A merger will create the first single-line railroad service from Canada to Mexico

On March 22, the Surface Transportation Board (STB), which oversees US freight railroads, approved Canadian Pacific's $31 billion acquisition of Kansas City Southern, allowing the merger of the sixth and seventh largest railroad companies.

According to the report, the board is imposing an "unprecedented seven-year oversight period along with extensive data-reporting requirements" on the deal signed in 2021.

The STB is demanding the railroad justifies the "rate increases over a certain level" and approves measurements to manage the potential environmental impacts of the merger, such as noise pollution.

The board can issue orders to enforce environmental mitigation measures and manage capacity and fluidity in congested railroad areas like Houston or Chicago.

The STB decision will be effective on April 14. Furthermore, the companies have until April 4 to file petitions for the board to reconsider some resolution points.

According to Reuters, Canadian Pacific shares rose around 6% on the Toronto Stock Exchange following the decision. Kansas City Southern shares were transferred to a trust. The railroad operated independently until the STB concluded its report.

The merger will create the first single-line railroad service connecting Canada with Mexico and the US, effectively covering all of North America.

Canada and Mexico are the largest trading partners for the US. Both countries are a part of the Canada-United States-Mexico Agreement (formerly NAFTA), the largest free trade region in the world.

According to the merger projections, the new single-line service will provide 800 new unionized operational jobs in the US. It will also shorten the average length of trains by nearly 20%.

The merger will also have a positive effect in reducing emissions by moving close to 64,000 truckloads from roads to rails every year, said the STB.

The board also claims that the deal can open new opportunities to amplify the commercial passenger offer for Amtrak services.

According to the report, it will also simplify the transportation of goods like grains from the Midwest or facilitate the trade of automotive parts with Mexico. Other goods can be moved inside the US between Dallas and Chicago.

The deal is end-to-end, with no redundancies or overlapping routes, which is why the STB believes it will reduce travel time in the single line.

The board also considered safety concerns in the report. That is a sensitive topic in the US after a recent train derailment in Ohio caused a spill of toxic chemicals and fumes close to residential areas.

The STB concluded that the deal would not increase safety risks in any meaningful way. It also noted that Canadian Pacific had had the best safety record of any large railroad over the last 15 years.

In a statement collected by Reuters, Keith Creel, Canadian Pacific's CEO, said he believes there are "many benefits" to the merger. He also pointed out that the STB found that "it will stimulate new competition, create jobs, lead to new investment, and drive economic growth."