- Regulators have approved a rail merger that would create a single route that would stretch from Canada to Mexico.
- The rail industry has seen rail accidents and labor disputes in recent months.
- But regulators argue the merger will improve safety and competition in the U.S. economy.
Railroad consolidation has a terrible track record, but regulators believe this time will be different.
Canadian Pacific and Kansas City Southern, the nation’s sixth- and seventh-largest railroads, have been waiting two years to combine their rail networks into the first single-track railroad connecting Canada, the United States and Mexico. On Wednesday, the Surface Transportation Board (STB), which has sole authority over rail mergers, approved the $31 billion transaction. The board argued that the merger was best for the country, even though the highly consolidated rail industry has seen major accidents, a grueling struggle between railroads and unions and service collapses in recent memory.
In February, a 50-car Norfolk Southern train derailed in East Palestine, Ohio, spilling highly flammable hazardous materials, forcing residents to evacuate and killing thousands of aquatic animals. To close out the month, another train derailment in Southern Norfolk caused power outages for more than 1,500 Ohioans.
Just a few months earlier, the Biden administration forced a labor deal to avert a rail strike that could cost the economy $2 trillion a day. Congress has denied workers the sick leave they say will prevent future train wrecks like the one in East Palestine.
The rail industry’s top regulator has argued that the new merger will not add to the industry’s woes. “If there’s a problem in this country about the safe transportation of hazardous materials by rail,” STB President Marty Oberman said at a press conference Wednesday, “it’s a nationwide problem. It’s not a problem caused or a result of this merger.” .” Canadian Pacific (CP) is the safest major railroad, with Kansas City Southern (KCS) close behind, according to the Federal Railroad Administration.
In fact, Oberman argued that this merger would make the country safer, estimating that the interstate single-track route would take 64,000 trucks off the nation’s highways. This would not only prevent 120,000 tonnes of CO2 emissions from entering the atmosphere, but would mean fewer dangerous leaks, as trucks account for 94% of them and trains for just 1%, he said.
“To the extent that hazardous materials can be moved on rail lines rather than highways, we’re better off,” he said.
The history of railroad consolidation begs to differ. As the industry has shrunk from 70 major railroads in the 1970s to just seven monopolies, it has abandoned nearly 100,000 miles of track and pulled all but the highest-volume, highest-margin operations, forcing farmers and manufacturers to rely and more so in expensive trucks when they are far from the tracks.
This loss of competition also allowed railroads to charge shippers more for worse service. With two doubles in the east and west, and soon only one carrier running both north and south through the central United States, fares have risen to shippers who “feel they have little bargaining power,” according to STB.
Meanwhile, railroads have laid off nearly a third of their workforce in recent years and spent $46 billion more on stock buybacks and dividends than they did on maintenance and equipment investments since 2010. Not surprisingly, charterers have long complained about fewer service calls, lengthy delays and unreliable service, according to CNN.
“30-40 percent of the United States economy depends on a well-functioning railroad,” Oberman said at a news conference Wednesday. That is why the STB is “complaining about some of the problems and issues affecting the rail service,” he said.
To ensure that affected communities remain safe, commuter rail lines run on time and shippers maintain efficient interconnection options, “We have set an unprecedented seven-year oversight period” for the proposed merger, Oberman said, noting that the STB did not never more than five years of the past for data collection after aggregation and troubleshooting.
Despite the woes of the previous consolidation, by a 4-1 vote, the STB “found that bringing these two railroads together at this point in the country’s history” would create “a stronger competitive force” in the economy, Oberman said. A trans-national single line from Canada to Mexico through the United States “will enhance trade, enhance productivity, enhance opportunities for shippers to expand their own businesses,” he said. Oberman noted that 450 shippers have submitted their support for the merger between CP and KCS for one simple reason: The single-line network will save shippers from having to pay to switch their cars from one line to another. The efficiencies gained will allow the combined railway to better compete with its larger rivals, he added.
Oberman also argued that shippers would not lose any existing rail competition from the merger. Not only will the merger of CP and KCS result in the smaller of the major railroads, “there will be no loss of parallel competitive route” because their routes do not overlap, he said.
“If it all sounds too good to be true, we agree,” wrote Robert Primus, the one STB board member who voted against the merger, disagreeing with the board’s decision. He argued that market concentration allows companies to extract rents, wield increased political power and exploit workers, with Big Rail being no exception.
Primus echoed the Justice Department’s antitrust division, which expressed concern in January about further consolidation in the rail industry “in light of recent supply chain disruptions that have wreaked havoc on American consumers and businesses.” According to the Washington Monthly, the nation’s largest railroad, Union Pacific, repeatedly propped up supply chains at the height of the pandemic because it had reduced the slack needed to keep up with the recovery in consumer demand. It announced record earnings in 2022.