News / Canadian Pacific staff vote for strike action as merger with KCS looms

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Canadian Pacific Railway (CP) is in for a bumpy ride: 3,000 employees have voted for a strike, to begin as early as 16 March, while rival Canadian National (CN) and various interest groups are calling on the US Surface Transportation Board (STB) to impose conditions on the merger of CP with fellow Class I carrier Kansas City Southern (KCS).

According to the Teamsters Canadian Rail Conference (TCRC), which represents some 3,000 conductors, engineers and train and yard personnel at CP, 96.7% of them voted in favour of industrial action. The union has been at loggerheads with management over salary, benefits and pension issues.

CP claimed it had offered a two-year contract with wage increases and agreed to 20 further union demands on benefits and work rules, but that the TCRC appeared “poised to force a shutdown of the essential rail supply chain”.

The union is scheduled to hold talks with federal mediators between 11 and 16 March, but said it was preparing for a strike or lock-out on 16 March, which is causing concern for shippers.

The Canadian Cattlemen’s Association and National Cattle Feeders’ Association have warned that any disruption in the flow of feed grain from the US into Canada would “significantly impact” the ability of beef producers to feed their cattle.

Meanwhile, CP continues to face headwinds on its biggest prize in years – regulatory approval for its merger with KCS.

CN, which lost the takeover battle for the US rail company, has filed a request for the STB to include a condition in the approval that would mandate the pair to divest the Kansas City Speedway line from Kansas City to Springfield and East St Louis to CN, arguing that this would foster competition to the benefit of shippers.

“Under the right ownership, we believe there is a clear opportunity to bring widespread economic benefits for customers and communities across the American Midwest and Canada. CN has a comprehensive plan for the Kansas City Speedway that will increase competition, create jobs, reduce roadway congestion and positively impact the environment,” said CN.

In particular, automotive and intermodal shippers would have greater competitive options between eastern Canada, Detroit, Chicago and Kansas City, the firm argued.

However, fears that objections could derail the merger were largely unfounded, said Lee Klaskow, Bloomberg’s senior transport and logistics analyst. He noted that CP and KCS were the two smallest of the six North America railroads and, post-merger, would remain the smallest of five.

“They also do not overlap one another and are, more or less, an extension of one another, which we believe will increase competition among railroads. CN’s call for CP to divest the Springfield Line is mostly noise in our view,” said Mr Klaskow.

However, shipper groups have also weighed in with concerns over the merger. According to CN, 70 letters of support for its request have been filed with the STB.

A joint filing from the National Industrial Transportation League, the American Chemistry Council and the Fertilizer Institute argues that the CP-KCS alignment would harm vertical competition. Kansas City is the only location where the pair connect, whereas KCS has multiple connections with other Class I rail operators. The CP-KCS amalgamation would create strong incentives to favour their route over others, they argued.

US grain shippers, notably the North Dakota Wheat Commission, say they are worried that a CP-KCS combination might give preference to Canadian grain over US, pointing to “a recent history of involvement from the Canadian government” for the Canadian rail companies.

The Private Railcar Food and Beverage Association, which includes the likes of PepsiCo, Kraft Heinz and General Mills, voiced a more general concern that the reduction in the number of Class I rail companies could result in further deterioration of service issues and boost their pricing power.

Many of these filings are unlikely to sway the STB in its decision, but US authorities have been increasingly sensitive to issues like abuse of pricing power.