Canadian Pacific officially combined with Kansas City Southern on Friday, creating the first transnational railway that connects the U.S., Mexico and Canada.
The united Canadian Pacific Kansas City, or CPKC, marks the first consolidation between major railroads in two decades. The combination is expected to spark more competition in the rail industry and potentially breathe new life into a sector that’s struggled with declining volumes and service meltdowns over the past few years.
“We stand ready to bring new competition into the North American rail industry at a time when our supply chains have never needed it more,” CPKC President and Chief Executive Officer Keith Creel said in a statement. “This unmatched CPKC network will give our customers new options and expanded reach to more markets.”
Full integration of the two railroads is expected to take place over the next three years. Once complete, the CPKC network will offer shippers more seamless access to major economic regions including the U.S. Midwest and Gulf Coast, in addition to agricultural areas in Canada and industrial markets in Mexico.
Access into Canada and Mexico positions CPKC to take advantage of increased cross-border trade from the United States-Mexico-Canada Agreement, which encourages North American production for automobiles, agricultural products and other goods. A section of CPKC’s site dedicated to nearshoring says the railroad can help shippers establish business in Mexico.
Federal regulators approved Canadian Pacific’s $31 billion acquisition of Kansas City Southern last month, despite backlash from local communities and attempts by other Class I railroads to stop the deal. In its decision, the Surface Transportation Board said the combination of the two railroads will lead to more reliable service while creating new efficiencies and reducing travel time.
“Beyond creating a more efficient option for current rail shippers, the Transaction is expected to support the growth of rail traffic,” the agency said, adding the deal will “improve the overall quality and availability of rail transportation services to the public.”
Wall Street has also signaled its approval of the deal. Morningstar analyst Matthew Young, for example, said the deal has “merit from a strategic perspective,” writing in an investor note that it will likely “boost network velocity, service speed, and asset utilization/turns.”
Still, the deal comes in the shadow of significant public backlash against the rail industry over safety practices following the derailment of a Norfolk Southern train in East Palestine, Ohio. A CPKC train carrying hazardous materials derailed on Saturday in Maine, and three railroad workers were sent to the hospital according to local news station WCSH.
