After seven days, STB hearings on CP-KCS merger conclude

WASHINGTON — The Surface Transportation Board hearings on the proposed Canadian Pacific and Kansas City Southern merger concluded Friday, Oct. 7, after seven days of testimony from shippers, communities, public officials, and other railroads.

CP and KCS said the merger is a perfect fit, will increase competition, create new single-line routes, and provide their customers with broader market reach.

The railways said that they would live up to the commitments they have made to the board, customers, and communities, so no additional conditions should be required as part of STB approval of what would be the first merger of Class I railroads in two decades.

CP and KCS wrapped up their testimony on Friday by addressing a handful of issues that had been raised by other railroads and shipper associations.

They said Canadian National’s request for divestiture of the KCS Springfield Line was a dramatic overreach that would harm competition as well as shippers on the route who currently enjoy single-line service to Mexico. There’s no regulatory basis for the STB to award CN the line linking the Illinois capital with Kansas City and St. Louis, the railways said.

CN has said tying the Springfield Line to its former Illinois Central would create an intermodal corridor linking Kansas City and St. Louis with Chicago, Detroit, and Eastern Canada. It would invest in the line and take 80,000 trucks off highways annually.

But CP and KCS doubted there were 80,000 trucks that could be diverted, noting that they would already be using intermodal service offered by Norfolk Southern, BNSF Railway, and Union Pacific.

STB Chairman Martin J. Oberman asked whether CP would be willing to enter into a joint venture with CN if there was the potential to take trucks off the highway. He also asked how the board might tailor the concept into a condition it could attach to the merger.

CP said it was willing but doubted there was a business case for a joint venture. KCS CEO Pat Ottensmeyer said KCS and CN never were able to work out a deal for joint service via the Springfield Line because they couldn’t justify the required investments in the route.

CP attorney David Meyer said Norfolk Southern’s request for contingent trackage rights on KCS between Wylie, Texas, and Shreveport, La., was an attempt to gain something it failed to get in 2006 when Meridian Speedway agreements were drawn up.

CP CEO Keith Creel said it was likely that NS was looking to reduce its costs because trackage rights are cheaper than haulage rights NS currently has on the route. Trackage rights also would give NS more control, he said, because they’d use their own crews.

Meyer said nothing more needed to be said about CSX Transportation’s request to gain access to the Meridian Speedway. Oberman and board member Primus quickly chimed in that they agreed.

Much of the seventh day of testimony centered on protecting current interchanges and keeping them open on commercially reasonable terms. The focus was on Laredo, the busiest rail border crossing in North America. KCS de Mexico interchanges with KCS and Union Pacific at Laredo, and KCS also hands BNSF Railway trains to KCS de Mexico at the border.

BNSF and UP said CPKC would have an incentive to divert traffic to its new single-line route linking Mexico, the U.S., and Canada — and that they could do so by tweaking rate formulas for cross-border moves that would make interchange unable to compete.

But CP and KCS say that BNSF, UP, and shipper groups have offered no evidence that KCS and KCS de Mexico have engaged in unfair rate practices at the border. And they said that CPKC’s rates would be held in check by competition from the other railroads and trucks. They also said that customers could settle gateway disputes through arbitration.