Amtrak Opposes CN-KCS Voting Trust

Written by Marybeth Luczak, Executive Editor
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Amtrak has asked the Surface Transportation Board (STB) to reject CN’s use of a voting trust in its proposed combination with Kansas City Southern (KCS). The passenger railroad’s comments were filed June 28, along with those from Canadian Pacific (CP), KCS’ rival merger partner.

June 28 was the final day of the STB public comment period on the trust. CN and KCS are slated to review the comments and file a reply on July 6.

Amtrak’s filing (download below) refers to the proposed CN-KCS merger’s impact on potential new service.

“Unlike the proposed acquisition of KCS by the Canadian Pacific Railway, CN’s proposed acquisition of control of KCS … would not be a purely end-to-end merger,” Amtrak wrote. “Many parties to this proceeding have identified the 80-mile rail corridor between New Orleans and Baton Rouge, along which CN and KCS have closely parallel rail lines, as the area of greatest concern with respect to rail freight service competition.”

Amtrak, too, expressed concern, because “CN’s [divestiture] plans for [KCS’s] line, described in the Voting Trust Motion, are one of CN’s principal arguments for approval of the voting trust.”

While CN has proposed divesting KCS’s line, the move “creates a major new impediment to giving the 2.2 million residents along the New Orleans-to-Baton Rouge corridor the Amtrak service they deserve and have long needed.”

Amtrak currently does not provide rail service between Baton Rouge and New Orleans, but has plans to implement it on the existing KCS right-of-way with funding provided by the Biden Administration under the President’s infrastructure package, which includes $80 billion for Amtrak. The last passenger train between Baton Rouge and New Orleans was Kansas City Southern’s Southern Belle, discontinued in 1969, one year before Amtrak’s creation.

Amtrak’s 2035 plan includes new service between New Orleans and Baton Rouge on the KCS line, where the Southern Belle last operated in 1969.

Amtrak explained: “CN is proposing that two freight railroads—CN and an unidentified railroad of CN’s choosing—each have the right to serve local shippers on the KCS [New Orleans to] Baton Rouge Line. CN would also retain the right, presumably along with the new ‘owner’ of the line, to operate through train service.” This, Amtrak said, would be “the equivalent of a homeowner selling their house but reserving the right to continue to live in it.”

There is “nothing ‘clean’ about replacing a single freight rail operator on the KCS [New Orleans to] Baton Rouge Line with two railroads, each with the right to operate their own local trains. The resulting duplication of train services and switching operations would make all rail services less reliable, and unnecessarily consume track capacity that could otherwise be utilized for restoration of passenger rail service.”

Amtrak added: “As the STB has repeatedly and consistently stated, conditions imposed on rail mergers must be ‘operationally feasible’ and produce ‘net public benefits.’ CN’s proposed ‘divestiture’ flunks both tests.”

Amtrak noted, however: “If CN continues to pursue the CN acquisition following the Board’s decision on the Motion, it is incumbent on CN to propose, and on the Board to require, conditions to remedy competitive harms resulting from the CN acquisition …”

CP’s Turn

CP on June 29 reported that its filing opposing the CN-KCS voting trust application provided details on the public-interest harm associated with a voting trust and potential CN-KCS merger. Among them:
• “A CN-KCS combination would reduce freight transportation service options for [more than] 340 shippers across the United States.”
• “If CN and KCS enter into trust, CN would immediately take on [more than] $19 billion of additional debt, creating significant risks to its business, employees and the future of North American rail infrastructure.”
• “Allowing CN to use a voting trust to acquire KCS would create immediate pressure for further downstream consolidation in the railroad industry.”
• “Approval of a CN voting trust eliminates the potential for the CP-KCS combination to create a new north-south rail artery that will bring new competitive options to shippers in America’s Heartland, between Canada and the U.S. Gulf Coast.”
• “Against this harm, CN has not put forward any public benefits associated with its use of a voting trust.”

Canadian Pacific President and CEO Keith Creel

“Hundreds of shippers, governments and other stakeholders across North America have written the Surface Transportation Board to warn about the potential public interest harms that would come from allowing CN to close into a trust,” CP President and CEO Keith Creel said in the announcement of the railroad’s filing. “Only by rejecting the CN voting trust can the Board preserve its ability to fully review the public consequences of CN’s proposed acquisition of KCS, without the risk of any anti-competitive harms that a voting trust would set in motion.”

CP reiterated in a statement that it “is continuing to pursue its application process for a potential acquisition of KCS so that the STB can review the pro-competitive CP-KCS combination without undue delay in the event CN is unable to acquire control of KCS.

“Importantly, the STB has already approved CP’s use of a voting trust and affirmed KCS’ waiver from the new rail merger rules it adopted in 2001 because a CP-KCS combination is truly end-to-end, pro-competitive, and the only viable Class I combination.”

What’s Next?

Consistent with the timeline that STB set for reviewing the voting trust, CN and KCS will review all comments submitted and file their response on July 6.

“We believe that the STB should approve our voting trust, which is identical to the CP voting trust already approved by the Board, so that we can proceed with a full substantive review of the many compelling and innovative pro-competitive benefits this combination will provide for customers, ports, employees and communities,” CN President and CEO JJ Ruest said in a June 29 statement. “The public comment period allowed the STB to hear from key stakeholders about the tremendous public interest benefits a CN-KCS combination will bring by creating the premier railway for the 21st century with a single network across Canada, the United States and Mexico. We look forward to continuing to explain how this combination will enhance competition, facilitate North American trade and provide significant environmental benefits during the Board’s upcoming consideration of the merits of the combination. Approval of our voting trust allows that discussion with the Board and shippers to proceed.”

CN President and CEO JJ Ruest

“The proposed combination has received broad-based support from across the CN and KCS stakeholder network because the plain vanilla voting trust makes very clear that a CN-KCS combination is in the public interest and will prevent unlawful control of KCS prior to the STB’s final merger approval,” KCS President and CEO Patrick J. Ottensmeyer said. “Our combination will help North America’s industrial corridor while also enhancing competition and boosting the economies of all three countries.”

KCS President and CEO Patrick J. Ottensmeyer

CN and KCS and CP reported additional support for their respective combinations on June 28.

Categories: Class I, Freight, High Performance, Intercity, Intermodal, News, Passenger, Regulatory Tags: , , , , , , ,