony centered on protecting current interchanges and keeping them open on commercially reasonable terms, noted Trains.com. The focus was on Laredo, the busiest rail-border crossing in North America. KCS de Mexico interchanges with KCS and UP at Laredo, and KCS also hands BNSF Railway trains to KCS de Mexico at the border.
"BNSF and UP said CPKC would have an incentive to divert traffic to its new single-line route linking Mexico, the U.S., and Canada -- and that they could do so by tweaking rate formulas for cross-border moves that would make interchange unable to compete. But CP and KCS say that BNSF, UP, and shipper groups have offered no evidence that KCS and KCS de Mexico have engaged in unfair rate practices at the border. And they said that CPKC's rates would be held in check by competition from the other railroads and trucks. They also said that customers could settle gateway disputes through arbitration," said Trains.com (https://www.trains.com/…)
Probably the biggest hurdle facing the merger is the objection from three members of the U.S. Federal Maritime Commission (FMC), Carl Bentzel, Louis Sola and Max Vekich.
According to the Journal of Commerce, the three members sent a letter on June 21, 2022, to the STB, saying the merger would hurt U.S. employment, U.S. port volumes and investment in the U.S. intermodal rail network. "Such economic losses will be far greater than any economic gain that might ensue as a result of a consolidation of the railroad systems of CP and KCS," the commissioners wrote. They said they were speaking individually and not on behalf of the FMC, noted JOC.
At the Sept. 29 hearing, Commissioner Bentzel testified before the STB on possible supply chain impacts of the proposed CP-KCS merger. "I respectfully urge the STB to disapprove the consolidation of the railroad systems of the CP and the KCS under the provisions of 49 U.S.C. § 11324 (d)(2). In my view, the proposed consolidation does not ensure that 'the anticompetitive effects of the transaction outweigh the public interest in meeting significant needs.'"
Commissioner Bentzel noted he is especially concerned about potential adverse impacts to U.S. seaports and U.S. based intermodal railway system that serves those gateways. The thoughts and comments expressed by him at the hearing were his own and do not necessarily represent the position of the Commission, according to the statement posted on the FMC website.
"I contend that, while there might be economic benefits to certain shipper organizations and locations in the United States, overall, there will be greater negative impacts relating to employment and long-term investment affecting intermodal shipments through U.S. ports, and other business entities providing warehousing and distribution centers servicing U.S. ports, and other entities that handle cargo bound through U.S. ports. Such economic losses will be far greater than any economic value that might ensue because of a consolidation of the railroad systems of CP and KCS," testified Commissioner Bentzel.
Once the STB takes all the comments from the prior filings and the testimonies during the seven-day hearings into consideration, their final review of CP's proposed control of KCS is expected to be completed in early 2023.
Here is a link to all the filings and in the early October dates you will see filings marked "exhibits" submitted to the STB by interested parties for presentation during the September/October hearings. Of interest are the presentations from the other Class 1 railroads and in particular the BNSF: https://www.stb.gov/…
You can also view all or portions of the hearings under "watch live hearings here" on the STB website: https://www.stb.gov/…
If you need to refresh your mind about the merger, here are links to DTN stories about the on-again, off-again deals made between the KCS and CN and KCS and CP:
Mary Kennedy can be reached at firstname.lastname@example.org
Follow her on Twitter @MaryCKenn
(c) Copyright 2022 DTN, LLC. All rights reserved.
To comment, please Log In or Join our Community .