The flatfooted response by the federal government to the recent toxic train derailment in East Palestine, Ohio, has highlighted the shortsightedness officials in Washington have recently shown regarding issues facing the rail industry.
Another recent example of this is the lack of proper oversight to date regarding the proposed merger between Canadian Pacific and Kansas City Southern railways. In an industry that has already seen significant consolidation over the last 50 years – dropping from 63 Class I railroads to just 7 – a move such as this would further reduce competition in a sector where it is already limited.
Concerns about competition have grown so great, that the Department of Justice (DOJ) antitrust division recently took the unusual step of issuing a second letter to the Surface Transportation Board (STB) expressing its reservations with the deal. Drafted in response to multiple concerns raised by public commenters about additional concentration within the rail industry, the DOJ reiterated that all the misgivings it raised in its previous letter regarding the merger were still relevant.
The DOJ flagged worries about already dwindling competition within the industry, as well as the impact it would have on pricing in light of the current supply chain disruptions. They wrote, “Freight rail connects us, from farms to cities, and from the ports through the heartland, and carries the goods that Americans depend on. Competition in this critical infrastructure is essential. The Board should scrutinize any transaction that could weaken our freight rail system.”
The DOJ also refuted arguments made by the Canadian Pacific and Kansas City Southern since the first letter was released, inferring that “the Antitrust Division does not believe the transaction has the potential to cause harm.” In fact, the DOJ continued to emphasize the point, clarifying to the STB that “no such inference should be drawn.” This is a clear indication that the DOJ still has concerns about the merger and that those concerns have not been addressed by the companies involved.
This statement by the DOJ is crucial as it highlights the importance of competition in the freight rail system. The acquisition of American-owned Kansas City Southern by Canadian Pacific, a foreign-owned railway, will undoubtedly harm the average American while helping a corporation outside the United States.
For starters, the merger will take at least 200 jobs away from the Twin Cities, as Canadian Pacific Railway intends to move its U.S. headquarters from downtown Minneapolis. Even more, American farmers in certain areas beholden to one rail line already, could face a surge in shipping fees due to an increased lack of competition. Worse yet, lines could be phased out entirely, should the future “CP-KC Railway” decide certain lines are not profitable making the process of bringing those goods to market even more complicated. This all would come not only at the cost of our farmers, but to the average American consumer who would face higher prices as well.
The Surface Transportation Board, in their oversight of this merger, has also neglected environmental and safety concerns. The recent tragic events in East Palestine compounded by a second derailment of a train carrying hazardous materials in Ohio just last week, have put this issue into sharp focus.
In the Final Environmental Impact Statement (EIS) regarding this merger, the STB advised that the environmental impact of the merger would be minor with “increased train noise” the greatest concern. Given that this report was released a few short weeks before the events in East Palestine and the fact that increased hazardous material carloads and the likelihood of incidents throughout the routes are detailed in the thousands of pages of the Appendix of the EIS, it may be time for the STB to reconsider this position.
While the Surface Transportation Board is responsible for making the final decision on the merger, the DOJ's letter and other recent events in the rail industry, should give the STB pause to thoroughly examine the competition and environmental concerns raised by this merger and ensure that the transaction would not exacerbate these trends.
Ultimately, Americans do not deserve to feel more pain in their pocketbooks due to a rail merger that would create a monopoly across North America, raise shipping costs, further cripple the supply chain, and ultimately lead to price increases. The antitrust risks of this merger far outweigh any proclaimed benefits, and it is essential that the STB carefully considers the potential harms to this critical piece of infrastructure. Competition in the freight rail system is essential, and any transaction that could weaken the system must be properly scrutinized.
Patrick M. Brenner is the founder and president of the Southwest Public Policy Institute, a research institute dedicated to improving the quality of life in the American Southwest by formulating, promoting, and defending sound public policy solutions. Our mission is simple: better living through better policy.
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