KCS/CP Merger Discussion

Friday October 29th, 2021 CP and KCS have filed their formal merger agreement with the STB for approval. CP's press release is available here; https://www.cpr.ca/en/media/canadian-pa ... rk-linking

Here is the STB link to volumes 1 - 4 of the public (ie, redacted) CPKC filing as promised: it's a whopping 4,342 pages (ie, 3.5X bigger than War and Peace!) and cost CP $1,930,000 to file!!!

https://dcms-external.s3.amazonaws.com/ ... 303143.pdf

This is going to take awhile to wade through but here are a few excerpts:

"...Increase in Traffic, Revenues and Earnings: The Summary of Benefits Exhibit attached to this Application as Appendix B shows that, when the Transaction is fully implemented, CPKC would realize annual benefits of $889 million in 2019 dollars. Of this amount, $716 million each year is attributable to net revenue gains from additional traffic expected to be handled by the combined system and $173 million per year is attributable to efficiencies and cost savings that would be achieved as a result of the Transaction.

Applicants estimate that CPKC’s single-line service, cost reductions and other efficiencies will yield more than $1 billion in new annual gross revenues from new traffic attracted to the CPKC network..."

"...New and Improved Train Services: CPKC will enable a host of new through train services that span the former boundaries of the separate CP and KCS systems. Of particular note, CP today does not offer intermodal service to Kansas City. With the Transaction, CPKC will establish new intermodal services connecting Dallas, TX with Chicago and points beyond, and it will enable a host of new single-line intermodal routes connecting Mexico with the Upper Midwest and Canada [excerpt from pg 39: "Applicants’ new intermodal rail services will annually divert more than 60,000 long-haul truck shipments to rail" - ie, an average of 164 daily truckloads which doesn't seem like much to me]. Among these new services will be the longest-distance intermodal train on the CP/KCS system, connecting the Port of Lazaro Cardenas with Chicago, Toronto, Montreal, and Eastern Canada. CPKC will build numerous other through trains connecting Canadian and Upper Midwest points seamlessly with the U.S. Gulf Coast and Mexico.

Improved Blocking Patterns: CPKC will enable more efficient blocking patterns for manifest traffic moving between the KCS system and the CP system. From the outset, CPKC will build efficient, longer distance blocks that bypass Kansas City, connecting KCS’s Shreveport yard and CP’s yards in St. Paul and Chicago. Over time, with increased traffic volumes on the combined network, CPKC will implement even more efficient network blocking patterns..."

"...Increased Capacity and Other Investments: The new rail traffic the CP/KCS system will attract will support investment in additional capacity, service quality, and safety on CPKC’s critical North-South rail artery. CPKC anticipates spending more than $275 million on centralized traffic control in previously-dark territory and new double track, sidings, and siding extensions on CP’s and KCS’s single-track lines between Louisiana and the Upper Midwest, as explained in the Verified Statement of Keith Creel (in this Volume) and detailed in the Operating Plan (in Volume 2) [see attached map]. These investments will transform this relatively underutilized route (handling fewer than ten trains per day on average) into a more efficient, higher-capacity, and safer artery of North-South trade in North America capable of supporting improved service levels. In addition, CPKC’s more efficient car and locomotive utilizations, supplemented by investments in new equipment where necessary, will support growing volumes of traffic on the combined system..."

"...New and Improved Train Services: CPKC will enable a host of new through train services that span the former boundaries of the separate CP and KCS systems. Of particular note, CP today does not offer intermodal service to Kansas City. With the Transaction, CPKC will establish new intermodal services connecting Dallas, TX with Chicago and points beyond, and it will enable a host of new single-line intermodal routes connecting Mexico with the Upper Midwest and Canada [excerpt from pg 39: "Applicants’ new intermodal rail services will annually divert more than 60,000 long-haul truck shipments to rail" - ie, an average of 164 daily truckloads which doesn't seem like much to me]. Among these new services will be the longest-distance intermodal train on the CP/KCS system, connecting the Port of Lazaro Cardenas with Chicago, Toronto, Montreal, and Eastern Canada. CPKC will build numerous other through trains connecting Canadian and Upper Midwest points seamlessly with the U.S. Gulf Coast and Mexico

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Mr. Barlow, interesting to note that the River Line on "my MILW" will get a revival post-merger. "Back in my day" (70-81), our Twin Cities-KC traffic, which largely comprised agricultural traffic (and often handled in Boxcars with Grain Doors) originating on-line (a railroad term long before the Internet was ever dreamed of), was routed via Bensenville to keep it on the rails rather than the ground!!!

