North America’s Class I railroads have a few bones to pick with Union Pacific and Norfolk Southern’s merger application, citing that it lacks the required information and data necessary for the Surface Transportation Board (STB) to accept the filing.
Upon rendering it incomplete, BNSF, Canadian National Railway (CN), Canada Pacific Kansas City (CPKC) and CSX, have called on the regulatory board to reject the filing.
Union Pacific and Norfolk Southern filed the nearly 7,000-page application to the STB on Dec. 19, triggering a 30-day window for the board to determine whether the filing is complete. If the application is unsatisfactory, the board can request more information from the merging parties or propose remedies.
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The combining railroads argue the proposed $85 billion deal would benefit the public due to creation of a transcontinental railroad that would be more affordable, faster and more efficient for customers.
They also contend that a merger would enhance railroad industry competition by providing simpler, more predictable prices when freight has to switch from one railroad to another, and converting more than 2 million truckloads of traffic to rail annually.
The four Class I competitors aren’t as sold by the 2 million truckloads claim, saying it comes from incomplete data. CPKC called out UP and NS for not providing the underlying data to back up the truck diversion analysis, which was presented in the application by two analysts at management consulting firm Oliver Wyman.
“The truck-to-rail diversions projected by [the analysts] are the foundation for nearly the entire application,” the CPKC report said. “Applicants’ refusal to provide the critical data relied on and cited by [the analysts] violates the board’s major merger rules and explicit orders in this case.”
The Canadian railroad noted that the applicants did not provide full county-to-county truck flow data from Transearch or truck spot and contract freight rate data obtained from DAT Freight & Analytics—both of which supported central arguments by the Wyman analysts in their statement. After the applicants directed interested parties to obtain the Transearch data directly from parent company S&P Global, which later quoted CPKC a fee of $399,000.
All four filings also took umbrage with Union Pacific and Norfolk Southern’s purported failure to analyze and identify the downstream effects of the proposed merger.
When the STB overhauled U.S. railroad merger rules in 2001 to prevent more consolidation, it added that applicants must include how rival railroads would react upon filing. At the time, the STB said another merger involving two large railroads “would not likely be an isolated event, but instead would trigger responsive proposals that, if granted, could well lead to a transcontinental railroad duopoly.”
UP and NS stated in their application that they believe that “even if there were a responsive merger, it would not diminish the substantial public benefits of the proposed transaction.”
In response, CSX argued that this assertion did not provide evidence of the resulting structure, or address any potential merits or problems that a merger would create.
BNSF, which was tied to a potential acquisition of CSX before the company nixed the reports, noted that Union Pacific and Norfolk Southern’s take on the issue “amounts to little more than a shrug and suggestion to ask BNSF and CSX” how the deal might reshape industry structure. The Berkshire Hathaway-owned railroad said the STB intended with the 2001 rule changes for applicants themselves to address these concerns.
CN was the only railroad to highlight that the application fails to properly identify “2-to-1” and “3-to-2 points” across a merged UP-NS network. These are locations where the merger would reduce the number of railroads serving a shipper, with CN also claiming the companies failed to include the methodology for identifying them.
“Applicants rely extensively on this purportedly minimal overlap to assert that there is ‘limited scope for harm from the loss of horizontal competition between [applicants],’” the CN filing said. “If applicants’ claims are accurate (they are not) and the proposed transaction truly poses no competitive concerns (it does), then it is inexcusable that applicants have neglected to include complete market analyses in their application.”
The four filings also were critical of the merging Class I’s incomplete disclosure of key merger agreement terms, such as conditions over which Norfolk Southern could sue to require Union Pacific to accept, or terms that can allow the latter to walk away from a deal.
Union Pacific and Norfolk Southern have until Friday to respond to the comments. Should the board accept the application, comments on the merger itself will be solicited at a later date.
CSX train derails, no injuries reported
A day after the comments on the merger application were due, a CSX train derailed in rural Kentucky that resulted in a hazardous chemical leak on the tracks.
At approximately 6:20 a.m. Tuesday, 31 rail cars derailed in Todd County, Ky. including one carrying molten sulfur that caught fire. No injuries were reported, according to Todd County emergency officials.
The initial response included extinguishing the fire on the sulfur car and deploying water to cool and solidify the leaking material, effectively plugging the leak.
The cause of the derailment is under investigation.
A precautionary shelter-in-place order was issued for a half-mile radius but was lifted by 11 a.m. after first responders confirmed that all air quality readings came back safe.
CSX crews worked overnight to remove the derailed cars and repair the track, with the rail line reopening 7 a.m. Wednesday.
The incident occurred just a mile west of downtown Trenton, Ky. and near the Tennessee border. During a press briefing, Todd Mansfield, Todd County’s judge executive, emphasized that the community was lucky the derailment occurred further away from the population.
“It could have been catastrophic,” Mansfield said.
