The first major railroad merger will progress more than two decades after federal regulators approved Canadian Pacific’s $31 billion acquisition from Kansas City South.
The two are the smallest of the nation’s seven major railroads, but their coupling will create the only railroad connecting Canada, Mexico and the United States. Wednesday’s approval by the US Surface Transportation Board comes after a grueling two-year review.
Trains come under more scrutiny after a violent crash who forced evacuations in Ohio last month.
The Transportation Board said the new direct service will “facilitate the flow of grain from the Midwest to the Gulf Coast and Mexico, the movement of intermodal freight between Dallas and Chicago, and the trade in containerized auto parts, finished vehicles and other mixed goods between the United States.” and Mexico.”
The combined company will have little to no track closures or overlapping routes, according to the board, and is expected to create more than 800 new union jobs across the United States.
The new single-line service is expected to “encourage rail growth, shift approximately 64,000 truckloads annually from North America’s roads to rail, and support investments in infrastructure, quality of service and safety,” the board said.
In 2001, the US significantly raised the bar for approving railroad mergers after a disastrous 1996 combination of Union Pacific and Southern Pacific disrupted supplies for an extended period and the 1999 split of Conrail between Norfolk Southern and CSX led to delays in the east. The Surface Transportation Board stated that future mergers would only be allowed if they would increase competition and serve the public interest.
Canadian Pacific outmaneuvered Canadian National Railroad to complete the deal in 2021, despite Canadian National having offered $33.6 billion for Kansas City South. Canadian National lost the bidding war because the Surface Transportation Board rejected part of its plan to acquire Kansas City Southern.
Regulators said in a report earlier this year that the only major impact from the deal would be an increase in noise in places where significant increases in train traffic are expected. The Surface Transportation Board essentially dismissed concerns that the deal would cause problems in cities along the tracks by blocking crossings for extended periods or clogging the already busy rail network around Chicago and creating problems for commuter trains.
Officials in small towns along the railroad route, such as Camanche, Iowa, on the upper Mississippi River, told regulators that first responders could be delayed in the event of a fire or an urgent health concern because long trains can block every intersection in the city at once.
A coalition of several Chicago city suburbs opposed the merger, fearing blocked intersections would encourage more commuters to ride rather than use the area’s Metra rail network.
The largest increases in traffic are expected between Chicago and Laredo, Texas, with some of the railroad lines in Iowa expected to see more than 14 additional trains per day and the tracks between Kansas City, Missouri, and Beaumont, Texas expected to see about 12 more trains trains per day.
However, the Surface Transportation Board found that if the time an intersection is closed is averaged across all vehicles passing through an intersection each day, the expected increase in train traffic over the new rail network will increase the average delay by just seconds , including all those who will never be stopped.
The rail industry is under pressure to improve safety after a potentially dangerous derailment in Ohio’s Norfolk Southern last month prompted evacuations and raised ongoing health concerns. The large freight railways have announced several steps They plan to take, but that may not be enough to satisfy regulators and members of Congress pushing for comprehensive reforms.
Even after this merger, the new Canadian Pacific Kansas City Railroad will be the smallest of the major freight railroads, with around 20,000 miles of track.
The combined railroad will have to find a way to overcome conflicting feelings surrounding last year’s contract negotiations including Kansas City Southern. But Canadian Pacific, which negotiates separately with its unions, said it already has agreements with some of the largest railroad unions that will offer even bigger pay rises than most railworkers have received and address some of workers’ quality of life concerns about demanding schedules.
The rest of the industry is expected to remain stable as two major railroads in the western United States – Union Pacific and BNSF – two in the eastern United States – CSX and Norfolk Southern – and Canadian National operate trains throughout Canada and parts of the United States.
The only recent deal involving one of the major railroads was the 2010 purchase of Warren Buffett’s Berkshire Hathaway from BNSF, but that deal has received less scrutiny because it wasn’t a merger of two competitors. A few years prior to the Kansas City Southern deal, Canadian Pacific had unsuccessfully attempted to purchase both Norfolk Southern and CSX.
Canadian Pacific Railway Ltd. shares up 7% on Wednesday.