News & Reviews News Wire Conditions placed on CP-KCS merger designed to ensure competition, smooth operations

Conditions placed on CP-KCS merger designed to ensure competition, smooth operations

By Bill Stephens | March 15, 2023

Conditions not seen as onerous for the merged railroad

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Red locomotive leads train past passenger station
A Canadian Pacific train passes the Metra station in Lake Forest, Ill., on April 8, 2022. David Lassen

WASHINGTON — Federal regulators imposed a number of conditions on the merger of Canadian Pacific and Kansas City Southern, including a novel way of enforcing the railways’ promise to not tamper with current interchanges.

Nearly all of the conditions were proposed by CP and KCS themselves as part of the Surface Transportation Board’s merger review process.

“This seems like a clear win for CP without any material conditions,” Wolfe Research analyst Scott Group wrote in a note to clients. “CP will not be required to divest any track, and the decision didn’t grant any trackage rights or competitive access like in prior mergers.”

The conditions the board did impose will be monitored through an unprecedented seven-year oversight period, during which CPKC will have to provide data that will allow regulators to determine whether the merged railroad is living up to its promises.

Chief among them: Keeping gateways open on commercially reasonable terms and to create no new bottlenecks at interchanges such as Laredo, Texas; Chicago; and Kansas City, Mo. To enforce CPKC’s pledge, the STB will require the railroad to provide a shipper with a written justification for any interline rate increase that’s higher than the rate of inflation. CPKC also will be required to arbitrate gateway rate disputes with shippers.

Shippers rarely bring rate complaint cases to the STB because the agency’s processes are so complicated, expensive, and time-consuming.

STB Chairman Martin J. Oberman said the strength of gateway protections is unprecedented due to concerns that CPKC could manipulate its rates and crimp other railroads’ cross-border traffic at the key Laredo gateway.

If CPKC’s written explanation regarding a rate hike doesn’t pass muster with the shipper, Oberman says they’ll be able to challenge the rate on an expedited timetable, he says.

The conditions also lay out a dispute resolution mechanism, which the board says it modified and improved, that covers potential freight train interference with Metra commuter trains in the Chicago area [see “Metra, Chicago suburbs see few concerns addressed …,” Trains News Wire, March 15, 2023]. Metra had raised concerns about projected freight train increases on lines shared with commuter trains.

Oberman, who was once Metra’s chairman, said that as part of the STB’s oversight of the merger there will be detailed scrutiny of CPKC and Metra performance metrics.

In a catch-all condition, the STB is requiring CPKC to live up to various commitments it made during merger proceedings. Among them:

  • Honor the settlement agreement with Amtrak, including CP’s agreement to support certain planned expansions of Amtrak passenger service.
  • Retain reciprocal switching access for any shipper facility that’s currently directly served by CP or KCS.
  • Cooperate with Union Pacific and BNSF Railway to ensure adequate capacity along the CPKC’s trackage rights across Texas.
  • Keep St. Paul, Minn.-Kansas City freight trains off Metra lines in the Chicago area unless otherwise agreed to by CPKC and Metra or in the event of an emergency. CPKC plans to run those freights on its direct route through Iowa, but Metra feared they may run the long way around via Chicago.
  • As modified by the board, extend the terms of the hazardous chemical tariff settlement agreement reached with Bayer CropScience LP to other eligible shippers.

CPKC will be required to shift its crew change location near Ottumwa, Iowa, to a point farther southwest on the CP Laredo Subdivision to eliminate potential conflicts with nearby BNSF Railway movements.

It also must abide by an agreement reached with regional Iowa Interstate over the Davenport, Iowa, gateway.

The STB has typically imposed a five-year oversight period on mergers, but felt a seven-year period was justified to ensure that the merger goes as planned. The data that CPKC will be required to regularly submit to the STB includes numerous service, operational, competition-related items.

The remaining conditions were boilerplate items such as requiring that CPKC comply with oversight conditions, post-merger service promises, its safety integration plan, New York Dock labor protections, and required environmental mitigation projects.

13 thoughts on “Conditions placed on CP-KCS merger designed to ensure competition, smooth operations

  1. Thank you for that, Charles.

    Mr. Giblin, you have never explained why you think CP, a foreign national freight railroad, deserves to have dispatching rights over an American taxpayer-funded commuter/regional railroad that actually owns the railroad, owns its equipment, and directly employs its crews. And to boot, it is responsible for all engineering functions on main tracks in its territory. There is no parallel in the American commuter/ regional rail industry. Sure BNSF and UP have dispatching rights over Metra trains but they own and maintain the lines Metra operates over.

    Your staunch defense of CP’s dispatching rights over Metra-owned territory leads me to think that somehow, some way, you have skin in the game. Somehow you personally benefit by this arrangement. And it’s not “Amtrak, Amtrak, Amtrak” like you once wrote. Metra dispatchers do not want to delay Amtrak. We would want to get them to off our railroad at Rondout westbound or CP Morgan just outside CUS eastbound. There might be on of ours not far behind (Yes I still say “ours” and “we”-I worked there for 35+ years). And don’t tell me Metra dispatchers cannot or would not do as professional a job moving trains as the CP dispatchers do.

