The failed merger between CN Rail and Burlington Northern Santa Fe Corp. won’t mean an end to the upheaval in the North American rail industry.
The economic pressures that led the two rail companies to try to combine into the continent’s biggest railroad aren’t going to go away, say industry analysts and grain shippers.
In fact, one who thinks the merger would have been a good thing says CN and BN may well try again.
“This is a real loss for Western Canada, although it may be only a temporary setback,” said Barry Prentice, of the University of Manitoba’s transport institute. “It could well be that we will find they pick up the pieces again in a couple years’ time.”
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However, neither CN nor BNSF gave any indication last week they would be renewing their courtship.
The railways called off the deal July 20, saying a recent court decision in the United States upholding a moratorium on rail mergers made it impossible to proceed. They said it wasn’t in the best interests of their shareholders to assume the risks involved in waiting up to 2 1Ú2 years for a decision on the proposal from the U.S. Surface Transportation Board.
“The delay and uncertainty caused by the STB’s moratorium and proposed rule making made it impossible for us to continue with our combination efforts,” said Paul Tellier, CN’s president and chief executive officer.
In March, the STB imposed a 15-month moratorium on rail mergers, saying more time was needed to study the long-term impact on shippers and consumers, and to write new rules governing rail consolidation.
The two railways challenged the board’s right to impose a moratorium, but on July 14 the U.S. Court of Appeals sided with the board.
CN spokesperson Mark Hallman said the two companies will look for other ways to work together to capture some of the estimated $1.2 billion in cost savings that the railways say would have been generated.
“Clearly there are opportunities that have been identified, but in terms of specifics it’s a bit premature until the parties have really sat down and studied it a bit further,” he said.
The two railways announced in December their intention to merge into North American Railways Inc. It would have been the continent’s largest railway, operating more than 80,000 kilometres of track linking eight Canadian provinces and 33 states.
It would also have been the dominant carrier in the grain growing and exporting regions of Western Canada and the U.S. northern Great Plains. While rail officials said that would mean better access to U.S. and world markets for Canadian grain, it created concern among some farmers and grain shippers.
Terry Boehm, of the National Farmers Union, thinks most grain farmers will be relieved by last week’s news.
“With fewer players in the rail industry, it obviously gives them more powers in the transportation marketplace and I think most producers were worried about that threat,” he said.
The Canadian Wheat Board was also happy with the news.
“The failed merger is positive from a competition point of view,” said CWB spokesperson Justin Kohlman, even if some potential service advantages are lost.
United Grain Growers president Ted Allen said while it is important to have financially strong players in every sector of the grain industry, the impact of the proposed rail merger on competition was a concern.
CP Rail said in the wake of the failed merger, all major railways in Canada and the U.S. will be pursuing marketing alliances and commercial arrangements to reduce costs and improve service, especially on a north-south basis.