I further note with interest the reference to the Port of Lazaro Cardenas, Mich. There's a topic relating to such as Class I discussion. Considering the "crisis" now prevalent at US West Coast ports and Lazaro Cardenas apparent capacity to handle any vessel afloat, maybe "it's time".

I would fear, though, that any train handling high value Container traffic will need to have constant surveillance by "chopper" or drone and maybe even armed security forces riding the trains. Of course, armed forces aboard Mexican trains is nothing new. Back when I rode trains down there, say 1970-75, soldiers aboard passenger trains were simply part of the landscape.

Speaking about shipping crisis, which US port has the most containers anchored offshore on waiting ships versus annual throughput and considering only the Top Ten US container ports? Drum roll please.


The answer is Savannah, GA.

No US container port of any real capacity has any capacity to relieve the Ports of LA/Long Beach. And then there is the shortage of Drivers and also container chassis.

NotYou wrote: ↑Thu Sep 30, 2021 9:33 pm What do people think will happen to the old Alton RR Kansas City - Springfield / St. Louis line? Think CP/KCS will keep it or sell to a short line or CSX or CN?

This is still my biggest question regarding the merger. Keeping the line means Kanadian Pacific Southern can haul traffic from Mexico, Dallas - Forth Worth, and the western gulf of Mexico to interchange w/ CSX and CN at St. Louis or CN at Springfield instead of Chicago, but maybe Chicago is still considered good enough. However, CN and CP have had a spat over what their Chicago interchange looks like, think it goes via the Chicago Belt last I read.

I am not familiar with the area (drove between the cities once last year), but my impression is the Kansas City to Springfield and St. Louis line doesn't have a lot of online traffic, and thus not a good fit for a short line. Can't imagine a bridge line being profitable.

Do CN or CSX want access to Kansas City? Could see CP agreeing to sell the line to one of them to appease them during the merger approval process.

NotYou wrote: ↑Wed Nov 03, 2021 10:29 pmDo CN or CSX want access to Kansas City? Could see CP agreeing to sell the line to one of them to appease them during the merger approval process.

Anything they can do to weaken CP-KCS could be helpful. More of a "I don't want it but I don't want you to have it" situation. I don't see the line as a required divestment and I hope CP doesn't give up line segments unless it fits THEIR master plan. If they give CN or CSX that connection then another railroad may want some piece somewhere else. CP should keep as much of the system intact as they can.

If I'm interpreting the data given in the CPKC merger application (OPERATING PLAN APPENDIX C: BASE KCS/KCSM TRAIN SERVICE - APP VOL. 2, PAGE 409) , KCS currently operates manifest train pair M-KCVN (KC to E St Louis) / M-VNKC operate 4 days per week averaging about 6-7,000 feet in length and 6,800-7,500 tons. The merger isn't expected to change these figures much.

NotYou wrote: ↑Wed Nov 03, 2021 10:29 pm Do CN or CSX want access to Kansas City? Could see CP agreeing to sell the line to one of them to appease them during the merger approval process.

Mr. Not You, how do you foresee Chessie justifying access to Kansas City? I cannot see how she is adversely affected by CP-KCS.

CN; you already have the most direct "Lakes to Gulf" routing to your name. Mexico? Remember that is a franchise granted by the Mexican government. They are free in about fourteen years to take it back and again get into the railroad business themselves. Time to stop being a "sore loser".

I have to wonder if Warren is playing the "long game". When the franchise is up, and especially if CP is perceived to have mismanaged it, "Buffet's New Santa Fe" sweeps in.

Only rub; neither he nor I will be around to see it.

