Plans to create a new super-railroad have been shunted to a siding for the next 15 months.
CN Rail and Burlington Northern Santa Fe Corp. want to combine their assets to form North American Railways Inc., a giant company that would dominate rail service in Western Canada and the western U.S.
But in a move that took industry observers by surprise, the U.S. Surface Transportation Board last week declared a merger moratorium that effectively halted the CN-BNSF plan.
“The current problems facing the rail sector are so extraordinary that an unprecedented response is necessary,” STB chair Linda Morgan said in announcing the decision.
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She said a “time-out” is needed to give regulators time to devise comprehensive rules governing rail mergers. Once that has been done, the CN-BNSF proposal can be dealt with.
Petition filed
The board’s decision provoked an angry response from CN and BNSF, which promptly filed a petition with the U.S. Court of Appeals in Washington to have the decision overturned on the grounds the board exceeded its legal authority.
CN president Paul Tellier said the ruling is contrary to the public interest in having an efficient rail transportation and denies the railways their statutory right to a prompt and fair hearing.
“There is no justification for the STB to refuse to review the (merger) promptly on its merits,” he said.
CN and BNSF complained that the board is unfairly rewarding its rivals by delaying approval of the merger.
“The notion that the two most efficient railroads in North America cannot combine now to improve their business because the other major railroads are having trouble running theirs has the effect of protecting competitors, not rail competition, and clearly is against the public interest.”
The board issued its ruling following several days of public hearings in Washington, at which other major railways and a number of shippers spoke against the CN-BNSF plan.
Some also spoke in favor, but in its ruling the board said the “overwhelming weight” of the testimony was that at the very least, merger policy must be re-examined before any new ones take place.
The three-member transportation board panel warned in its decision, that the proposed merger could produce a domino effect and trigger another round of mergers and consolidation among the four remaining major rail carriers, including CP Rail.
“There is a substantial possibility that … in the very near future we will likely be left with the prospect of only two large railroads serving North America,” the board said.
It also said rail mergers in the U.S. in recent years have resulted in serious service problems that continue to plague shippers. Benefits that were promised to shippers haven’t materialized and employees and local communities have suffered.
Unnecessary delay
CN spokesperson Mark Hallman said CN and BNSF support the idea of bringing in new higher standards to judge merger proposals, but see no reason the board couldn’t introduce those new rules while it was reviewing their application.
“We’ve said all along we have the track records and the financial wherewithal, and with the service guarantees we’re offering, we were ready to raise the bar,” he said.
