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FMC members urge STB rejection of CP-KCS merger

The merger of Canadian Pacific Railway and Kansas City Southern would hurt US port volumes and investment in the country’s intermodal rail network, say three FMC members. Photo credit: Christopher O’Donnell / Shutterstock.com

Three members of the US Federal Maritime Commission this week urged rail regulators to reject the proposed merger of Canadian Pacific Railway and Kansas City Southern, saying while it may open more port routings for US shippers, it will ultimately hurt US ports and intermodal railway systems by shifting cargo volumes to competing Canadian ports.

Carl Bentzel, Louis Sola, and Max Vekich sent a letter sent Tuesday to the Surface Transportation Board, saying the merger, which the companies hope to close in the fourth quarter, would hurt US employment, US port volumes, and investment in the US intermodal rail network.

“Such economic losses will be far greater than any economic gain that might ensue as a result of a consolidation of the railroad systems of CP and KCS,” the commissioners wrote. They said they were speaking individually and not on behalf of the FMC.

FMC concern over Canadian ports being used as alternatives to US ports is hardly new. In 2012, the agency conducted a study into whether US policies, including the Harbor Maintenance Tax — a 0.125 percent levy on the value of imported cargo — as well as US congestion drove shipments to Canadian ports. But with the departure of then-Commissioner Richard Lidinsky, and findings that shippers were attracted to Canadian ports for low costs, efficiency, and risk mitigation, the agency chose not to continue the study.

Of the Candian ports, Vancouver and Prince Rupert are the largest gateways for US-origin and US-bound cargo and have taken market share away from the Northwest Seaport Alliance of Seattle and Tacoma. About 25 percent of Vancouver’s imports are US-bound cargo, while nearly two-thirds of Prince Rupert’s cargo moves to Chicago and further south. To a much lesser degree, the ports of Montreal, Halifax, and Saint John on the Canadian East Coast handle some US cargo.

The merged CP-KCS network would give shippers in the Kansas City area a single-line network to Vancouver and allow the railroad to leverage its Chicago access to drive northbound trade from Lazaro Cardenas on Mexico’s Pacific Coast. The KCS network also connects to Veracruz on the Gulf of Mexico, adding competition with US western railroads and to a lesser degree their eastern counterparts.

Because Canadian ports have much stronger support from their federal government compared to US ports, allowing the CP-KCS merger would “disproportionately benefit Canadian ports and the primarily Canadian-based intermodal railway systems that service Canadian ports for transportation of US-bound cargo,” the letter from the FMC members said. Through its National Trade Corridors Fund, Canada has focused investment on improving container flow from its western ports into the Canadian heartland and inland hubs.