by - Regulators approved a railroad merger that would create a single route from Canada to Mexico.
- The rail industry has seen train accidents and industrial action in recent months.
- Nonetheless, regulators argue that the merger will improve security and competition in the US economy.
Rail consolidation has a terrible track record, but regulators believe this time will be different.
Canadian Pacific and Kansas City Southern, the country’s sixth and seventh largest railroads, have waited two years to combine their rail networks into the first single-track rail line connecting Canada, the United States and Mexico. On Wednesday, the Surface Transportation Board (STB), which has sole authority over railroad mergers, approved the $31 billion transaction. The board argued that the merger was best for the country, despite the recent history of the highly consolidated rail industry showing serious accidents, a grueling battle between railroads and unions, and collapses in the service sector.
In February, a 50-car Norfolk-Southern train derailed in East Palestine, Ohio, dumping highly flammable hazardous materials, forcing residents to evacuate and killing thousands of aquatic animals. To end the month, another train crash in Norfolk Southern left more than 1,500 Ohio residents without power.
Just months earlier, the Biden administration pushed through a collective bargaining agreement to avert a rail strike that could have cost the economy $2 trillion a day. Congress denied workers sick leave, which they say would prevent future train disasters like the one in eastern Palestine.
The rail industry’s top regulator argued that the new merger would not add to the industry’s problems. “If there’s a problem in this country with the safe transportation of dangerous goods by rail,” STB chairman Marty Oberman said at a news conference Wednesday, “it’s a nationwide problem.” It is not a problem that was or was caused by this merger.” According to the Federal Railroad Administration, the safest major railroad is Canadian Pacific (CP), followed closely by Kansas City Southern (KCS).
In fact, Oberman argued that this merger would make the country safer and estimated that the transnational single-lane route would take 64,000 truckloads off the nation’s highways. Not only would this prevent 120,000 tonnes of CO2 emissions from entering the atmosphere, it would mean fewer dangerous releases, with trucks accounting for 94% and trains just 1%, he said.
“To the extent that hazardous materials can be transported on rails rather than highways, we’re better off,” he said.
The history of railroad consolidation is different. As the industry dwindled from 70 major rail companies to just seven monopolies in the 1970s, it abandoned nearly 100,000 miles of track and turned away from all but its largest volume, highest margin business, forcing farmers and manufacturers to increasingly relying on expensive trucks when they are too far from the tracks.
This loss of competition has also allowed railroads to charge shippers more for inferior service. With two duopolies east and west and soon just one airline flying both north and south through the central United States, rates have risen for shippers who “feel they have little bargaining power,” so the STB.
Meanwhile, railroads have laid off nearly a third of their workforce in recent years and have spent $46 billion more on share buybacks and dividends since 2010 than on maintenance and equipment investments. It’s no surprise that shippers have long complained about fewer service calls, delays and unreliable service, according to CNN.
“30-40% of the US economy depends on a well-functioning railroad,” Oberman said in Wednesday’s news conference. Because of this, the STB “ranted about some of the railroad issues and problems that are affecting the railroad industry,” he said.
To ensure impacted communities remain safe, S-Bahn trains run on time, and shippers retain efficient interline options, “we instituted an unprecedented seven-year oversight period for the proposed merger,” Oberman said, noting that the STB will never be more allocated five years past to collect post-merger data and resolve issues.
Despite the problems of consolidation in the past, the STB 4-1 noted that the merger of these two railroads will create “a stronger competitive force” in the economy at this point in the country’s history, Oberman said. A transnational single line from Canada to Mexico through the United States “will improve trade, increase productivity and improve shippers’ ability to expand their own businesses,” he said. Oberman noted that 450 shippers submitted their support for the CP-KCS merger for one simple reason: the single-line network saves shippers the expense of moving their cars from one line to another. The efficiencies gained will allow the combined railway to compete better with its larger rivals, he added.
Oberman also argued that the shippers would not lose any existing rail competition through the merger. Not only will the merger of CP and KCS result in the smallest of the major railroads, “there will be no loss of a parallel competitive route” as their routes do not overlap, he said.
“If this all sounds too good to be true, we agree,” wrote Robert Primus, the only STB board member who voted against the merger, in his opposition to the board’s decision. He argued that market concentration allowed companies to earn rents, wield more political power, and exploit workers, with Big Rail being no exception.
Primus echoed the Justice Department’s Antitrust Division, which in January expressed concern about further consolidation in the railroad industry “given the recent supply chain disruptions that have wreaked havoc on American consumers and businesses.” According to Washington Monthly, the country’s largest railroad, Union Pacific, repeatedly secured supply chains at the height of the pandemic because it had closed the gap it needed to keep up with a recovery in consumer demand. She announced record profits in 2022.
