• Facebook
  • Twitter
  • Vimeo
  • LinkedIn
  • SUBSCRIBE
  • MEMBER LOGIN
U.S. Wheat Associates
  • Our Story
    • About USW
    • Dependable People. Reliable Wheat.
    • Board of Directors
    • Staff Directory
    • Office Locations
  • Market Information
    • Market Information
    • Price Reports
    • Price Charting Tools
    • Supply and Demand
    • Commercial Sales
  • Crop Quality
    • Crop Quality
    • Harvest Reports
    • Hard Red Winter
    • Hard Red Spring
    • Hard White
    • Soft White
    • Soft Red Winter
    • Durum
  • Working With Buyers
    • Working With Buyers
    • Customer Conferences
    • Wheat Classes
    • Wheat Glossary
    • Wheat Grade Factors
    • How to Buy
    • Ask the Expert
    • Resources
  • Who We Represent
    • Who We Represent
    • Board Meetings
    • State Wheat Commissions
    • Partners
    • Trade Activities
  • Policy
    • Policy
    • Trade Negotiations
    • Trade Barriers
    • Innovation and Sustainability
    • Food Security and Assistance
    • Public–Private Partnership
  • News
    • Newsroom
    • Wheat Letter Blog
    • News Releases
    • Videos
  • Search
  • Menu Menu
You are here: Wheat Letter Blog 1
Market and Crop Analysis, Michael Anderson, Rail Transportation, Trade Policy

Rail Merger Proposals Should Improve Competition, Hold Down Wheat Shipping Rates

On March 21, 2021, Canadian Pacific (CP) Railways announced a $25 billion plan to merge with Kansas City Southern (KCS), calling it a “transformative” remake of the freight-rail industry. The proposed new railroad would be the first U.S.-Mexico-Canada-linked rail line.

To illustrate rail merger proposals

The proposed rail merger of Canadian Pacific and Kansas City Southern would create a new rail system linking Canada, the United States and Mexico. Map: Canadian Pacific.

Not to be outdone, Canadian National Railway (CN) began talks with KCS in late April, saying it could yield a “superior” rail merger proposal and offering $30 billion for KCS compared to CP’s $25 billion.

Wheat is Watching

The U.S. wheat industry is closely watching both proposals but has not taken a position in support of or opposition to either proposed merger. U.S. Wheat Associates (USW), along with a coalition of shippers, has asked the Surface Transportation Board (STB), which regulates U.S. rail service, to apply its most strict standard of “enhances competition” to both proposals.

Also in April, however, the STB granted a waiver to CP that exempted its proposal from that high standard established in 2001. That ruling effectively lowered CP’s burden for winning the deal. The STB defended its decision noting that because the combination of CP and KCS would be the smallest of the large North American railroads, it would “result in the fewest overlapping routes.”

A Dissent

However, one STB member, Robert Primus, dissented in part, saying, “Special treatment for this proposed merger between Class I [railroads] runs counter to the Board’s responsibility to review such major mergers and protect the public interest.”

While the STB waived CP’s proposal from that standard, it has not yet ruled on the CN proposal. However, CN’s effort to brand the merger as enhancing competition has received over 600 letters of support.

USW’s desire to see increased rail competition in these merger proposals is directly related to their potential effect on U.S. wheat export prices.

To show proposed rail routes

Alternative routes created by Canadian National’s proposed rail merger with Kansas City Southern. Map: U.S. Department of Transportation via Bloomberg.

Rail Rates Affect Sellers and Buyers

U.S. railroads are a crucial part of the most efficient grain supply system in the world. The rail system fulfills an essential logistical function that neither grain handlers nor farmers can perform on their own. Wheat must compete for limited rail capacity with other grains as well.

USW, however, has learned that since June 2014, the cost of wheat shipments has increased substantially, due at times to higher basic rates for shipping wheat and other rail pricing strategies. For Mexican wheat buyers who bring in more than 60% of their total U.S. imports directly by rail, rates have a significant, direct impact on their bottom-line costs.

As rail costs increase, grain handlers may try to recover these costs by offering higher grain prices to terminal or export elevators and, as some in the industry believe, by offering lower prices to farmers. As basis increases, overseas buyers must pay more for all classes of wheat, and that affects demand.

