CANADIAN RAIL FIGHT

Table 1
Table 1: CN, KCS and CP Railroads Profiles, end of 2020
Canadian Pacific Railway
CP had hoped to close the KCS merger in 2022, subject to the regulatory process. Now, interest in KCS from CN may complicate matters

Canadian Pacific Railway and Canadian National Railway have both bid for Kansas City Southern. Phoebe Davison looks at what it could mean for ports and shippers and the obstacles ahead.

Mergers and acquisitions between railroads in North America are not new. Burlington Northern Santa Fe (BNSF) was created in 1995, from the merger of Burlington Northern Railroad and Santa Fe Pacific Corporation, while in 1996 the newly created Surface Transportation Board (STB) in the USA approved the merger of Union Pacific and Southern Pacific to create a new entity of Union Pacific Railroad (UPRR).

In fact, all of the current Class 1 railroads on the continent can trace their history through a range of mergers and acquisitions. So, there are precedents in place in North America for the latest proposed transaction from either Canadian Pacific Railway (CP) or Canadian National (CN) to acquire the Kansas City Southern (KCS) operation. However, gaining necessary regulatory approvals will be the challenge.

In March 2021, CP announced a US$25 billion deal to merge with KCS. However, prior to the process of STB approval, Jacques Ruest, CEO, Canadian National announced in mid-April 2021, “Railroads don’t come for sale very often,” and tabled a rival bid of US$30 billion.

This latest bid could trigger a fully-fledged bidding war, with the loser potentially facing a competitive network disadvantage. Table 1 provides a summary overview of each of the railroads, confirming the trackage, coverage and other key metrics.

With the CP bid it is known that the combined company would be called Canadian Pacific Kansas City, or CPKC and will have annual revenues of about US$8.7 billion and almost 20,000 employees. The grouping of KCS with CN would be substantially larger. In 2020, CN recorded freight revenues of C$13,218 million and had more than 24,380 employees already.

According to CP, the aim of the proposed deal is to create the “first rail network connecting the U.S., Mexico and Canada,” adding that it will “connect customers via 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 US".

CN also sees the benefits of the North-South coverage, as Ruest stated on a call with analysts: “A lot of the freight today that moves north-south is only getting a partial ride by rail or is actually moving all truck, and these are huge distances.” The company has indicated it believes that there is as much as US$8 billion of truck traffic that could convert to rail.

BENEFITS AND NEW ROUTES – “A PLAY FOR MEXICO”

There are a number of new services being put forward by CP/KCS as part of the merger. The current CP network does not extend past Kansas City so the merger will give immediate access to the US Gulf and Mexico, (including Lázaro Cárdenas) in addition to other improved intermodal routes and service to/from the Upper Midwest and Vancouver (BC), Chicago, Toronto and Montreal By comparison, CN will be able to link its Chicago-New Orleans line (gained from the acquisition of Illinois Central Railroad in 1998), with the KCS network in Louisiana.

According to one terminal operator, who has substantial experience of working on a daily basis with CP – and so wished to remain anonymous – this whole deal is about one thing. “This is a play for Mexico,” he stated.

Based on information available from the Intermodal Association of North America (IANA), there are currently up to 350,000 containers entering or leaving Mexico on an annual basis and around 75 percent of this traffic connects with Chicago from Minneapolis or Detroit. Hence the ability to improve connectivity in this corridor is appealing and reinforces the feedback gained from the terminal operator.

THE CHALLENGE – REGULATORY APPROVAL

It is important not to underestimate this potentially difficult and arduous process because it requires gaining regulatory approval from a powerful federal agency (STB) that has, in recent times, managed to discourage consolidation in the industry with time-consuming reviews and stringent merger rules.

The challenge for CN merging with KCS could be tougher than for CP and KCS, simply because the joint CN-KCS company would be that much larger. Initially, CP said it expected approvals for the $25 billion deal “sometime in 2022.” However, the railroad may first have to revisit the negotiating table with KCS to head off CN’s interest.

LATEST PRESS RELEASES

KOTUG INTERNATIONAL LAUNCHES INLAND SHIPPING DIVISION

KOTUG International B.V. (KOTUG) announces the establishment of an Inland Shipping division to provi... Read more

BEDESCHI AMERICA NEW SUPPLY IN TEXAS

Vistra Energy Corp. has contracted Bedeschi America for the design and supply of a lignite receiving... Read more

WÄRTSILÄ AND TANGER MED TEAM UP TO CO-DEVELOP NEXT GENERATION PORT MANAGEMENT INFORMATION SYSTEM

Wärtsilä has partnered with Tanger Med, the largest Mediterranean and African container port, to tak... Read more

Cimbria Unveils Refreshed Brand Identity and Website

THISTED, Denmark. (April 19, 2021) —Cimbria, a turnkey solution provider and manufacturer of custom-... Read more

Camco Technologies awarded Rail OCR at Port of Koper, Slovenia

Camco Technologies is partnering with Port of Koper for the automated registration of its increasing... Read more

PACECO GROUP and Mitsui E&S Machinery provide solutions to reduce port emissions by NZE RTG Transtainer® and ZE RTG Transtainer®

PACECO Group (PACECO) and Mitsui E&S Machinery (MES-M) announced the market release of NZE (Near Zer... Read more

View all