The proposed merger of CN Rail and Burlington Northern Santa Fe drives home the need for regulatory protection for shippers, say some grain industry officials.
They say the merger plan undermines arguments that farmers and shippers will benefit from railway competition in a deregulated commercial environment.
And they say it should make the federal government think twice about relying on competitive forces to produce a lower-cost rail system, as it considers the Kroeger report’s ideas for reforming the grain handling system.
“The government needs to make sure producer safeguards are adequate,” said Ian McCreary, chair of the Canadian Wheat Board’s transportation committee.
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He said the rules that will be set up for issues like a revenue cap for the railways, final-offer arbitration to resolve railway-shipper disputes and open access to rail lines are more crucial than ever in light of the proposed merger.
“The government needs to recognize that competition becomes that much tougher when you have fewer and fewer players,” said McCreary.
Saskatchewan Wheat Pool president Leroy Larsen said one of the primary goals of the pool and other shippers during the Estey/Kroeger process has been to get more competition into the system.
“This goes the other way,” Larsen said, adding he hopes the government takes that into account. “I think there has to be some protection for shippers and some level of making sure the railways are not in total control of the services we need.”
Keystone Agricultural Producers president Don Dewar echoed that view, saying many in the grain industry had been looking to BNSF to provide competition to CN under a system of open access. Rules to protect shippers are more important than ever, he said, noting that if the merger goes ahead there will be only five railroad companies left in North America.
“If this trend continues, open access won’t be any use since there will be nobody left to compete,” he said.
Not everyone in the grain industry was as worried about the effects of a merger.
“On the whole I don’t see any disadvantages in the merger,” said Cargill Ltd. president Kerry Hawkins. “There’s no question it could be very positive, but it remains to be seen how this thing moves forward.”
He said the devil is in the details, such as how the new company will be managed, what kind of service grain shippers and farmers will receive and whether the new railway shares any efficiency gains with its customers.
He added he doesn’t think the CN/BNSF merger eliminates any competition in Western Canada, since BN doesn’t operate here.
“I’m not all fussed by it,” he said. “These are things that have to happen.”
Saskatchewan highways and transportation minister Maynard Sonntag called on Ottawa to intervene in the proposed merger to ensure that shippers in the province receive competitive rates and service.
“We need to ensure that our capacity to move prairie commodities is not reduced,” he said, adding that the federal government should be prepared to bring in regulations to ensure that any merger results in increased competition.
McCreary said any cost savings for the railways are outweighed by the fact there would be fewer companies competing for the business in an environment where government says competition will determine the price.
“What I see is that on balance, the risks for producers of having fewer companies far outweighs any potential transaction benefits,” the wheat board director said.
