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News >  Business

Feds approve major railroad merger despite growing concerns over rail safety

March 15, 2023 Updated Wed., March 15, 2023 at 6:18 p.m.

A train with Kansas City Southern and Canadian Pacific locomotives joined rolled through Camanche, Iowa, last fall.  (Tribune News Service)
A train with Kansas City Southern and Canadian Pacific locomotives joined rolled through Camanche, Iowa, last fall. (Tribune News Service)
By Kevin Hardy,</p><p> Daniel Desrochers, Eric Adler Kansas City Star

KANSAS CITY, Mo. – Federal regulators have approved the $31 billion merger of Kansas City Southern railroad with Canadian Pacific.

The new railroad, to be named Canadian Pacific Kansas City, will become the first and only railroad to run a direct line between Canada and Mexico – bisecting and hauling freight through the heart of the country, including Kansas City, the second-largest freight rail center in the United States.

But the merger also will further reduce the number of major North American railroads.

The Surface Transportation Board, the primary economic regulator of railroads, announced its decision Wednesday in Washington, D.C. That board is independent of the Federal Railroad Administration, an arm of the U.S. Department of Transportation that regulates rail safety.

After decades of railroad consolidation, the purchase of Kansas City Southern by Canadian Pacific was widely viewed as the last major merger of the seven Class I mega freight lines. The deal leaves the U.S. with six major freight railroads: Union Pacific and BNSF in the West; CSX and Norfolk Southern in the East; Canadian National and the newly named merged company, CPKC – Canadian Pacific Kansas City – running north and south.

The merger faced fierce opposition from communities affected by the rail network, rail worker groups and powerful politicians.

In places like Camanche, Iowa, residents objected to the merger because they believed it would bring more and longer trains through town. The Star reported on concerns in the Upper Mississippi River community in a December series examining how rail companies’ pursuit of profits can put lives at risk.

“This will kill people. This will kill small towns,” John Dixon, a physician in Camanche for 33 years, said at the time. “For us, personally, retired, that’s almost a train an hour. I can’t live with that. We’ll probably consider moving.”

In the Chicago area, political leaders worry the merger will bring so much freight traffic, it could prompt several thousand passengers to forgo using Metra, the commuter rail line that feeds the suburban Chicago area.

Traffic on one major route is controlled by Canadian Pacific, even though the line is owned by Metra. The concern is that more freight will mean more commuter delays.

“If the merger goes through as proposed, it will break the railroad system,” Evan Summers, the village manager of Bensenville, west of Chicago, told local media earlier this year.

The merger gained more attention following the Feb. 3 derailment of a Norfolk Southern train carrying hazardous materials in East Palestine, Ohio. That crash, and those that followed, raised more questions about the safety records and regulations of American freight railroads.

In a letter opposing the merger following the East Palestine, Ohio disaster, Sen. Elizabeth Warren raised concerns about years of railroad cost-cutting and deregulation. The Massachusetts Democrat said the merger would hurt competition, prompt job losses and disrupt service.

“The proposed CP-KCS merger would not benefit the public interest, failing the test needed to receive STB approval,” Warren wrote to the Surface Transportation Board on March 2.

For its part, Calgary, Alberta-based Canadian Pacific has argued the marriage would increase rail competition, open new markets to shippers and create 1,000 new jobs systemwide, including the transfer of 200 jobs to Kansas City when Canadian Pacific relocates its U.S. headquarters from Minneapolis. The railroad further asserts that the merger will help the environment by taking as many as 60,000 trucks off the roads each year.

The merger joins 7,300 miles of Kansas City Southern’s tracks with 15,000 miles of Canadian Pacific’s to create a single north-south rail corridor bisecting the continent.

Canadian Pacific Chief Executive Officer Keith Creel previously told the Star that the merger would mean more jobs and greater job security for Kansas City Southern employees.

“You’re going to see a city that forever will be an integral piece of this network,” he said.

In announcing its decision, the Surface Transportation Board said the merger would benefit the public by reducing emissions from truck traffic, improve railroad competition, spark new rail investment and open up new passenger rail routes.

“Growth in rail traffic resulting from the merger will be safer, more efficient, and will have fewer emissions than the truckloads that it will remove from North American roads,” the board said in a news release Wednesday. ” It is anticipated that CPKC will be able to attract 64,000 truckloads from the roads to rail each year, helping to reduce congestion on the nation’s roads.”

The board imposed some conditions on the deal.

The combined railroad will be subject to a first seven-year oversight period during which it will face extensive data-reporting requirements.

Answering concerns from other major railroads, the board imposed conditions meant to foster competition and keep rates fair at railroad gateways, the interchange points between Canadian Pacific Kansas City’s network and those of other lines. But the body denied concessions sought from competing railroads “consistent with the board’s policy to protect competition and not competitors.”

The board acknowledged the heightened scrutiny on freight railroads since the Ohio disaster. But the body said it’s “important to underscore that rail is by far the safest means of transporting any freight, including hazardous materials.”

The smallest of the major freight lines, Kansas City Southern has long been eyed for acquisition.

In March 2021, Canadian Pacific and Kansas City Southern announced plans to merge. But the deal was complicated by the involvement of the other major Canadian railroad, Canadian National, which a few months later struck a deal to purchase Kansas City Southern.

That deal, though, was not finalized and Kansas City Southern in September 2021 agreed to a merger with its original acquirer, Canadian Pacific. Since then, the deal has closed with shares transferred to a trust, pending the Surface Transportation Board’s decision.

Kansas City Southern traces its roots to 1887, when Arthur E. Stilwell and Edward L. Martin incorporated the Kansas City Suburban Belt Railway, which served Kansas City, Kansas, Independence and the riverside commercial and industrial districts of Kansas City.

Stilwell’s railroad bucked the trend of building east-west railroads, instead building a line from Kansas City to Shreveport, Louisiana. Until the 1960s, the company’s Southern Belle line provided luxury passenger service between Kansas City and New Orleans – which Harry and Bess Truman used for their travels.

U.S. Rep. Sam Graves, who chairs the House Transportation and Infrastructure Committee, lauded the Surface Transportation Board’s decision on Wednesday. The Missouri Republican said the merger would benefit American consumers, improve supply chains and be a boon to the region.

“The merger between the Kansas City Southern and Canadian Pacific railroads is great news for job creation,” Graves said, “and the economy in the Kansas City region, our state, and beyond.”

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