Class I railroads CSX and Canadian Pacific Kansas City (CPKC) have requested Surface Transportation Board approval to acquire portions of a southern U.S. short line in a bid to create more efficient rail freight flows between Mexico, Texas and the southeast U.S.
CSX and CPKC are seeking to acquire portions of the Meridian & Bigbee Railroad, currently a subsidiary of short line operator Genesee & Wyoming.
Their plans come as Georgia Ports Authority said separately last week that shifts in world trade patterns will benefit the Port of Savannah (see below).
Leaders from both CPKC (NYSE: CP) and CSX (NASDAQ: CSX) have expressed interest in creating more efficient transport among those regions and establishing “a new direct connection and corridor linking Mexico, Texas and the U.S. Southeast.” CPKC and CSX announced their intentions in June. In August, CSX CFO Sean Pelkey said at an investor conference that “I haven’t seen a new interchange pop up [in my years at CSX] … that is going to be as significant as this one.”
Mexico and the U.S. Southeast are “two of the fastest-growing regions connecting through a third (Texas),” longtime transportation analyst Tony Hatch told FreightWaves.
Indeed, their competitors — Norfolk Southern (NYSE: NSC) and Union Pacific (NYSE: UNP) — have also expressed interest in beefing up offerings among those regions. UP is offering intermodal service that originates on Mexican rail carrier Grupo México from both Monterrey in Nuevo Leon and Silao in Guanajuato to cities in the southeastern U.S.
Meanwhile, NS has a relationship with CPKC in which shippers can utilize the Meridian Speedway to go between Texas and Mexico and the Southeast. NS also has its own service products, including those that involve partners J.B. Hunt and Hub Group, and it recently expanded its intermodal offerings with Florida East Coast Railway.
CSX is seeking to acquire the portion of Meridian & Bigbee Railroad’s 93.7-mile line that runs in Alabama between Burkeville and Myrtlewood, according to an Oct. 6 filing to STB. That same day, CPKC filed a request to STB seeking to acquire the western line of the Meridian & Bigbee line. It consists of approximately 50 miles of track between Meridian, Mississippi, and Myrtlewood.
CSX and CPKC say this arrangement would enable the railroads to create a direct interchange at Myrtlewood. Doing so would eliminate the need for an intermediate carrier on overhead traffic, according to CSX’s filing, and it would allow the railroads to avoid more congestion-prone and weather-sensitive interchanges, such as New Orleans.
“The new, more efficient gateway at Myrtlewood will allow CSXT and CPKC to compete more effectively with other carriers and modes in the region,” CSX said in its filing.
If CSX and CPKC are able to acquire these assets, then it would allow both railways to create a new freight rail corridor that will expand shipping options for intermodal, automotive and other interline traffic, CPKC said. The Meridian and Bigbee would also retain trackage rights to provide local service, the railway continued.
“CPKC’s investments in track infrastructure [as a result of this acquisition] will enable faster, more efficient, economical, and safe operations on the Western Line,” the railway said in its filing, and it “will create a direct Class I to Class I connection that will provide improvements in the efficient movement of existing and future intermodal, automotive, and other interline traffic between the Southeastern United States and the Southwestern United States and Mexico. Creation of this Class I freight corridor will expand customer market reach, and by converting truck traffic to rail, reduce highway congestion. It will also benefit the environment by reducing fuel consumption.”
The railways also told the board that the acquisitions should be considered “minor” transactions, which means they wouldn’t require as extensive a review process by STB. Minor transactions tend to be those in which anticompetitive concerns don’t appear to be an issue for shippers.
The Meridian & Bigbee, which G&W acquired in 2005, currently has interchanges with Atlantic & Gulf Coast Railway at Linden, Alabama; with CSX at Montgomery, Alabama; with CPKC at Meridian; and with Norfolk Southern at Selma, Alabama, and Meridian.
CSX operated the Meridian & Bigbee prior to G&W’s takeover of the line.
Said Todd Tranausky, vice president of rail and intermodal at FTR: “When you think about the recent announcements in the Southeast, it makes sense from the perspective of the Southeast being a growing region that has additional consumption needs as population shifts increase population in that area and by extension increase the freight demands of that region. It also makes sense from a CPKC perspective because it is a good region to go into and find early volume wins and show a return for their investors in the short term while they make the necessary capital investments along some of their lines in the upper Midwest to fully be able to derive advantage from their reach into Chicago from an intermodal and carload perspective. It will take time, I believe three years is what is in the merger documents about how long they think it will take to get those upgrades complete in the midwest. And the UP is trying to not leave volume on the table as CPKC aggressively looks for volume and rate growth from its acquisition.”
Shifting world trade patterns to benefit Georgia Ports Authority
The filings from CSX and CPKC don’t mention Georgia and the Port of Savannah to STB. But Georgia Ports Authority officials at the Savannah State of the Port event last Thursday noted the manufacturing shift to the Southeast. The region, which GPA says includes Texas, Florida, North Carolina, Georgia, South Carolina and Tennessee, has also grown in population by 9% since 2012.
CPKC said in its Oct. 6 filing to STB on the request to acquire the western line of the Meridian & Bigbee that its proposed plan with CSX would “position CPKC to compete for the new traffic that will be generated by several new automotive plants that are planned to open in the Southeastern United States in the next few years.”
The trend toward source shifting to Southeast Asia, which consists of adding a Southeast Asian country in addition to China for manufacturing needs, favors U.S. East Coast delivery via the Suez Canal, GPA said. Furthermore, India’s status as a growing economy represents business opportunities for GPA customers, the port authority continued.
“We need to be ready for future economic cycles. We’re talking to customers and designing a gateway port and inland supply chain that meets their long-term requirements. We’re all-in on this. The decisions we make will decide who we become as we prepare for the next wave of future cargo,” GPA President and CEO Griff Lynch said in a release. “Savannah’s ocean carrier customers are upsizing their vessels; 80 percent of the container ships entering the port are 11,000 TEU or larger.”
GPA plans to focus on a “mid-American arc” that will stretch from Dallas to Chicago and Cincinnati, and it cited its proximity to Charlotte and Rocky Mount, North Carolina, and Miami, Tampa and Orlando, Florida.
Two new partnerships also have sprouted or are underway: CSX’s Carolina Connector service to Rocky Mount, which GPA says could open up Ohio Valley opportunities, and Norfolk Southern’s slated Blue Ridge Connector service to northeast Georgia, which will open in 2026.
GPA’s Mason Mega Rail is also now fully operational. GPA says the service “provides the greatest on-dock rail capacity of any port in the Western Hemisphere.” The 85-acre intermodal terminal has the capacity to put together and receive six 10,000-foot trains simultaneously, according to GPA’s website.
GPA said it handled 5.4 million twenty-foot equivalent units in its 2023 fiscal year, and it forecasts 4%-6% growth in the coming years.
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