STB Approves Transaction That Creates New CPKC-CSX Class I Connection Linking Mexico, Texas and the U.S. Southeast

Rhea-AI Summary

The Surface Transportation Board (STB) has approved a transaction involving Canadian Pacific Kansas City (CPKC), CSX , and Genesee & Wyoming Inc. (G&W) to create a new direct CPKC-CSX interchange connection in Alabama. This approval, effective November 16, 2024, allows CPKC to acquire and operate a 52-mile segment between Meridian, Miss., and Myrtlewood, Ala., while CSX will operate lines east of Myrtlewood.

The transaction will establish a direct Class I-to-Class I interchange near Myrtlewood, connecting shippers in Mexico, Texas, and the Southeast U.S. This new east-west Class I route aims to create competition, reduce truck traffic, and expand rail transportation markets across the southern U.S., from Dallas to Atlanta and beyond. The Meridian & Bigbee Railroad (MNBR) will continue to provide local service between Meridian and Myrtlewood.

Positive

• Creation of a new direct CPKC-CSX Class I connection linking Mexico, Texas, and the U.S. Southeast
• Establishment of a more efficient service for existing CPKC and CSX traffic
• Introduction of new competitive shipping options for customers
• Potential for long-term business growth and expanded market reach
• Improved connectivity and efficiency for customers in key markets

Negative

• None.

Insights

Transportation Industry Analyst

The STB's approval of the CPKC-CSX transaction marks a significant development in the North American rail network. This new Class I connection will create a more efficient east-west corridor, linking Mexico, Texas and the U.S. Southeast. Key implications include:

• Enhanced competitive landscape for shippers, potentially leading to improved service and pricing
• Operational efficiencies for both CPKC and CSX, likely resulting in cost savings and improved asset utilization
• Potential for modal shift from trucks to rail, aligning with sustainability goals
• Market expansion opportunities for both railroads, particularly in cross-border trade

While the full impact will take time to materialize, this strategic move positions both CPKC and CSX for potential long-term growth in an increasingly interconnected North American market. Investors should monitor future traffic volumes and revenue synergies resulting from this new connection.

Logistics Expert

This transaction represents a significant reshaping of the rail logistics landscape in the southern United States. The creation of a direct CPKC-CSX interchange in Alabama will have several impacts on supply chains:

• Reduced transit times and improved reliability for shipments between Mexico/Texas and the Southeast
• Potential for new routing options, giving shippers more flexibility in their logistics planning
• Increased capacity for cross-border trade, supporting growing Mexico-U.S. commerce
• Opportunity for intermodal growth, as the new connection could make rail more competitive with long-haul trucking

The continuation of MNBR's local service ensures that smaller shippers along the route will still have access to rail transportation. This balanced approach should support both long-haul and local economic development in the affected regions.

CALGARY, AB and JACKSONVILLE, Fla. , Oct. 17, 2024 /PRNewswire/ - Canadian Pacific Kansas City (TSX: CP) (NYSE: CP) (CPKC), CSX Corporation (NASDAQ: CSX) (CSX) and Genesee & Wyoming Inc. (G&W) today said the Surface Transportation Board (STB) has approved CSX's and CPKC's respective applications regarding their acquisition of the rail lines operated by G&W's Meridian & Bigbee Railroad, L.L.C. (MNBR), which will result in the creation of a new direct CPKC-CSX interchange connection in Alabama.

Through the now-approved transaction, which was previously announced in June 2023, CPKC will acquire and operate across the 52-mile segment between Meridian, Miss., and Myrtlewood, Ala., currently owned by MNBR, while CSX will operate the lines currently operated by MNBR east of Myrtlewood. As a result, CPKC and CSX will establish a direct Class I-to-Class I interchange at or near Myrtlewood and connect shippers in Mexico, Texas and the Southeast U.S. MNBR will continue to provide local service to customers between Meridian and Myrtlewood.

"We thank the Surface Transportation Board members for their careful consideration of this vision to create a new Class I corridor providing more efficient service for existing CPKC and CSX traffic, while introducing new competitive shipping options between Mexico, Texas and the U.S. Southeast for our customers," said Keith Creel, CPKC President and CEO. "With this new east-west Class I route, we are creating competition, providing a service that will take more trucks off the road, and growing rail transportation by expanding markets across the southern U.S., from Dallas to Atlanta and beyond."  

