Rail’s history of mergers and takeovers can be likened to a game of agar.io. Over time, the biggest railroads became bigger by absorbing any smaller ones in their sight.
Now, rail’s regulatory guru, the Surface Transportation Board (STB), has okayed another merger for an industry that stakeholders already feel lacks competitive variety.
Last Wednesday (March 15), the federal board approved Canadian Pacific’s plans to merge with Kansas City Southern. As early as April 14, the former can begin taking control of the latter.
CP and KCS merger includes “unprecedented” conditions
While mergers as a whole aren’t anything new, approval of CP’s acquisition of KCS comes with certain conditions that the STB describes as “unprecedented.”
These caveats are wide-ranging in their scope and are designed to preserve competition, mitigate environmental impacts, protect railroad workers, and promote efficient passenger rail.
Included in the decision as well is a seven-year oversight period where the board will breathe down Canadian Pacific Kansas City’s neck.
Yes, by the way, that’s the revamped title of the merged rail company—the title of a Midwest city joining the namesake of an ocean it’s not near and a country it’s not apart of.
The decision took some time and was not unanimous
The STB asserted its approval “considered the full record, weighed the public benefits against potentially harmful impacts, and imposed appropriate conditions to mitigate those impacts,” laid out in the board’s lengthy 212-page decision.
That said, there was a lot of time for the board to sit on this and for stakeholders, whether for or against, to make their case.
CP and KCS filed their merger application with the STB in October 2021. Since then, the board has received over 2,000 comments from public hearings on the plan, including from environmental concerns the regulatory body raised.
Crosswinds of public opinion aside, the STB itself was not unanimous in its ultimate approval. While many board members agreed to move forward, one of them, who voted against the merger, argued it should’ve been evaluated through a more stringent process that reflected current market conditions.
The opposing member claims the STB reviewed the merger under rules in place before the turn of the century—in their eyes, not up to present standards.
Flow of goods may improve and snag freight share while doing so
While a merger of any size consolidates more power into the hands of a few, the CP and KCS pairing has the smallest magnitude one in the rail industry could have.
The STB notes the two railroads are the smallest of their Class I peers and a brand-new Canadian Pacific Kansas City would still result in the smallest Class I railroad.
That said, the spirit of the merger is not so much a generalist as it is a specialist. A competitive advantage is afforded for new single options that would facilitate the flow of goods among Canada, the U.S., and Mexico.
The move could siphon 64,000 truckloads annually from North America’s roadways and help a desperate rail industry forge an inroad to trucking’s dominant market share.
Final Thoughts
For a closer look at the STB’s press release, including details into the board’s oversight process as well as forecasted benefits of the merger, please click here.
The decision will be effective on April 14. However, the STB is accepting petitions for reconsideration of the approved merger which must be submitted before April 4.
Please contact us if you have any questions regarding this topic or any others in domestic logistics. In addition, stay up to date with weekly headlines from both trucking and rail via our Road Map newsletter.
Recent Comments