STB decision officially signs off on Canadian Pacific-Kansas City Southern merger

The long-awaited decision regarding the acquisition of Kansas City Railway Company (KCS) by Canadian Pacific (CP) reached its expected outcome today, with the Surface Transportation Board (STB), an independent adjudicatory and economic-regulatory agency charged by Congress with resolving railroad rate and service disputes and reviewing proposed railroad mergers, saying it has approved the $31 billion deal, which will go into effect on April 14.

This deal establishes the first freight railway connecting the United States, Canada, and Mexico. In March 2021, when the STB received a “notice of intent” about the proposed transaction, CP President and Chief Executive Officer, said this transaction will be transformative for North America, providing significant positive impacts for the companies’ respective employees, customers, communities, and shareholders.

“This decision clearly recognizes the many benefits of this historic combination,” Creel said today. “As the STB found, it will stimulate new competition, create jobs, lead to new investment in our rail network, and drive economic growth. These benefits are unparalleled for our employees, rail customers, communities and the North American economy at a time when the supply chains of these three great nations have never needed it more,” Creel added. “A combined CPKC will connect North America through a unique rail network able to enhance competition, provide improved reliable rail service, take trucks off public roads and improve rail safety by expanding CP's industry-leading safety practices.”

And CP added that CP and KCS (CPKC) will jointly connect shipper customers through single-network transportation offerings between points on CP’s system throughout Canada, the U.S. Midwest, and the U.S. Northeast and points on KCS’ system throughout Mexico and the South Central U.S. 

In its decision, STB said that these two Class I railroads are far smaller than the other five North American Class I railroads it competes with for business and will together represent the smallest Class I railroad. It added that CPKC’s network is a few thousand route miles shorter than the next smallest Class I and half the size of the Western railroads, at more than 32,000 route miles, with KCS’s total mileage in the U.S., its subsidiary in Mexico, and trackage rights comes in at 7,000 route miles, and CP has 13,000 route miles.

“This merger will create the first railroad providing single-line service spanning Canada, the United States, and Mexico,” it said. “Among many other new single-line options, this new direct service will facilitate the flow of grain from the Midwest to the Gulf Coast and Mexico, the movement of intermodal goods between Dallas, Tex., and Chicago, Ill., and the trade in automotive parts, finished vehicles, and other containerized mixed goods between the United States and Mexico. The Board expects that this new single-line service will foster the growth of rail traffic, shifting approximately 64,000 truckloads annually from North America’s roads to rail, and will support investment in infrastructure, service quality, and safety. The transaction is also expected to drive employment growth across the CPKC system, adding over 800 new union-represented operating positions in the United States.”

STB added that this “end-to-end” transaction means there are little to no track redundancies or overlapping routes between the railroads, as they connect solely in Kansas City. It also cited other benefits, including:

• reducing travel time for traffic moving over the single line service;
• increased incentives for investment;
• eliminate the need for the two now-separate CP and KCS systems to interchange traffic moving from one system to the other;
• enhance efficiency, which in turn will enable the new CPKC system to better compete for traffic with the other larger Class I carriers

“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 Is by providing improved service at lower cost,” said STB.

Patrick J. Ottensmeyer, KCS President and Chief Executive Officer, said that this important milestone is the catalyst for realizing the benefits of a North American railroad for all stakeholders.

“The KCS Board of Directors and management team are very proud of the many contributions and achievements of the people who have made KCS what it is today and we are excited for the boundless possibilities as we move forward into the next chapter as CPKC.”  

In a March 15 press conference, STB Chairman Martin Oberman said that the STB made its decision to approve the merger of these two railroads because it found on balance that it would benefit the American economy and will be an improvement for all citizens, in terms of safety and the environment.

“Putting these two small railroads together will actually provide a stronger competitive landscape in the rail industry vis a vis these much larger railroads, because separately they do not have the same power to provide a competitive service, as we have found they will together,” he said. “That is not the sole reason for our decision, but it is an aspect of the rail network we need to consider. We found that because of the creation of a stronger competitive force that when considering the adequacy of transportation to ensure the development and continuation of a sound rail transportation system…putting these two railroads together, at this point, in the country’s history, will accomplish that. One of the key aspects of this merger is that it is end-to-end, and the CP and KCS routes do not overlap and do not serve the same origins and destinations, so there will be no loss of a parallel competitive route by putting these two railroads together. That is a central fact of this decision, because the Board would not approve a decision, which would have the effect of diminishing competition.”