BALTIMORE – Canadian Pacific CEO Keith Creel doesn’t expect a traffic density data issue to delay the overall timeline for regulatory review of the CP-Kansas City Southern merger.
The Surface Transportation Board on March 16 suspended its review of the CP-KCS deal pending resolution of a discrepancy in the baseline traffic figures the railroads used as part of their merger application.
The railroads provided one set of traffic density data for the merger application itself and another set for the STB’s environmental analysis. The railways have explained that they calculate gross ton miles differently, with CP breaking down tonnage in far more detail for each line segment, and have clarified the data in a filing with the STB.
Creel says it’s now up to the STB to ask for more information or to reinstate the merger review clock.
“It’s not surprising. These are very complex discussions when it gets to traffic density and this process. I’ll tell you this: The STB is very thorough, they want to get this right, and I understand that,” Creel told the North East Association of Rail Shippers on Friday.
“We think we’ll be back on track soon,” Creel says.
CP expects the board to issue a decision on the merger late this year or early in 2023.
“This hasn’t been done in 20 years. I believe this is going to be the last Class I combination in our lifetimes, perhaps ever,” Creel says. “And the STB is going to take the time to get it right. Again, I’m not concerned. I think it’s appropriate.”
Creel also defended the railway’s merger-related traffic and revenue growth projections. Some analysts and competing Class I railroads have questioned whether CPKC will produce $1 billion in revenue growth.
“There’s no doubt in my mind … there’s an opportunity to exceed synergies on revenue and there’s an opportunity to exceed synergies when it comes to cost once we put these two networks together,” Creel says.
CP and KCS increased their expected traffic and revenue projections after having in-depth discussions with intermodal, automotive, and grain shippers, among others.
CP’s merger projections are conservative, Creel says, much like they were in the railway’s 2020 acquisition of regional Central Maine & Quebec. Traffic on CMQ was 50% higher than anticipated in the first year after CP brought its historic shortcut to Atlantic Canada back into the fold.
“At the end of the day, we may be guilty of one thing: And that’s way underestimating the synergies,” Creel says.
Make the merger dependent on the projections Creel is so proud of. If it does not happen in a 2 year trial the merger would be abandoned. That would put wrinkles on his forehead.
Oil and auto parts. That is the synergy in 4 words or less.