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FMC commissioners want rail regulators to reject CP-KCS merger

They argue losing intermodal market share to Canada could negatively impact the US supply chain

Three members of the Federal Maritime Commission want the Surface Transportation Board to disapprove Canadian Pacific's plan to merge with Kansas City Southern. (Photo: Shutterstock/SNEHIT PHOTO)

Three commissioners with the Federal Maritime Commission want the Surface Transportation Board to reject Canadian Pacific’s plan to merge with Kansas City Southern, saying the merger could divert intermodal traffic from U.S. ports to Canadian ones, according to a letter to the board on Tuesday.

“While there might be economic benefits to certain shipper organizations and locations in the United States … there will be greater negative impacts relating to employment and long-term investment affecting intermodal shipments through U.S. ports,” said commissioners Carl W. Bentzel, Louis E. Sola and Max M. Vekich, adding that their views don’t constitute an official position of FMC. 

Losing intermodal market share to Canada could impact the U.S. supply chain, the commissioners argued. They also maintained it could adversely harm U.S. longshore and rail labor and port trucking companies, as well as U.S.-based intermodal railroads and warehouse and distribution centers servicing the ports.

“Such economic losses will be far greater than any economic gain that might ensue as a result of a consolidation of the railroad systems of CP and KCS,” the commissioners said. “Since 2005, the Canadian government has worked closely with and helped finance two Pacific gateway ports and more recently with two Atlantic coast gateway ports to attract U.S.-bound cargo to benefit the Canadian ports and the Canadian railroads. U.S. ports receive less proportionate support than their Canadian counterparts and the evidence suggests that the greater levels of Canadian support seem to be paying off with greater market share of U.S.-bound cargo.”

STB has been gathering testimony from stakeholders on CP’s request to acquire KCS. Shareholders of CP (NYSE: CP) and KCS approved the $31 billion deal in December and the merger is now before STB for review. CP has said it hopes for STB approval by early 2023.

In a Thursday release about the commissioners’ comments, Sola said: “The consolidation of any limited asset integral to the supply chain merits close examination and the acquisition of such an asset by an enterprise supported, subsidized or controlled by a foreign power deserves scrutiny.”

Added Vekich: “It is imperative that we maximize cargo flow through U.S. ports for the benefit of our stakeholders — especially our ports, waterfront employers, labor and the related intermodal industries that flourish with the increased cargo volume on American soil. We must also work to promote competitive and efficient supply chain solutions.”

In addition to the testimony from the FMC commissioners, other recent filings have been submitted to the STB. They range from shippers, such as the Chlorine Institute, asking that certain conditions be met to ensure CP and KCS strive to maintain market competition, to a Chicago-area group called the Coalition to Stop CPKC advocating that the board put conditions in place because the group maintains the modified rail operations post-merger could severely hamper passenger rail and road traffic within the area.

Individual Class I railroads also want to ensure that gateways are kept open and have sought to ensure that CP and KCS use data most representative of their operations to gauge the merger’s effect on freight rail networks. 

Bentzel and Sola were nominated to FMC by former President Donald Trump and Vekich was nominated by President Joe Biden.

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Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.