"This new interchange with CPKC highlights our ongoing efforts to provide sustainable rail solutions and service excellence for our customers," said Joe Hinrichs, President and CEO of CSX. "Once complete, the interchange will help drive long-term business growth allowing customers to have greater connectivity and efficiency to reach key markets in Texas, Mexico, and the U.S. Southeast—all while providing safe and reliable service."

"This transaction is a win for customers, who benefit from a new Class I connection in the growing Southeast U.S. and uninterrupted short line service from MNBR between Myrtlewood, Alabama, and Meridian, Mississippi," said Michael Miller, G&W CEO.

The STB approval is effective Nov. 16, 2024.

Forward looking information

This news release contains certain forward-looking information and forward-looking statements (collectively, "forward-looking information") within the meaning of applicable securities laws in both the U.S. and Canada. Forward-looking information includes, but is not limited to, statements concerning the parties' expectations, beliefs, plans, goals, objectives, assumptions and statements about possible future events, conditions, and results of operations or performance. Forward-looking information may contain statements with words or headings such as "financial expectations", "key assumptions", "will", "anticipate", "believe", "expect", "plan", "should", "commit", "outlook", "guidance" or similar words suggesting future outcomes.

This news release contains forward-looking information relating, but not limited, to agreements between CPKC and CSX, between CPKC and G&W and between G&W and CSX to create a new direct interchange connection in Alabama, the anticipated impact of the agreements on available shipping options for customers, the effects of the agreements on access to markets in Texas, Mexico and the southeast U.S., the negotiation of definitive agreements among the parties, plans and expectations regarding the integration of a CPKC-CSX interchange, and other related matters associated with the changes in ownership and/or control, and operation of segments of the MNBR and assumptions underlying or relating to any of the foregoing.

The forward-looking information contained in this news release is based on the parties' current expectations, estimates, projections and assumptions, having regard to the parties' experience and the parties' perception of historical trends, and includes, but is not limited to, expectations, estimates, projections and assumptions relating to: changes in business strategies; the fuel efficiency of railways and the parties' operations; the impacts of existing and planned capital investments; North American and global economic growth; commodity demand growth; sustainable industrial and agricultural production; commodity prices and interest rates; performance of the parties' assets and equipment; sufficiency of the parties' budgeted capital expenditures in carrying out the parties' business plans; geopolitical conditions; applicable laws, regulations and government policies; the availability and cost of labour services and infrastructure; the satisfaction by third parties of their obligations to the parties; carbon markets, evolving sustainability strategies, and scientific or technological developments; and capital investments by third parties. Although the parties believe the expectations, estimates, projections and assumptions reflected in the forward-looking information presented herein are reasonable as of the date hereof, there can be no assurance that they will prove to be correct. Current conditions, economic and otherwise, render assumptions, although reasonable when made, subject to greater uncertainty.

