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Boon or boondoggle for the rail industry?
You're a railroad CEO. Your headquarters may be in Calgary, Fort Worth, Jacksonville, Kansas City, Montreal, Norfolk, or Omaha. Regardless, the view from your desk is the same: Your railroad, no matter how vast or where it's based, cannot haul every shipment from Point A to Point B. The railroad map makes sure of that. You've got to hand off traffic in Chicago, or somewhere along the Mississippi River, or at gateways along the U.S. borders with Canada or Mexico.
Truckers, of course, can hitch up a load and go wherever they please. Yet the North American railroad network has been frozen in time since 1999, when CSX Transportation and Norfolk Southern carved up Conrail and closed out the go-go megamerger days of the 1990s. Since then there's been a Dakota, Minnesota & Eastern transaction here and a Wisconsin Central or Elgin, Joliet & Eastern deal there. But those are mere doodles on the map.
The big systems remain unchanged - and duopolies are the rule. BNSF Railway and Union Pacific dominate the West. CSX and NS control the East. Canadian National and Canadian Pacific compete in Canada, with incursions into the U.S. And Kansas City Southern is still the odd man out, neither a major system nor a regional railroad.
So, as the CEO, you look out your window. And you wonder: How can I extend the reach of my railroad? There are obstacles everywhere you look.
The regulatory process is fraught with risk. The Surface Transportation Board's merger review rules, which were strengthened in 2001, are daunting. They're also untested. Plus, the U.S. Department of Justice often takes a dim view of mergers.
Shippers remember the service problems that accompanied previous mergers: The UP meltdown after acquiring Southern Pacific, the chaos after Conrail. They don't want to go through that again. They also don't want additional consolidation in an industry dominated by just six major players.
Politicians are sensitive to job losses, which inevitably accompany mergers. So they raise objections. Ditto for rail labor unions, who understandably have never seen a rail merger that they liked.
And trackside communities want major - and expensive - concessions, from noise abatement to replacing grade crossings with overpasses....