Surface Transportation Board (STB) Chairman Martin J. “Marty” Oberman provided glimpses Tuesday into how the agency will consider two proposed acquisitions: CSX’s (NASDAQ: CSX) plan to purchase New England short line Pan Am Railways and Canadian Pacific’s (NYSE: CP) goal of merging with Kansas City Southern (NYSE: KSU).
The board expects to treat the proposed CP-Kansas City Southern (KCS) merger as a “major” transaction.This acquisition would be “the first major transaction to seek board approval in more than two decades,” Oberman said.
CP and KCS had expressed plans on Sunday to apply for their merger under KCS’ exemption from a rule regulators adopted in 2001 placing a heavier burden on railroads to show their mergers would not decrease options for rail service. Mergers in the 1980s and 1990s resulted in a dramatic reduction in the number of major railroads. According to KCS, a number of mergers were happening around KCS’ network at the time, and the exemption was meant to protect KCS’ network.
Meanwhile, STB expects to publish a notice in the Federal Register on Thursday stating whether CSX’s plan to acquire Pan Am Systems and Pan Am Railways would be classified as a “significant” or “minor” transaction.
CSX is proposing that its acquisition be deemed a minor transaction, but other stakeholders in the region want the transaction considered “significant” because of concerns over competition.
“Railroad transactions can have broad implications for the shape of the nation’s transportation system going forward. The STB has exclusive authority to review these proposed transactions and to determine whether to issue requisite approvals,” Oberman said. “The agency intends to scrutinize the transactions carefully and diligently, in keeping with the applicable statutory and regulatory frameworks. Additionally, the agency is committed to moving forward expeditiously, while ensuring meaningful opportunities for public participation and stakeholder comment.
“The freight railroad system is a crucial component of our nation’s infrastructure. It is both a key engine of economic growth and essential to maintaining our national security. It is important for us to make sure that the U.S. maintains a robust, efficient, competitive and economically viable surface transportation network that meets the needs of its users.”
Oberman’s statement comes as a number of rail shippers are raising the potential of the merger between CP and KCS to reduce market competition. They want STB to ensure that it will scrutinize the proposed transaction and its possible effects on rail service and rates.
“We are carefully reviewing the proposed merger between the two major railroads with our member companies since it will impact how chemical manufacturers ship their products to other sectors of the economy,” the American Chemistry Council (ACC) said Monday. “The freight rail industry is already highly consolidated, with a small number of railroads controlling most of the rail traffic in the United States and we are concerned that this merger could potentially lead to a greater concentration of market power.
“We strongly urge the Surface Transportation Board to carefully consider whether this merger could negatively impact access to service and competitive options for freight rail customers. The proposed merger along with the downsizing underway within the rail industry also underscore the urgent need to modernize the country’s freight rail policies, including the adoption of a competitive switching policy for rail traffic that could help provide more and better access to shipping options for American producers.”
Ann Warner, spokesperson for the Freight Rail Customer Alliance (FRCA), said her group “is concerned about continued consolidation in the rail industry. However, FRCA looks forward to learning more about the proposed CP acquisition of KCS, its effect on service, and if it will enhance competition especially for those rail-dependent shippers.”
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