Canadian National Seeks Line Divestiture as Part of the CP-KCS Merger

Canadian National, the railroad recently thwarted in its attempt to merge with Kansas City Southern (KCS), has submitted a notice of intent to file a responsive application with the Surface Transportation Board (STB).

CN said it would file the responsive application on 28 February 2022 in line with the STB’s schedule for reviewing the pending merger between Canadian Pacific and Kansas City Southern. Canadian National wants STB to make the merger approval conditional on a KCS line being divested to CN, a decision-making power the STB has. The line in question runs from Kansas City, Missouri to Springfield and East St. Louis, Illinois (the Springfield Line).

Canadian Pacific locomotive
Canadian Pacific locomotive

The reason Canadian National wants this is because it sees the Springfield Line as a direct competitive alternative to Canadian Pacific’s route from Kansas City to Chicago and on to Detroit and eastern Canada, the railroad said. Divesting the line to CN would mean greater ‘rail-to-rail competition’, CN continued.

As part of its filing, Canadian National laid out a plan for the Springfield Line. It said it would invest a minimum of 250 million USD in the line, improving operating speeds, and in terminal upgrades. The company heavily focused its reasoning on increasing competition and striving for modal shift. It also said it would ‘preserve all existing competitive options by providing KCS access to customers on the line’.

Canadian Pacific strongly rejected Canadian National’s plan, saying it was ‘built on a series of factual errors or misstatements’.

It said the Springfield Line was not in fact parallel to CP’s line between Kansas City and Chicago, pointing out that the Springfield Line does not reach Chicago. Chicago is 178 miles to the north of Springfield as the crow flies. Essentially, they are more like two sides of a triangle. Canadian National has a line that makes up the third side, connecting Springfield with Chicago. Canadian Pacific said that KCS’s line did not in fact reach Chicago and the line was also not part of a through route in conjunction with CN. It said that in 2020 only four cars were interchanged by KCS at Springfield with CN, and in 2019 that figure was 133 cars.

Canadian Pacific said that it was aiming at a pro-competitive combination and insisted it would not downgrade any lines, including the Springfield Line. It rejected CN’s claim that ‘CP and KCS have made it clear in their merger application that they plan no investment in the Springfield Line, and instead will de-emphasize it in favor of CP’s existing parallel line’, saying it would ‘maintain existing levels of service on these lines and [would] not re-route traffic away from these lines’.

Doubling down, CP said it was anticipating an increase of traffic on this corridor of 30 percent. Canadian Pacific also said it would be responding to any formal request from Canadian National for conditions in the pending STB proceeding ‘at an appropriate time’.

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