Regulators Approve Largest Rail Merger In Two Decades
Gavin John/Bloomberg via Getty Images

Officials with the United States Surface Transportation Board approved the merger of Kansas City Southern Railway Company and Canadian Pacific Railway Limited on Wednesday, marking the first combination of major rail companies in two decades.

The new entity, which will be called Canadian Pacific Kansas City, will be the first railroad spanning Canada, the United States, and Mexico. Canadian Pacific and Kansas City Southern are the smallest Class I railroads in North America; the new firm will retain the distinction.

“The transaction will reduce travel time for traffic moving over the single-line service; it should result in increased incentives for investment; and it will eliminate the need for the two now-separate CP and KCS systems to interchange traffic moving from one system to the other,” the Surface Transportation Board said in a statement. “This will enhance efficiency, which in turn will enable the new CPKC system to better compete for traffic with the other larger Class I carriers.”

The agency said that “numerous conditions,” such as written justifications for any shipping price increases that exceed inflation, can be imposed upon CPKC. Surface Transportation Board officials also established a seven-year oversight period to monitor developments such as the completion of operating improvements and investments to handle new traffic.

The merger comes as the American railroad industry faces increased regulatory scrutiny following the Norfolk Southern train derailment in East Palestine, Ohio. Local and state authorities were forced to temporarily evacuate all citizens within one mile of the derailment site last month and started a controlled burn of chemicals on the vehicle to decrease the risk of an explosion, inducing unknown environmental effects on the small rust belt community.

Sen. J.D. Vance (R-OH) and Sen. Sherrod Brown (D-OH) therefore introduced the Railway Safety Act of 2023, which would require rail companies to report hazardous materials on trains to state authorities, raise inspection requirements, and increase the rigor of defect detection efforts. The bill would meanwhile increase several civil penalties for violations of rail safety regulations by tenfold and require that each train must operate with at least two-person crews.

“Through this legislation, Congress has a real opportunity to ensure that what happened in East Palestine will never happen again. We owe every American the peace of mind that their community is protected from a catastrophe of this kind,” Vance said in a press release. “Action to prevent future disasters is critical, but we must never lose sight of the needs of the Ohioans living in East Palestine and surrounding communities. One day, the TV cameras will leave, and the news cycle will move on, but the needs of those Ohioans will remain.”

The state of Ohio filed suit this week against Norfolk Southern and asked that the company be held financially liable for the derailment, characterizing the incident as “entirely avoidable” and the result of executives neglecting the “welfare of the communities in which Norfolk Southern operates.” The EPA has meanwhile directed Norfolk Southern to sample for dioxins, a class of pollutants that can be formed by vinyl chloride combustion and can bind to soil for decades.

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