CALGARY, Alberta – Other Class I railroads should not be able to use the Canadian Pacific-Kansas City Southern merger process as a way to improve their competitive positions, CP CEO Keith Creel says.
BNSF Railway, Canadian National, and Norfolk Southern have sought concessions related to the merger, which is currently under review at the U.S. Surface Transportation Board.
“The requests that have been made so far, not a surprise obviously,” Creel said on CP’s earnings call on Thursday. “We expected everybody to come to the table asking for certain things. But at the same time, as we said from the very beginning, we will negotiate on reasonable terms.”
Significant concessions, Creel said, are not a reasonable expectation because the merger will not reduce competition or lead to predatory pricing or poor service.
CP, like the STB, would prefer to reach reasonable agreements with Class I railroads, short lines, and shipper groups, Creel says. CP is listening to proposals from other railroads and shipper associations, he says.
But CP will “vehemently oppose” CN’s request that CP be forced to divest the KCS line linking Kansas City and Springfield, Ill. CN’s request is based on “bad facts, there’s factual errors, there’s misstatements,” Creel says.
CN wants to use the KCS line to create a new single-line route linking Eastern Canada with Kansas City.
Creel disputed CN’s rationale for divestiture, noting the line doesn’t go to Chicago, doesn’t overlap CP’s Kansas City-Chicago line, and that CP expects traffic on the route to grow.
Norfolk Southern is asking for rights to move more types of traffic over the Meridian Speedway joint venture with KCS that were not contemplated as part of the original agreement, Creel says. Changing the agreement due to a merger is not supported by precedents set in prior Class I combinations, he says.
BNSF Railway is seeking trackage rights over KCS to reach the Laredo, Texas, gateway to Mexico, as well as rights over CP in Iowa and Illinois. In a regulatory filing, BNSF said the Laredo trackage rights would only go into effect if it was able to get a concession to operate in Mexico. BNSF sought similar rights before, Creel says, noting that they didn’t make sense then and don’t make sense today.
CP won’t agree to “unreasonable requests,” Creel says.
Mr. Creel is correct, these concession requests from the other Class 1s make no sense in this merger. But it does show their hand for all to see:
NS wants to run more over the Meridian Speedway. Fine. What are they willing to give CPKC for the privilege?
CN thinks they want KC to Springfield. Is there anyone else who sees value in it? How much can CPKC get for it vs. how much will they make just from traffic?
BNSF wants to control their destiny in South Texas. But so does CPKC. Both must deal with UP as landlord. Is there something BNSF-CPKC can negotiate and build together?