Merger of Kansas City Southern and Canadian Pacific railroads has implications for Chicago

Merger of Kansas City Southern and Canadian Pacific railroads has implications for Chicago


At the same time, however, the merger highlights Chicago’s vulnerability to other cities vying for a bigger share of burgeoning rail cargo volumes.

The press release announcing the deal noted that it “will allow some traffic between KCS-served points and the Upper Midwest and Western Canada to bypass Chicago via the CP route through Iowa. This will improve service and has the potential to contribute to the reduction of rail traffic, fuel burn, and emissions in Chicago, an important hub city.”

That language likely was intended for various audiences, not least federal regulators who must approve the merger. Still, a map of the Canadian Pacific and Kansas City Southern networks reveals a pathway for freight coming from the Pacific port of Vancouver and Canada’s oil patch to reach Texas and Mexico without passing through Chicago.

“Their traffic from Western Canada to the Gulf could bypass Chicago,” says Joe Schwieterman, director of DePaul University’s Chaddick Institute for Metropolitan Development.

Industry observers doubt large volumes would be diverted, at least initially. Consultant James Giblin says Chicago’s concentration of intermodal facilities insulate it against the loss of much finished goods traffic, while much of the bulk commodities coming from the northwest already take other routes.

“I don’t see how they would take any significant carload volume out of Chicago,” Giblin says. Instead, Giblin and others foresee possible gains for Chicago if the deal goes through. Combining Kansas City Southern and Canadian Pacific would create a new direct route linking Chicago and Mexico, at a time when trade volumes between the two countries are expected to rise.

“A rail option there is definitely significant,” says Hani Mahmassani, director of the Northwestern University Transportation Center. He points out that more intermodal containers bound for points South could be shifted from trucks to trains, potentially easing highway traffic.

However, any increase in cargo volumes could exacerbate the congestion causing epic delays on area rails. It can take as long as 24 hours for a train to inch across metropolitan Chicago. That’s an improvement over even longer delays a few years ago, but still too slow for railroads and shippers scrambling to meet ever-shrinking e-commerce delivery windows.

What’s needed is funding to complete a 17-year-old initiative aimed at eliminating bottlenecks and other causes of delay. The CREATE (Chicago Region Environmental and Transportation Efficiency) program has completed less than half the 70 projects on its punchlist.

CREATE needs about $3 billion to finish the remaining 40 grade separations, track additions, towers and other upgrades. The program has been funded primarily by the federal government, with some money coming from local governments and the railroads.

The proposed merger of Canadian Pacific and Kansas City Southern could provide some leverage to shake loose more funds for rail improvements around Chicago. Regulators at the U.S. Surface Transportation Board will review the deal, likely focusing on its impact on competition and service to various shippers. Neither issue appears likely to derail the combo.

But regulators also could take note of the combination’s likely effect on congestion in Chicago, the country’s biggest railroad intersection–and worst bottleneck. As it happens, the Chairman of the STB is Martin Oberman, the former chairman of Chicago’s commuter rail service Metra, and a onetime Chicago alderman.

Oberman surely appreciates the impact of railroad congestion in his hometown, and the nationwide ripple effects of freight delays in Chicago. If local leaders raise the issue during the period for public comment on the merger, it would open the door for Oberman and his fellow board members to press the merging companies to kick in more funds for CREATE.

It’s well worth the effort.  Potentially at stake is the difference between this deal becoming a significant win for Chicago, or another source of congestion that gives railroads more incentive to seek alternate routes.

Other cities already have designs on Chicago’s lucrative logistics stronghold. Kansas City, Memphis and St. Louis are among those spending heavily on rail, highway and port infrastructure. St. Louis, which has four major railroads running through town, is completing a new bridge across the Mississippi River that will speed up shipments.

“When completed in 2022, the new double track bridge will help move freight faster, cost-effectively and more reliably, providing an alternative to more congested rail regions like Chicago,” a St. Louis agency behind the project brags on its website.

Forecasters at the U.S. Department of Transportation predict freight traffic through Chicago will double between 2012 and 2045. But if our infrastructure can’t handle it, the traffic will go elsewhere.

“Chicago needs to keep improving its rail system,” Schwieterman says. “Our capacity limits have constrained our growth and pushed traffic to other places.”

Chicago can’t afford to keep pushing away shipments. Freight rail cargo is key to our preeminence in distribution and logistics, a focal point of post-Covid recovery plans for the city and state, and one of the few growth industries where we have a significant edge over other places. Exploding e-commerce orders mean the sector will continue generating jobs at every point on the employment spectrum for years to come.

Our lead in logistics won’t disappear overnight. We’re more vulnerable to steady erosion over time, if we don’t invest now to ease congestion and build capacity for the future.  The proposed railroad merger underscores the importance of those investments.
 


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