I thought 2027 was the magic date for KCSM... They lose exclusivity in six years as I understand it, although the law could be changed on a moments notice...

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I'll stand corrected on that one, Mr. Olesen. I probably "flipped" the 14 and 6.

If that be the case, then CP had best think of KCS-M as "gravy"; for who knows for how long you'll have it.

Who knows; Warren just may be around to see "Flash Gordon" South of the Border after all. Even some chance I might be.

The KCSM concession lasts until 2027 but can be renewed for another 30 years, meaning CPKC would own their Mexican lines until 2057 at the maximum. The Mexican rail regulators have become increasingly concerned about competition in the past few years so don't be surprised if Ferromex is given access to Laredo and Lazaro Cardenas.

Speaking of Lazaro Cardenas, CPKC is going to push it as an alternative to other west coast ports which I don't understand. This is a port whose line is susceptible to being blocked for months at a time. If shippers want one thing it's reliability and Lazaro Cardenas doesn't offer it. If Mexico's political environment stabilizes in the next decade then maybe, just maybe, they can make it work.

As for the possibility of somebody buying the Gateway Western, I could see CN making some convoluted argument saying that since CP and KCS both have lines headed eastward out of Kansas City, CPKC reduces competition, and they should be given the GWWR. Perhaps the "Kansas City Speedway" could then come to fruition!

Sidenote: If I were CN right now I would be buying up every podunk shortline and regional both railroads connect with to starve CPKC of carload traffic.

Shortline614 wrote: ↑Fri Nov 05, 2021 1:10 pmSidenote: If I were CN right now I would be buying up every podunk shortline and regional both railroads connect with to starve CPKC of carload traffic.

Which would be the opposite of selling 650 miles of railroad in northern Michigan and Wisconsin to Watco?
CN doesn't want to deal with carload end users.

justalurker66 wrote: ↑Fri Nov 05, 2021 4:13 pm Which would be the opposite of selling 650 miles of railroad in northern Michigan and Wisconsin to Watco?
CN doesn't want to deal with carload end users.

If you look at a map of the lines CN is selling, with the exception of two small lines north of Milwaukee, they don't connect to CP anywhere.

Shortline614 wrote: ↑Fri Nov 05, 2021 1:10 pm Speaking of Lazaro Cardenas, CPKC is going to push it as an alternative to other west coast ports which I don't understand. This is a port whose line is susceptible to being blocked for months at a time. If shippers want one thing it's reliability and Lazaro Cardenas doesn't offer it. If Mexico's political environment stabilizes in the next decade then maybe, just maybe, they can make it work.

Mr. Shortline, just as I do at the CSX-PAR discussion, I respect your thoughts and to great extent, agree.

Now I realize I have been "touting" Lazaro Cardenas both at this topics and others within this Forum. Even though I have traveled within the Mexican interior (that doesn't mean hoping off the plane in Mexico City or Cancun), I've never been near Lazaro Cardenas, Michoacán.

That I've mentioned as part of this topic is that CP in their submission to the STB, notes their intention of increasing service to the Port. Just pick up or tune in any recognized newssource, and you learn of the maritime port situation and how it could imperil the entire post-COVID economic recovery. This Port is essentially "just sitting there" with capacity to handle any vessel afloat.

Maybe some party like CP is placing their bets that shippers will pay what they must for necessary security, which could include military trained armed guards - probably foreign mercenaries, who "don't exactly work on the cheap" and have their way of making up their own rules.

Don't think those schoolteachers would want to be on their wrong end. Remember Michoacán is a most lawless state in a lawless nation.

justalurker66 wrote:

Shortline614 wrote: ↑Fri Nov 05, 2021 1:10 pmSidenote: If I were CN right now I would be buying up every podunk shortline and regional both railroads connect with to starve CPKC of carload traffic.

Which would be the opposite of selling 650 miles of railroad in northern Michigan and Wisconsin to Watco?
CN doesn't want to deal with carload end users.

That sale to Watco seems to be frozen right now, but as noted, there's little to no overlap with CP.

Different story when you look between Chicago and the Gulf...

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