Blog

MONTREAL, QUEBEC, CANADA — The support of the Canadian National Railway Co. (CN) merger with Kansas City Southern (KCS) continues to roll in but so does opposition.

Originally a merger agreement was tentatively set between Canadian Pacific Railway Ltd. (CP) and KCS but was later terminated after CN put in a competitive offer. Since, CN and KCS have been making steps to finalize the merger, highlighting the idea that the grain industry will benefit from it once complete.

According to CN, the CN-KCS combination open gateways commitment would offer grain customers a choice of routes, competitive rates and better service.

“CN’s commitment to keep gateways open on commercially reasonable terms means that agricultural customers, including farmer-owned cooperatives, enjoying competitive joint line routings with CN or KCS, will continue to have those routings available upon completion of the merger,” said James Cairns, senior vice president, of CN’s Rail Centric Supply Chain. “This commitment assures grain customers shipping over CP lines to Kansas City and beyond will continue to enjoy the interline service they have today, along with new, enhanced rail-to-rail competition. However, for these benefits to be realized, the CN voting trust must be approved by the Surface Transportation Board (STB).”

CN has received more than 1,650 letters of support for the CN-KCS combination from customers, suppliers, elected officials and other stakeholders. All have been filed with the STB.

Some support has been made publicly. William Huneke, the former director of the office of economics and chief economist at STB, wrote an op-ed piece in the Railway Age commending the potential merger and the competitive options it would bring with the open gateways commitment. A few of his points included:

Competitive joint line routings with either CN or KCS
Continued competition, “which encourages lower rates.”
A CN-KCS combination will create a new rail-to-rail competitor that will provide new single-line rail movements in competition with other rail carriers.
CN urges the STB to approve the voting trust in order to advance the CN-KCS merger.

As part of its joint trust filing with the STB, CN has committed to divest KCS’ 70-mile line between New Orleans, Louisiana, US, and Baton Rouge, Louisiana, US, which is less than 0.7% of the approximately 27,000 route-miles the two companies operate. It eliminates the sole area of overlap between the CN and KCS networks, thereby making the combination an end-to-end transaction.

Despite support for the merger, there also has been opposition. CP noted there are others in the ag industry that share anti-competitive concerns.

Grain and other shippers across North Dakota, South Dakota and Minnesota have submitted letters to the STB opposing the CN-KCS combination, its use of a voting trust, or both.

According to CP, the economy in the US Upper Plains depends on agriculture and 80% of the grain leaving the region moves by rail. The letters describe how a potential CN-KCS combination and its proposed use of a voting trust would see reduced options for agricultural shippers in the Upper Midwest leaving them fewer direct competitive options, and eliminating the new network of shipping options a CP-KCS combination would create.

As of June 21, CP had submitted 330 letters on behalf of stakeholders across North America expressing concern about CN or the use of a voting trust, including that shippers could lose shipping options in the New Orleans to Baton Rouge corridor if CN’s voting trust is approved.

In one letter of opposition the North Dakota Grain Growers Association stressed concern over a potential decrease in rail competition.

“…CN would get stronger by absorbing KCS’s system, much of which is broadly parallel to CN’s existing U.S. network,” the NDGGA said. “This implies rationalization of assets, not investment in new competitive routes. And it implies a loss of competitive options — both concrete multi-railroad access to individual shippers and more subtle benefits of having multiple railroads near one another to serve as ‘geographically competitive’ options for transload shipments, grain moving to alternate elevators/terminals, build-ins and build-outs, and other means.”

The Minnesota Grain & Feed Association and South Dakota Grain and Feed Association echoed similar competition concerns if the voting trust is accepted and the merger to be completed.

The STB’s official public comment period on the potential merger ends June 28.

Source: World Grain