Undue reliance should not be placed on forward-looking information as actual results may differ materially from those expressed or implied by forward-looking information. By its nature, CPKC's forward-looking information involves inherent risks and uncertainties that could cause actual results to differ materially from the forward looking information, including, but not limited to, the following factors: changes in business strategies and strategic opportunities; general Canadian, U.S., Mexican and global social, economic, political, credit and business conditions; risks associated with agricultural production such as weather conditions and insect populations; the availability and price of energy commodities; the effects of competition and pricing pressures, including competition from other rail carriers, trucking companies and maritime shippers in Canada, the U.S. and Mexico; North American and global economic growth and conditions; industry capacity; shifts in market demand; changes in commodity prices and commodity demand; uncertainty surrounding timing and volumes of commodities being shipped via CPKC; inflation; geopolitical instability; changes in laws, regulations and government policies, including regulation of rates; changes in taxes and tax rates; potential increases in maintenance and operating costs; changes in fuel prices; disruption in fuel supplies; uncertainties of investigations, proceedings or other types of claims and litigation; compliance with environmental regulations; labour disputes; changes in labour costs and labour difficulties; risks and liabilities arising from derailments; transportation of dangerous goods; timing of completion of capital and maintenance projects; sufficiency of budgeted capital expenditures in carrying out business plans; services and infrastructure; the satisfaction by third parties of their obligations; currency and interest rate fluctuations; exchange rates; effects of changes in market conditions and discount rates on the financial position of pension plans and investments; trade restrictions or other changes to international trade arrangements; the effects of current and future multinational trade agreements on the level of trade among Canada, the U.S. and Mexico; climate change and the market and regulatory responses to climate change; anticipated in-service dates; success of hedging activities; operational performance and reliability; customer and other stakeholder approvals and support; regulatory and legislative decisions and actions; the adverse impact of any termination or revocation by the Mexican government of Kansas City Southern de México, S.A. de C.V.'s Concession; public opinion; various events that could disrupt operations, including severe weather, such as droughts, floods, avalanches and earthquakes, and cybersecurity attacks, as well as security threats and governmental response to them, and technological changes; acts of terrorism, war or other acts of violence or crime or risk of such activities; insurance coverage limitations; material adverse changes in economic and industry conditions, including the availability of short and long-term financing; the pandemic created by the outbreak of COVID-19 and its variants and resulting effects on economic conditions, the demand environment for logistics requirements and energy prices, restrictions imposed by public health authorities or governments, fiscal and monetary policy responses by governments and financial institutions, and disruptions to global supply chains; the realization of anticipated benefits and synergies of the Canadian Pacific Railway Limited (CP) - Kansas City Southern (KCS) transaction and the timing thereof; the satisfaction of the conditions imposed by the U.S. Surface Transportation Board in its March 15, 2023 final decision; the success of integration plans for KCS; the focus of management time and attention on the CP-KCS transaction and other disruptions arising from the CP-KCS integration; estimated future dividends; financial strength and flexibility; debt and equity market conditions, including the ability to access capital markets on favourable terms or at all; cost of debt and equity capital; improvement in data collection and measuring systems; industry-driven changes to methodologies; and the ability of the management of CPKC to execute key priorities, including those in connection with the CP-KCS transaction. The foregoing list of factors is not exhaustive. These and other factors are detailed from time to time in reports filed by CPKC with securities regulators in Canada and the United States. Reference should be made to "Item 1A - Risk Factors" and "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements" in CPKC's annual and interim reports on Form 10-K and 10-Q.

About CPKC

With its global headquarters in Calgary, Alta., Canada, CPKC is the first and only single-line transnational railway linking Canada, the United States and México, with unrivaled access to major ports from Vancouver to Atlantic Canada to the Gulf of México to Lázaro Cárdenas, México. Stretching approximately 20,000 route miles and employing 20,000 railroaders, CPKC provides North American customers unparalleled rail service and network reach to key markets across the continent. CPKC is growing with its customers, offering a suite of freight transportation services, logistics solutions and supply chain expertise. Visit cpkcr.com to learn more about the rail advantages of CPKC. CP-IR

About CSX

CSX, based in Jacksonville, Florida, is a premier transportation company. It provides rail, intermodal and rail-to-truck transload services and solutions to customers across a broad array of markets, including energy, industrial, construction, agricultural and consumer products. For nearly 200 years, CSX has played a critical role in the nation's economic expansion and industrial development. Its network connects every major metropolitan area in the eastern United States, where nearly two-thirds of the nation's population resides. It also links more than 240 short-line railroads and more than 70 ocean, river and lake ports with major population centers and farming towns alike. More information about CSX Corporation and its subsidiaries is available at www.csx.com.

About G&W

G&W owns or leases more than 100 freight railroads throughout North America with 4,000 employees serving 2,000 customers over more than 13,000 track miles. G&W subsidiaries and joint ventures also provide rail service at more than 30 major ports, rail-ferry service between the U.S. Southeast and Mexico, transload services, and industrial railcar switching and repair. G&W is owned by Brookfield Infrastructure Partners, L.P. and GIC.

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SOURCE CPKC

FAQ

When will the STB approval for the CPKC-CSX interchange connection become effective?

The STB approval for the CPKC-CSX interchange connection will become effective on November 16, 2024.

What segment will CPKC acquire and operate as part of this transaction?

CPKC will acquire and operate the 52-mile segment between Meridian, Mississippi, and Myrtlewood, Alabama, currently owned by Meridian & Bigbee Railroad (MNBR).

How will this transaction benefit customers of CPKC (CP) and CSX?

The transaction will create new competitive shipping options, provide more efficient service, and improve connectivity between Mexico, Texas, and the U.S. Southeast for customers of both CPKC and CSX.

What role will the Meridian & Bigbee Railroad (MNBR) play after the transaction?

MNBR will continue to provide local service to customers between Meridian, Mississippi, and Myrtlewood, Alabama.