WASHINGTON, DC, US — Canadian Pacific Railway Ltd.’s (CP) $31 billion acquisition of Kansas City Southern Railway Co. has been approved by the US Surface Transportation Board (STB), despite concerns from some grain industry associations that the consolidation of the two Class I railroads could lead to less competition and higher prices.
In its March 15 announcement, the STB said the merger approval includes an “unprecedented” seven-year oversight period and many conditions designed to mitigate environmental impacts, preserve competition, protect railroad workers and promote efficient passenger rail. The board also anticipates the merger will lead to improved safety and carbon emissions reductions.
CP and KCS filed their merger application with the STB on Oct. 29, 2021. Since then, the STB said it has taken over 2,000 comments and other filings, held a seven-day comment period and conducted a rigorous environmental review of the proposed merger.
The STB noted the new Canadian Pacific Kansas City (CPKC) will still be the smallest Class I railroad serving North America but will be the first to provide single-line service spanning Canada, the United States and Mexico. CPKC’s network will be a few thousand route miles shorter than the next smallest Class I and half the size of the Western railroads.
“The board has carefully considered the full record, weighed the public benefits against potentially harmful impacts, and imposed appropriate conditions to mitigate those impacts in its approval of the merger,” the STB said. “All of the mitigation recommendations from the final environmental impact statement (FEIS) have been imposed, with modifications to match the board’s seven-year oversight period, and the board adds several key additional conditions to protect the public interest. Specific concerns raised in filings are addressed in detail in the board’s decision.”
In a joint statement, US Wheat Associates (USW) and the National Association of Wheat Growers (NAWG) expressed disappointment in the decision, saying the STB has approved the consolation without regard for the consequences on agricultural shippers from lack of competition in the US rail sector. According to the Association of American Railroads, about 1.5 million carloads of grain were moved by Class I railroads in 2021.
“US rail industry consolidation has led to poorer, not improved, service for agricultural shippers,” said Vince Peterson, president of USW. “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 US wheat less competitive in the global market at a time when higher prices already hurt our competitiveness.”
Chandler Goule, chief executive officer of NAWG, echoed those competition concerns for wheat producers, who rely heavily on rail to reach export markets.
“NAWG is disappointed by today’s STB announcement and maintains our concerns that the merger of CP and KCS will impede competition in the rail market and increase rail rates,” Goule said. “With 50% of wheat being exported, wheat is heavily reliant on rail transportation to move across the United States. Since the merger was announced in 2021, NAWG has filed four public comments with the STB opposing the merger, citing a myriad of concerns on the impact to competition, unfair access to competing wheat producing countries, and changes to tariff provisions that could impact wheat farmers.”
USW and NAWG said they continue to review the conditions the STB included in the merger agreement that are intended to protect competition and mitigate impacts on communities while working with both the new CP-KCS railroad and the STB on addressing the disparities wheat shippers face going forward.
Keith Creel, president and chief executive officer of CP, said the decision recognizes the “many benefits of the historic combination. As the STB found, it will stimulate new competition, create jobs, lead to new investment in our rail network and drive economic growth.”
The decision authorizes CP to exercise control of KCS as early as April 14. Headquartered in Calgary, Alberta, Canada, CPKC will operate approximately 20,000 miles of rail with about 20,000 employees. Once combined, full integration of CP and KCS is expected to happen over the next three years.
Petitions for reconsideration of the decision must be filed with the STB by April 4. Requests for stay must be filed by March 27. Within 60 days of March 15, CPKC will participate in a technical conference with STB staff to discuss compliance with reporting requirements.