    One more thing. I have it from an impeccable source that Metra went down fighting on this. They made a vigorous case for why this event should have triggered, after all these years, conveyance of the dispatching to them. But Mr. Oberman decided this event did not require a change in the decades old contract unless there was cause. Metra made the case that there was cause. But Mr. Oberman and the rest of the Board didn’t see it that way. I guess it’s possible, I sure don’t know, that the Metra issue was a motivating factor in Robert Primus’ decision to vote against the merger.

    1. Mr Shapp,

      Please keep posting, even if I don’ agree I still want to read your perspective. Your insight with Oberman, Metra and the legality of things is an angle I was not aware of.

      Oberman said he didn’t want to “break a contract”. But I can’t tell if that is a STB/Commerce Department legacy policy, or something he wants to maintain for future STB hearings. Becuase if the STB breaks one contract, people will attempt to ajudicate their rail contracts within the STB and break them all.

      While I understand Metra’s objections, I don’t necessarily agree with all of them. Metra *did* sign that agreement when they were cash poor and operationally dependent. So at the time it made sense for them to agree to maintain a claim to operate said routes.

      But even if Metra can’t find “cause” in this arrangement to break it, why don’t they enter into negotiations to update the agreement?

      As for a foreign entity controlling dispatching in a major US metro on behalf of a transit agency, do you have examples of where they have fallen down consistently? Like more than UP does on the west line?

  2. Will this have any affect on the old SF San Angelo, TX to Presidio, TX route to Mexico, and possibly getting it running again? At one time many years ago it was a KCS idea.

    1. Texas Pacifico owns that former Santa Fe route to Mexico. If memory serves, they are waiting on Mexico to release the funds to the regional government so the bridge over the Rio Grande can be rebuilt. As you are probably aware, the bridge was burned down by vandals and cross border traffic ceased.

      With cross boundary traffic growing it is possible “some” new business can be had, but the end port doesn’t provide that much Asian nor South American originating traffic. With KCS pushing their port further south, other options will be needed to make it profitable.

      It would be a great port to export fossil products as it will avoid silly green regulations at US west coast ports and avoid congestion as well.

  3. Oberman is a disgrace having once been Metra’s Board chair in not demanding CP convey train dispatching of the Metra-owned territories to Metra as a condition of STB approving the merger. Something very unsavory is going on here. But since the Congresscritters who represent those Metra service territories most likely do not know that CP has dispatching rights dating back to the 1980s. If they did they might, I say “might”, have made it a point to attend the STB meetings and demanded the conveyance.

    1. Mr. Shapp please give it a rest. Your comments are silly, childish and starting to bore the hell of just about everyone.

    2. JAMES — MARK SHAPP is one of our better people on this forum. I don’t know whether or not I agree with him on this one issue. In general I very much enjoy his insight.

    3. Nothing unsavory is going on here. RTA (Metra) signed a deal in the 80s with the Milwaukee Road. In the context of the era is made sense, the public agency didn’t want to be a railroad operator and there was no reason to think peak-period commuter travel would go anywhere but up.

      But life didn’t work out that way. Eventually Metra became a railroad operator, but didn’t have the dispatching rights. Travel patterns changed (even pre-COVID).

      I wish Metra did have the dispatching rights, but this merger was not the forum to rewrite contracts.

  4. “Keep St. Paul, Minn.-Kansas City freight trains off Metra lines in the Chicago area unless otherwise agreed to by CPKC and Metra or in the event of an emergency. CPKC plans to run those freights on its direct route through Iowa, but Metra feared they may run the long way around via Chicago.”

    That emergency would be a river flooding or massive derail event north of Sabula that would require multiple days of remediation before traffic could flow. That is what Metra is really worried about.

    1. Mr. Rice: Unless things have radically changed since I retired at the end of 2007, the CP train dispatchers have always done a creditable job of handling all the traffic thrown their way across the Metra-owned territories. And I used to ride to see the freights and learn the physical characteristics the Metra UP West and the BNSF Chicago-Aurora quite frequently on my days off. Admittedly, that’s limited experience but neither were delaying Metra that ever saw. The difference between UP, BNSF, and CP is that the former owned the railroads Metra used. It was purchase of service and those railroads crewed the Metra trains. On the Milw West and North, Metra owns the railroad and is responsible for performing all associated engineering work on main tracks. THAT makes all the difference.

  5. It never should been approved. It will cause a lot problems, with the towns they pass through. What guarantee will they have of not blocking any crossing and not making passenger service a number one priority.

    1. Join or move, plenty of real estate available and repayment is cheaper with 6%nnfaltion.

    2. The towns built themselves around the railroad, not the other way around.

      Beside, the train count and total volumes will still be very low compared to what they’ve been in earlier times, and many railroad lines carry today way more traffic than a combined CP-KCS single track main line will ever be able to handle.

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