While it is unlikely these proposed rail mergers would make Canada more competitive in Mexico due to long shipping distances, Canada’s history of nationalism in rail policies is concerning as it favors only some shippers. It is also possible a merger would increase Canada’s competitiveness in the U.S. domestic market, while the Canadian industry continues benefitting from an archaic, government-mandated variety registration system that helps minimize any large-scale U.S. wheat imports north.

Next Steps

The KCS’s board of directors must next decide if they want to accept one of the rail merger proposals. In the meantime, the STB will review the proposed mergers.

In response to the impacts of increasing rail rates on our export competitiveness, USW formed a Wheat Transportation Working group in 2018. The group is currently working with researchers on scenarios that will help identify potentially positive or negative outcomes that could result from a merger. The STB is likely to seek public comments on the final rail merger proposals later in 2021 and the Wheat Transportation Working Group will weigh in on behalf of U.S. wheat farmers.

For more information: https://www.freightwaves.com/news/cn-and-canadian-pacific-vie-for-shippers-and-kcs-shareholders-favor.

By Michael Anderson, USW Market Analyst

May 11, 2021/by actualize
Share this
  • Share on Facebook
  • Share on Twitter
  • Share on WhatsApp
  • Share on LinkedIn
  • Share by Mail
https://www.uswheat.org/wp-content/uploads/2021/07/Rail-Merger-Story-Header.jpg 570 1104 actualize https://www.uswheat.org/wp-content/uploads/USW-Logo-Full-Color.png actualize2021-05-11 13:46:232022-03-29 16:13:43Rail Merger Proposals Should Improve Competition, Hold Down Wheat Shipping Rates

Wheatletter Sidebar

Quick Links

  • Newsroom
  • Wheat Letter Blog
  • News Releases
  • Videos

Wheat Letter Related Blogs

A woman in a greenhouse at the Washington State University showing wheat breeding research to a Korean man.
Wheat Industry News

Wheat Industry News

News and Information from Around the U.S. Wheat Industry   Speaking of Wheat “The…
MORE
February 2, 2023
https://www.uswheat.org/wp-content/uploads/IMG_1653-scaled.jpg 1920 2560 Steve Mercer https://www.uswheat.org/wp-content/uploads/USW-Logo-Full-Color.png Steve Mercer2023-02-02 10:26:332023-02-02 10:26:33Wheat Industry News
Image shows farmers in a wheat field with the USW logo and World Wheat Supply and Demand headline to illustrate story on wheat prices.
Market and Crop Analysis

Wheat Prices Trend Lower Even As Uncertainty Continues

Following a year of dramatic volatility, several factors have pressured global wheat prices…
MORE
January 30, 2023
https://www.uswheat.org/wp-content/uploads/Wheat-SD.jpg 763 1318 Steve Mercer https://www.uswheat.org/wp-content/uploads/USW-Logo-Full-Color.png Steve Mercer2023-01-30 17:47:322023-01-30 17:47:32Wheat Prices Trend Lower Even As Uncertainty Continues

Stay up to date on wheat industry news!

SUBSCRIBE

Think Farm Export Programs Don’t Matter? Think Again.

GET THE REST OF THE STORY

Our Story

  • About USW
  • Dependable People. Reliable Wheat.
  • Board of Directors
  • Staff Directory
  • Office Locations

Market Information

  • Market Information
  • Price Reports
  • Price Charting Tools
  • Supply and Demand
  • Commercial Sales

Crop Quality

  • Crop Quality
  • Harvest Reports
  • Hard Red Winter
  • Hard Red Spring
  • Hard White
  • Soft White
  • Soft Red Winter
  • Durum

Working with Buyers

  • Working With Buyers
  • Customer Conferences
  • Wheat Classes
  • Wheat Glossary
  • Wheat Grade Factors
  • How to Buy
  • Ask the Expert
  • Resources

Who We Represent

  • Who We Represent
  • Board Meetings
  • State Wheat Commissions
  • Partners
  • Trade Activities

Policy

  • Policy
  • Trade Negotiations
  • Trade Barriers
  • Innovation and Sustainability
  • Food Security and Assistance
  • Public-Private Partnership

News

  • Newsroom
  • Wheat Letter Blog
  • News Releases
  • Videos

DTN Wheat Detail
DTN Corn Detail

2008-2013 U.S. Wheat Associates. All Rights Reserved
Privacy Policy | Non-Discrimination Statement

Scroll to top