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STB blocks CN bid for Kansas City Southern

Posted on September 1, 2021 by just2bruce | Leave a comment

If you are interested in rail transport, you certainly will be interested in the proposed merger of the Kansas City Southern (KCS) rail line with a Canadian railroad.

Both Canadian Northern (CN) and Canadian Pacific (CP) have made offers to merge with KCS.

It’s important because either merger would let there be direct rail service between Canada and Mexico. Mexico is an important low-cost component manufacturing country, and Canada is a highly developed first-world economy, with also many intrnational connections. KCS has taken great pains over the last 10 years to develop service into and outof Mexico, and is probably the paramount player. Other major US railroads, such as BNSF, UP, and Norfolk Southern (NS), have not worked to build this capability to the same degree. So KCS is a kind of unique prize, especially for the Canadian railroads.

So far the story is one of competing buyers for KCS. CP made the first offer, but as time was running out for acceptance, CN came in with a larger offer. It involves some specialized and complex merger techniques. The Surface Transport Board (STB), a US government agency which regulates railroads in the US, has just rejected the merger, based on the form itis to take. This means that the two firms in the current merger discussions will need to try to rearrange their proposed deal structure to try to meet the STB objections. It also gives the alternate partner, CP, an opportunity to come back to the negotiations with KCS and make an offer more likely to succeed.

If there is a merger, what will happen? One thing you can be sure of is that over time the leader in the merger, the Canadian firm, will influence rail operations more and more. For shippers, it will be easier to make arrangements from Mexico to the US and Canada, and vice versa. It’s not clear how domestic US shippers will be affected. KCS serves a rural midwestern region that is not as well served by other railroads, and that will probably continue. ButKCS connections with other parts of the US may suffer a bit.

The combination of companies will be a powerhouse, putting the line in the class of UP and BNSF, the top major railroads in the US.

By Alex Whiteman and Ian Putzger 01/09/2021
STB blocks CN bid for Kansas City Southern – ‘not in the public interest’ – The Loadstar

Mexico trucking capacity crunch

Posted on September 16, 2020 by just2bruce | 1 comment

The USMCA replacement for NAFTA has not improved anything regarding trucking between the US and Mexico. COVID-19, movement of production from the Far East to Mexico, and no change in regulations, has put demands on trucking firms and on drivers that they cannot meet without large cost increases.

This is another fine example of the law of unintended consequences. A crisis is emerging, and it is borne on the backs of the truckers themselves. Equipment shortages, payment for deadhead runs, and a change to transloading at the border replaces the vision of through-traffic by Mexican or US trucking firms serving both countries in a seamless manner.

And it is a good example of how logistics is central to the value proposition of any product. The costs of logistics must be figured in, and accurately, and any system must be built to withstand severe shocks.

Scenario analysis may be the only way. The days of Just-In-Time are almost over.