Canadian railway CN wants Canadian Pacific to divest the Springfield Line in Missouri and Illinois as a condition for obtaining federal regulatory approval of the proposed merger of CP and Kansas City Southern — an idea CP quickly panned.
CN (NYSE: CNI) said in a Wednesday filing with the Surface Transportation Board that following CP’s divestment, CN would take over the line and invest in it.
CN says the existing KCS (NYSE: KSU) line between Kansas City, Missouri, and Springfield and East St. Louis, Illinois, would compete directly with CP’s (NYSE: CP) existing route between Kansas City and Chicago. Both the Springfield Line and CP’s existing route would serve markets in Detroit and eastern Canada, according to CN.
Allowing CN to take over the Springfield Line would promote competitive options for customers, including automotive and intermodal traffic and traffic for farmed and manufactured goods in Illinois, Indiana and Michigan, and it would align with the competition goals stated in President Joe Biden’s executive order from July 2021.
CN said it would make investments of at least $250 million to that part of the network, and those investments would include terminal upgrades.
“CP and KCS have made it clear in their merger application that they plan no investment on the Springfield Line, and instead will de-emphasize it in favor of CP’s existing parallel line,” CN said in a Thursday release. The railway is seeking “the divestiture of parallel tracks” as a merger condition that is within STB’s purview.
“Putting the Springfield Line under CN’s control represents a major opportunity to improve transportation options, promote rail-to-rail competition, and take many thousands of long-haul trucks off the road annually through increased rail-to-truck competition. CN’s plan for the line will benefit all stakeholders and will advance CN’s continual efforts to ensure competition and choice in our industry, while also creating new jobs and economic opportunities in the region,” CN said.
In the Wednesday filing, attorneys for CN argued: “CP’s plan to downgrade the Springfield Line is particularly troubling. … Just a few months ago, KCS publicly recognized the potential to develop this route into a ‘Kansas City Speedway’ that would create a ‘new competitive route between KC, Detroit & Chicago’ and deliver new opportunities to convert truck shipments to intermodal service. CP and KCS’s merger application makes clear that they now have no plans to take advantage of this opportunity — presumably because doing so would enable a rival railroad to compete with CP’s parallel route between Eastern Canada/Detroit and Kansas City. The Board should not allow CP to foreclose rail competition through disinvestment and neglect.”
CP on Thursday hit back at CN’s claim, asserting that the line is a valuable asset.
“CN’s proposal is built on a series of factual errors or misstatements. … [The line] is not ‘parallel’ to CP’s line between Kansas City and Chicago. KCS’s line does not reach Chicago, and contrary to CN’s misleading statements, KCS’s line is not part of a through route to Chicago in conjunction with CN,” CP said.
CP continued: “As part of CPKC, these lines will grow along with CPKC. CP’s proposed pro-competitive combination with KCS is about growth. A future CPKC will not downgrade any lines, these included. Instead, CPKC will maintain existing levels of service on these lines and will not re-route traffic away from these lines, contrary to CN’s assertions. In fact, the route from Kansas City to St. Louis and the other assets CN wants the STB to force CP to divest are important parts of the combined CPKC growth story providing new, competitive single-line routes connecting CP’s network with customers and port facilities in St. Louis, and connections to eastern carriers. CP anticipates an increase of traffic on this corridor of 30 percent.”
CP said it would respond to any formal CN request for conditions before STB at the appropriate time.
Shareholders of both CP and KCS recently approved the proposed $33.1 billion merger, which is now pending approval from STB.
Other railroads respond
Other Class I railroads also chimed in on the proposed merger recently.
Norfolk Southern (NYSE: NSC) said it wants trackage rights in certain areas to ensure its shippers maintain access to the Meridian Speedway, a joint venture formed by NS and KCS in 2006 that is a critical rail line connecting Meridian, Mississippi, and Shreveport, Louisiana.
“Rights that NS anticipates seeking in this proceeding will ensure that shippers continue to benefit from the efficient and competitive routing over the Meridian Speedway following CP’s proposed acquisition of KCS,” attorneys for NS said. “In addition … NS intermodal shippers using the Meridian Speedway have had the benefit of services provided at the Dallas Intermodal Terminal. NS traffic makes up the vast majority of the intermodal traffic moving to and from the Dallas Intermodal Terminal. NS has a keen interest in assuring that shippers retain the availability of such service options.”
BNSF (NYSE: BRKB) told regulators to expect filings from the company on trackage rights in certain areas, including Robstown and Laredo in Texas; Metro, Texas and Bossier City, Louisiana; and Savanna, Illinois and Clinton, Iowa.
CSX (NASDAQ: CSX) said that it didn’t see any need to seek conditions for itself, but it asked STB for a procedural waiver that would allow CSX to respond with feedback later if CSX perceives competition impacts as the proceeding moves forward.