Proposed rail merger finds prairie support

Western Canadian Wheat Growers anticipates the move would improve market access for grain grown in Western Canada

Canadian farm groups and ag shippers say they are optimistic that a proposed railway merger involving Canadian Pacific Railway and Kansas City Southern will not have a negative impact on rail service offered to the western Canadian grain industry.

Calgary-based CP announced March 21 that it has entered an agreement to merge with Missouri-based rail company Kansas City Southern in a cash and stock deal valued at US$29 billion.

If approved by shareholders and the United States Surface Transportation Board, the merger would expand CP’s access to North American port locations, adding eight U.S. port facilities in the Gulf Coast states of Alabama, Mississippi, Louisiana and Texas, and four others in Mexico.

In a March 23 news release, the Western Canadian Wheat Growers said it supports the proposed CP-KCS merger and anticipates improved market access for Western Canadian grain.

“The CP-KCS rail system (will ensure) that Canadian grain has a growing market to ship to,” said WCWG chair Daryl Fransoo, a grain grower from Glaslyn, Sask.

“This is a win-win for grain farmers, grain traders, value-added industries and consumers.”

“Combining the east-west Canadian flow of grain with the north-south opportunities provides new markets for western Canadian grain,” added Mitch Hochhausen, a WCWG director from Strome, Alta.

“With access to all the major ports in North America, it will be even easier to move Canadian grain to all global markets.”

In a news release announcing the proposed merger, CP said combining CP and KCS networks would result in new single-line rail offerings that dramatically expand market reach for customers.

In a subsequent email to The Western Producer, CP’s vice-president of sales and marketing for grain and fertilizer, Joan Hardy, said Canadian grain shippers will ultimately determine if there is a significant directional shift in the flow of prairie grain.

“There are so many market drivers that affect the flow of grains and oilseeds, including vessel freight costs and spreads, and predicting a shift is something that grain shippers would be best equipped to do,” Hardy said.

“What we know is that the combination of CP and KCS would offer unrivaled reach and premier port access, a seamless network and new single-line haul to improve the efficient flow of grain shipments from origins on CP in Canada and the U.S. Upper Midwest to destinations served by KCS in the U.S. South, Gulf ports and deep into Mexico should grain want to move in those directions.”

The proposed merger is expected to create shipping efficiencies that could result in greater volumes of Alberta bitumen being moved from central Alberta to refineries on the U.S. Gulf Coast.

In a recent news article by the Canadian Press, a senior executive with Houston-based USD Group said CP and KCS have been “instrumental” in moving forward Western Canada’s first diluent recovery unit (DRU) currently under construction at Hardisty, Alta.

The Hardisty facility would accommodate rail shipments of DRUbit crude on CP’s Canadian rail network en route to the Gulf of Mexico.

The USD Group is building a new oil unloading terminal at Port Arthur, Texas, to receive and distribute DRUbit crude. The terminal will be served by KCS.

CP said the proposed rail merger would provide for a more direct and efficient route to refineries on the Gulf Coast.

“For energy specifically, CP’s focus will be to leverage the diluent recovery unit at Hardisty, Alta., which will create an even safer, non-hazardous, pipeline competitive way of delivering Alberta energy products to market by rail.”

The Western Grain Elevator Association (WGEA), which represents Western Canada’s major grain-handling companies, said there is no reason to assume that the merger would impact western Canadian grain movements negatively or positively.

“It appears that the merger may potentially smooth out the flow of some Canadian commodities to the southern United States and Mexico,” said WGEA executive director Wade Sobkowich.

“Our main interest is to ensure grain shippers receive good rail service and high rates of car order fulfillment and a week-to-week basis,” he added.

“Most of Canadian grains move in an east-west direction and there is nothing in this initial merger announcement that would lead us to believe service for the Prairies to Canadian ports would be impacted either negatively or positively.”

“There are too many unknowns… for us to identify how this is going to impact service” for the Canadian grain industry.

About a week before the CP-KCS merger announcement, the WGEA issued a news release suggesting that rail service, despite record grain movements in the 2020-21 crop year, is still falling short of industry demand.

Sobkowich said Canadian grain exports have been the beneficiary of reduced demand from other sectors and from a very mild winter that has limited weather-related disruptions.

“What is going to happen after the pandemic when things return to normal and other sectors throttle up again?” he said.

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