AS widely expected, the United States Surface Transportation Board (STB) has approved, with certain conditions, Canadian Pacific’s (CP) acquisition of Kansas City Southern (KCS) to form Canadian Pacific Kansas City (CPKC), North America’s first transnational railroad.

The board approved the merger, first proposed on March 21 2021, by a 4-1 vote, with Mr Robert Primus the only dissenter. CP completed its acquisition of KCS on December 14 2021, with the KCS shares placed into a voting trust until the STB issued its decision.

“The board expects that this new single-line service will foster the growth of rail traffic, shifting approximately 64,000 truckloads annually from North America’s roads to rail, and will support investment in infrastructure, service, quality, and safety,” the STB says in its 212-page decision.

The transaction is expected to drive employment growth across the CPKC system, adding more than 800 new union represented operating positions in the United States.

The merger will also foster new Amtrak passenger rail opportunities, as the railways have committed to support Amtrak’s existing plans for expanded service on the new lines.

“These commitments, along with CP’s strong record as an Amtrak host railroad, have won Amtrak’s endorsement of the merger,” STB says.

The board says the transaction is “end-to-end,” meaning there are little to no track redundancies or overlapping routes. If completed, the merger will reduce travel times for traffic moving over the single line service; result in increased incentives for investment; and eliminate the need for the two now-separate CP and KCS systems to interchange traffic moving from one system to the other.

“This will enhance efficiency, which in turn will enable the new CPKC system to better compete for traffic with the other larger Class 1 carriers,” the decision says. “It is not surprising that there is substantial (though not unanimous) shipper support for this transaction - the board has received more than 450 support letters. It is also not surprising that the other Class 1 railways seek conditions, and other remedies that appear aimed at protecting their own traffic from competition with CPKC and at limiting the ability of the combined CPKC to meet its potential. Consistent with the board’s policy to protect competition and not competitors, the board is denying those requests while also ensuring that existing competitive gateway options are preserved.”

However, STB acknowledged end-to-end mergers can pose competitive risks, and said the decision overturns prior agency precedent that did not sufficiently recognise such concerns.

“To address any potential anti-competitive harm, the board is imposing numerous conditions design to protect competition,” STB says. “And with these conditions, the merger should not reduce any shipper’s competitive options. The board establishes a detailed obligation to keep gateways - that is, connection points between the CPKC system and other railways - open on commercially reasonable terms, thereby preserving efficient routing options via other railroads that were available to shippers before the merger.”

To help enforce that obligation, the board will require CPKC to justify in writing, upon customer request, rate increases over a certain level on interline movements, subject to the gateway obligation. If disputes arise over whether CPKC’s actions are commercially reasonable, CPKC must afford rail customers an arbitration option to resolve disputes, but the board also will remain available to expeditiously decide gateway-related disputes.

CP and KCS announced the $US 31bn merger on September 17 2021, following a six-month long saga that saw CP’s rival also Canadian National enter the bidding. KCS shares entered a voting trust on December 14 2021, leaving the path open for the STB to consider and approve the merger.