A moratorium on rail mergers is unfair and illegal, says the president of CN Rail.
Paul Tellier’s comments to a United States senate committee last week were the latest volley in the railway’s campaign to reverse a ruling by the U.S. Surface Transportation Board that puts on hold a proposed merger between CN and Burlington Northern Santa Fe.
He also told the committee that the moratorium is contrary to the public interest and doesn’t reflect the views expressed during recent public hearings on his company’s proposed merger with BNSF.
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“There was no clear consensus for imposing a moratorium,” he said in written testimony before the senate commerce committee March 23. “In fact, the only unanimity in support of a moratorium came from the major competitors of CN and BNSF.”
Those hearings were held by the U.S. board, which was reviewing the proposal by the two railroads to combine into North America’s biggest rail company. On March 17, the board surprised industry observers by declaring a 15-month moratorium on rail mergers in order to give it time to devise new rules governing mergers.
Moratorium appealed
CN and BNSF have vowed to fight that decision.
They have launched an appeal to the U.S. Court of Appeals for the District of Columbia and have filed petitions with the board for a stay of the decision, pending judicial review.
The railways say the board exceeded its statutory authority when it imposed the moratorium.
They say that existing law, along with the surface board’s regulations, entitle the railways to a hearing on the merits of their proposal within 16 months of the date of application, and the moratorium improperly prevents that from happening.
“The decision’s illegality is compounded by its blatant unfairness,” Tellier told the senate committee.
Service concerns
In its decision, the board said mergers in the rail industry in recent years have created serious service problems for shippers and created hardships for employees and local communities.
It said the CN-BNSF merger could trigger a final round of railway consolidation among the other four Class 1 railways, including CP Rail, which would eventually leave two major carriers serving North America.
It said a “time-out” was needed to come up with a comprehensive set of rules governing rail mergers.
“Not only would it be impracticable for us to try to act on a final round of mergers while we are in the process of developing new merger rules, it would also be disruptive to the rail system and to rail service that remains well below acceptable levels in many areas,” said the board.
Tellier said 15 months is an unnecessarily long time to devise new rules, adding that such a delay will do nothing to promote a more competitive and viable rail industry. In fact, he said, it will do the opposite: “The decision will reduce competitive pressures and hence reduce incentives to improve service and keep prices down.”
Barry Prentice, head of the Transport Institute at the University of Manitoba, said he doesn’t see how the U.S. board can justify holding up the CN-BNSF merger based on how previous mergers have worked out or how other railways might respond.
“Both CN and BNSF have experience with mergers and will have learned from that,” he said, adding there have been no serious service complaints arising from CN’s merger last year with Illinois Central.
“If you want to argue the CN-BNSF merger would produce service disruptions, that’s a very weak case,” he said.
“As for what other railways will do in response, that’s purely hypothetical.”
