The First Canada – United States – Mexico Rail Network
March 31 2021
Canadian Pacific (CP) is about to acquire the Kansas City Southern Railway Company (KCS) for US$29 billion (approximately CAN$36 billion). The transaction has already been approved by the management of the two companies, and both are now waiting for approval by the US Surface Transportation Commission (STB) to proceed to the next step.
If the deal is accepted, the two companies will merge to form CPKC, leading to the creation of the first-ever extended rail network linking Canada, the United States and Mexico over more than 32,000 kilometres of track. This will be the largest North American railroad merger ever!
A Timely Transaction
With the signing of the new free trade agreement (CUSMA) between the three countries, CP’s new acquisition will contribute to the fluidity of the supply chain in North America. The combination of CP and KCS networks will offer unprecedented reach via new single-line hauls across the combined company’s continent-wide network. By joining the two networks at a single connection point in Kansas City, CP aims to reduce transit times and costs for its customers, allowing them to benefit from a more competitive offering. “The combination will provide an enhanced competitive alternative to existing rail service providers and is expected to result in improved service to customers of all sizes. Grain, automotive, auto-parts, energy, intermodal, and other shippers, will benefit from the increased efficiency and simplicity of the combined network, which is expected to spur greater rail-to-rail competition and support customers in growing their rail volumes,” announced CP in a press release.1 Moreover, considering the cancellation of the Keystone XL pipeline project following the election of US President Joe Biden, these new rail routes could be an attractive option for transporting Canadian crude oil to refineries in the United States and on the Gulf Coast of Mexico, thereby contributing to the country’s economic recovery.
A Positive Environmental Impact
With the dawn of this acquisition, CP intends not only to enhance its offering, become more efficient and improve the capacity of its network, but also to make an environmental difference. According to data released by CP: “Rail is four times more fuel efficient than trucking, and one train can keep more than 300 trucks off public roads and produce 75 percent less greenhouse gas emissions.”2 With the integration of new routes into its railroad network, CP believes it will be possible to reroute trucks from highly crowded US highways, which should reduce road traffic and thereby lower greenhouse gas emissions (GHG) related to freight transport.
Although this is promising news, we will have to wait until mid 2022 for CP to obtain final approval from the STB to allow customers of freight forwarders such as Cargolution to benefit from this merger. However, this strategic acquisition will certainly contribute to the future and sustainable development of the North American rail transport industry, in addition to promoting intermodal transport, thanks to an integrated network allowing direct access to the main ports of the American Gulf, Atlantic and Pacific coasts, with the aim of reaching major international ports.