U.S. Senator Elizabeth Warren (D-Mass.) sent a letter to the Surface Transportation Board (STB), urging them to block the proposed merger between Canadian Pacific (CP) and Kansas City Southern (KCS), which would combine the sixth- and seventh-largest U.S. railroads by revenue. The Senator sent the letter following the derailment and massive chemical spill in East Palestine, Ohio and highlighted the risks from years of cost-cutting and deregulation of the nations’ railways.
Sen Warren raised concerns that if the deal goes through, it would reduce competition in an already consolidated market, cause increased shipping costs, job losses and service disruptions that impact American supply chains. She also raises safety concerns, citing industry cost-cutting and efforts “to squeeze as much productivity out of these workers as they can” – and one former Iowa mayor’s warning that the merger could ultimately result in “a disaster of monumental proportions.”
Under the ICC Termination Act, which created the STB, the board may authorize a merger only if it affirmatively finds that it “is consistent with the public interest,” and must take into consideration “the effect of the proposed transaction on the adequacy of transportation to the public…the total fixed charged charges that result from the transaction, the interest of rail carrier employees … (and) whether the proposed transaction would have an adverse effect on competition.”
“Allowing this merger… to proceed would reduce competition in an already highly consolidated market and could cause increased shipping costs,” wrote Senator Warren. “(T)he proposed merger could result in significant job losses and service disruptions that negatively impact American supply chains.”
Since the deregulation of the rail industry by the Staggers Act in 1980, consolidation has rapidly accelerated, with the number of Class I railroads decreasing from 33 in 1980 to just 7 now. This proposed merger would reduce this number to just 6. If approved, it would join 7,300 miles of KCS’s tracks with 15,000 miles of CP’s tracks to create the only north-south rail corridor bisecting the whole continent, from Mexico to Canada. This merger would give the new company additional leverage over competitors, and has shippers worried that they’ll be left with no alternative rail shipping options.
Recently, the Department of Justice Antitrust Division shared its own serious concerns about increasing consolidation in the industry, noting that the proposed merger could “empower the merged railroad to deny shippers access to the lowest cost or fastest end-to-end routings,” and enable the firm to “foreclose competition in other ways, such as raising costs for their rivals through control over inputs or access.” Indeed, like previous railroad mergers, this one could also lead to increased shipping rates across the board.
-via Press Release