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6/12/2001



Rail News: Rail Industry Trends

Merger rules elicit mixed reactions


Surface Transportation Board's new merger rules released June 11 solicited some immediate railroad industry feedback.
As for Class Is, only Canadian National Railway Co. and CSX Transportation issued statements June 11, both supportive of the rules.
"CN is pleased that the rules will raise the bar for the quality of customer service in future railroad mergers," said Paul Tellier, CN president and chief executive officer. "STB appears to have heard concerns and plans to apply higher public interest standards for mergers equally to all applicants — both domestic and foreign-headquartered corporations."
CSXT officials believe the rules likely will result in a more stable industry environment, which will enable railroads to pursue alliances with other railroads, leading to substantial economic and operational benefits.
But STB's decision also holds railroads to loftier standards than other merger-minded American firms: "It's disappointing that potential mergers, and their accompanying benefits, will be judged on a decidedly harder and more complicated set of [regulations] than those faced by other U.S. businesses," reads CSXT's statement.
Association of American Railroads President and CEO Edward Hamberger believes railroads shouldn't be subject to a standard requiring competition enhancement, but to the same test applied to other industries under antitrust laws — whether a merger preserves competition.
"Railroads already face substantial competition for most of the freight that they carry," he said. "Although railroads carry 40 percent of freight, they receive just 10 percent of the intercity freight revenues, clearly indicating that competition in the transportation marketplace is thriving."
However, Alliance for Rail Competition (ARC) members believe competition isn't thriving among railroads themselves. And ARC Executive Director Diane Duff said the rules include fewer references to specific concerns about rail-to-rail competition than were included in STB's proposed rulemaking released Oct. 3.
"Those customers who, because of their location or the nature of the product being moved, only can choose rail transportation are the ones that have been left to the mercy of expanding regional monopolies," she said. "These new merger rules offer no reason for those captive shippers to believe their concerns will be addressed to any better satisfaction than they have in previous merger proceedings."
A chemical shippers organization agrees that STB's rules miss the rail-to-rail competition mark.
"[The rules] allow railroads to continue down the same track of providing unreliable service and unreasonable rates to captive customers," said American Chemistry Council President and CEO Fred Webber. "It's obvious that Congress will need to play a more active role in bringing competition to one of the last remaining monopolies."
Not so obvious is STB's stand on a consideration period for merger applications. STB spokesman Dennis Watson says no specific timetable has been established by the board, although STB proposes a customized schedule, enabling applicants to file a motion requesting their own preferred timetable.
However, the board has determined that a 12-month schedule is too short, and the current federal statute sets a 16-month maximum, so a consideration period likely would fall between 12 and 16 months, says Watson.


Contact Progressive Railroading editorial staff.

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