What Can North American Shippers Expect from the CN or CP Merger with KCS?
Currently, at the time of this article’s publication, two of Canada's biggest railroad companies, Canadian National and Canadian Pacific, are battling for a merger with one of the United States leading lines, Kansas City Southern (KCS) railroad.
With a battle worth billions of US dollars, the company that wins is set to create and gain control of the world’s third largest Class 1 single-network rail service. This merger will seamlessly link Mexico, the US, and Canada as well as drive competition, increase economic productivity, and create jobs across North America. The outcome of this acquisition will be decided based on what company best supports the intermodal market.
Below, we will discuss the details and what shippers can expect.
Details Of the Battle
In late March 2021, CP announced plans to acquire KCS. They offered the US rail company $25 billion for the merger. However, while filing papers, CN offered KCS an unsolicited $30 billion. A move that put a halt to the original merger, and in mid-May, KCS agreed to be acquired by CN, paying a massive $700 million to break away from CP.
While the agreements may sound straightforward, it gets complicated with the fact that this merger involves vital trade routes. Therefore, the US Surface Transportation Board has final say. That being said, a vote will need to take place in order for the CN and KCS deal to go through. During the vote, they will look at the differences between how the CN and CP networks complement KCS.
What Can North American Shippers Expect from The Merger
For shippers, this acquisition is a big deal that comes with concern of decreased competition and access. To best understand the issue, let’s look at a recent statement from KCS made on May 26, 2021.
“As part of the application, CN is committing to divesting KCS’ 70-mile line between New Orleans and Baton Rouge, which is less than 0.7 percent of the approximately 27,000 route-miles the two companies operate. This commitment eliminates the sole area of overlap between the CN and KCS networks, thereby making the combination an end-to-end transaction. This commitment, plus CN’s multiple other pro-competitive commitments, including keeping existing gateways open on commercially reasonable terms, addresses any competitive concerns.”
In a nutshell, this announcement was made to reduce the concerns about overlapping rail networks and availability. However, it still leaves areas like North Dakota and the Gulf in question. While the future holds the answers to this battle, as we stand today, many shippers are rooting for CP and a smaller Class 1 merger. Though, ports and truckers feel CN is a better option for productivity.
Regardless of who wins, you can rest assured that ClearFreight is here for your supply chain needs. We have teams all over the world willing and waiting to provide you with world class customer service and industry leading knowledge. Contact us today to hear how ClearFreight can steer your logistics in the right direction.