Surprising the nation’s shipping industry, the federal Surface Transportation Board today proposed a virtual halt to further consolidation among North America’s six largest railroads.
In a wide-ranging proposal, the board, which is the successor to the Interstate Commerce Commission, suggested that any future mergers could be anti-competitive and could result in severe service disruptions. Any future merger would have to enhance competition, not just maintain the status quo, the board said.
The proposal comes nine months after the Burlington Northern Santa Fe Corp. and the Canadian National Railway Co. proposed a marriage that would have created the first transcontinental railroad.
The union was abandoned in July after the board imposed a 15-month merger moratorium while it redrafted its merger rules.
“Our proposed revisions to the policy statement represent a paradigm shift in our review of major mergers,” the board wrote in setting out the reasons for restricting further consolidation.
“The last round of consolidations resulted in significant transitional service problems, which could recur with future mergers. Thus, at this point, we believe that it is appropriate to require merger applicants to bear a heavier burden to show that a major merger proposal is in the public interest,” the three-person board said.
The revision is a dramatic shift from a policy that for the past 20 years has encouraged the nation’s railroads to consolidate their operations.
Railroad officials, some of whom as recently as two weeks ago were predicting the board would propose only minor changes, uniformly declined to comment on the proposal.
Officials of the Alliance for Rail Competition, which has been encouraging the board to inject more competition into the rail industry, acknowledged they were surprised by the proposed sweeping rewrite of the merger rules.
“Our goal is increased rail competition,” said Diane Duff, executive director of the shipper-funded alliance.
In the past five years, starting with the merger in 1995 of the Atchison, Topeka and Santa Fe Railway with the Burlington Northern Railroad, the number of major railroads has been cut in half.
While that merger and a subsequent union of the Canadian National with the Illinois Central Railroad were relatively trouble-free, others mergers were not. Marriages of the Union Pacific Railroad with the Southern Pacific Transportation Co. and the division of the quasi-public Conrail (Consolidated Rail Corp.) between the CSX Transportation Co. and the Norfolk & Southern Corp. resulted in severe disruptions.
In the Union Pacific/Southern Pacific merger, problems were so severe that the STB intervened and ordered Union Pacific to permit BNSF trains to service UP customers.
While the board said it could not ignore the possibility that further consolidation of the major carriers might be beneficial, it said “additional consolidation in the industry is also likely to result in a number of anti-competitive effects, such as loss of geographic competition.”
And the board said it a merger proposal no longer should be viewed in isolation. Instead, it proposed that merging railroads detail the impact the proposed consolidation will have not only on the public but also on competing railroads.
Wayne Burkes, a Republican and the vice chairman of the board, said: “This change is long overdue.”
