Norfolk Southern is working to improve efficiency in the face of the Canadian Pacific offer, announcing moves to consolidate management of key coal and intermodal routes in the mid-Atlantic region.
Opposition continues to mount against Canadian Pacific Railway’s takeover attempt for eastern railroad Norfolk Southern, with members of Congress, unions and even NS customers lobbying the Surface Transportation Board to reject the deal.
The NS board has now rebuffed the unsolicited $30 billion CP offer on three separate occasions, saying the offer doesn’t provide adequate value, is unlikely to win federal approval and would hurt customer service. CP officials have not ruled out a hostile takeover attempt by going directly to NS shareholders.
Last week, two Democrats on the House Transportation and Infrastructure Committee, wrote to the STB urging the federal railroad regulatory body to reject the NS takeover.
“Contrary to CP’s claims that a takeover of NS will increase competition and lead to more efficient operations, further consolidations in the railroad industry will only exacerbate shipper concerns,” Rep. Peter DeFazio of Oregon and Michael Capuano of Massachusetts said in the letter.
“There are already strong indications that this merger will serve as a catalyst for even more consolidation in the railroad industry, thereby creating a duopoly, leaving shippers with fewer choices, less competition, and prolonged service disruptions. Fortunately, most shippers are wise enough to realize that the only benefit to this ill-conceived transaction is to CP – to pad the pockets of Wall Street investors and corporate executives at the expense of captive shippers and the public interest.”
To alleviate concerns about customer service, especially for so-called captive shippers, CP has proposed that if the combined company failed to provide adequate service or offer competitive rates, it would allow another railroad to operate on its tracks and in its terminals to serve particular shippers who may be harmed. In addition, shippers could decide where in the network they would want to interline with another railroad rather than basing interline spots on the point of origin.
The lawmakers also expressed concern with CP’s recent history of cutting 19,000 jobs as part of a restructuring designed to boost profits, suggesting that NS employees would be on the chopping block too.
“Further consolidation of an already healthy industry is unwarranted,” the letter stated. “Decades ago, when the Interstate Commerce Commission (ICC), the predecessor of the STB, governed the railroad industry, the ICC rightfully encouraged railroad mergers to revitalize a rapidly failing industry that was on the brink of bankruptcy.”
But, it said, “The railroad industry today is nothing like the railroad industry of the past. The rail system is at peak performance; revenues are up; and reinvestment in capital which has, in turn, created good-paying American jobs, is at an all-time high. In 2015 alone, NS plans to invest a record $2.4 billion to ensure their rail system is in top condition to serve customers and communities. There is no compelling need to shake up this thriving industry.”
News service Reuters also reported that two trade unions representing NS workers object to the CP-NS merger, saying it would result in huge job losses.
There are seven major railroads in North America today, five that are U.S.-based, compared to about 40 two decades ago. The STB rewrote rules on consolidation in 2001 and there have not been any mergers since.
NS customers, including those from the coal and automotive industries, are also raising their collective voice against the proposed merger, saying it would result in poor service that could harm their businesses, according to Reuters.
Meanwhile, Norfolk Southern on Wednesday announced it is consolidating its Virginia and Pocahontas divisions to enhance operating efficiencies. The new Pocahontas Division will be headquartered in Roanoke, Va., effective Feb. 1.
In a related move, NS is changing traffic patterns and idling parts of its “West Virginia Secondary,” a 253-mile line between Columbus, Ohio, and central West Virginia that has experienced steady declines in business, primarily for coal.
The new Pocahontas Division will comprise 2,581 miles, mainly in Virginia and West Virginia, but also extending to Portsmouth, Ohio, and Hagerstown, Md.
Consolidating the two divisions streamlines operations and allows NS to focus resources on high-return growth opportunities, the company said. It will improve service by placing most the company’s coal routes under the operating authority of a single division and it consolidates operational control over the company’s Heartland Corridor, a double-stack intermodal route through Virginia, West Virginia and Ohio.
NS restructures regional divisions as opposition to CP takeover mounts
