A proposed merger between Canadian National and Kansas City Southern Railways that could have major impacts on the shipping of agricultural products and petroleum has met with opposition from the three-member delegation of Congress from North Dakota and former Sen. Byron Dorgan, DN.D., and may also be less likely after President Biden issued his executive order to encourage more competition.

Canadian Pacific initially made an offer to buy the Kansas City Southern Railroad, but Canadian National, a larger railroad, offered more money to Kansas City Southern shareholders. Kansas City Southern now favors the merger with the Canadian National. Canadian Pacific is trying to convince the Surface Transportation Board, which has jurisdiction over the merger, to stop the CN-KCS merger and pave the way for a relaunch of its proposal to acquire KCS.

Biden’s executive order on competition released last week expressed concern over rail mergers and cited the STB as a regulator that should consider the views of the Department of Justice and the Federal Trade Commission. on mergers.

Canadian Pacific said in a statement that Biden’s order “sends clear messages: no rail mergers that reduce competition or hurt passenger service and that the US economy needs more competition between railways .

“A CP-KCS combination would be a positive step towards more competition – not less – in the freight rail industry without the need for regulatory solutions. In contrast, a CN-KCS combination proposal creates competition concerns and narrows options for rail customers who will require additional regulation to overcome. “

Even before Biden’s executive order, the prospect of a merger between Canadian National and Kansas City Southern had raised concerns in North Dakota, South Dakota and Minnesota, which rely heavily on rail transportation for their agricultural products and their inputs.

North Dakota grain producers said, “CN would become stronger by absorbing the KCS system, much of which is largely parallel to CN’s existing US grid. This implies a rationalization of assets, and not an investment in new competitive routes. And that implies a loss of competitive options – both concrete multi-rail access to individual shippers and more subtle benefits of having multiple railways in close proximity to each other to serve as “geographically competitive” options. »For transshipment shipments, transportation of grain to other elevators / terminals, construction -ins and build-outs, and other means.

“The costs of enabling a voting trust here, however, are quite significant. … First, from our perspective, the most significant cost associated with allowing CN to use a voting trust to complete its acquisition of KCS is the negative impact that would have on existing competition between KCS and CN, ”said the Minnesota Grain & Feed Association.

“Ultimately, we agree with the US Department of Justice’s observation that ‘threats to competition would be present immediately after the CN voting trust is consumed,'” the South Dakota said. Grain & Feed Association.

In a June 28 letter to STB Chairman Martin Oberman, Senators John Hoeven, Kevin Cramer and Representative Kelly Armstrong, all Republicans from North Dakota, did not mention the proposed CN / KCS merger, but did writes: “We are writing to express our support for the proposed merger agreement between Kansas City Southern (KCS) and the Canadian Pacific Railway (CP). We believe such an arrangement would serve the public interest in opening up new markets for commodities produced in states served by CP, including North Dakota. “

They added: “Currently, North Dakota shippers have direct access to ports in the Pacific Northwest, and therefore much of Asia, through rail transportation provided by Canadian Pacific and Burlington Northern Santa. Fe (BNSF). A KCS / CP merger would create the first Class I railroad with tracks in Canada, Mexico and the United States, opening access to new markets for producers in our state in Mexico, while also providing a more direct route to southern US markets. . “

Canadian Pacific, meanwhile, hired Dorgan as part of its lobbying team in Washington.

In an interview, Dorgan noted that he opposed rail mergers when he sat in the House and Senate, but said a merger of Canadian Pacific with Kansas City Southern “would represent the public interest” because it would result in better connections for North Dakota shipping. cereals on both coasts and the Gulf of Mexico.

But Dorgan added that he believed a merger between Canadian National and Kansas City Southern “would be devastating” and “lead to merger madness” among other railroads.

The STB, Dorgan said, has not approved a railroad merger for 20 years and has a policy that any railroad merger is supposed to increase competition, not lessen it.

But the decree noted that the number of railway companies has fallen to seven and that four major railway companies now dominate their respective regions. The ordinance encouraged the STB “to require railway owners to grant rights of way to passenger rail and to strengthen their obligations to treat other freight companies fairly.”

STB Chairman Oberman in a statement on the executive order appeared sympathetic to the issues raised by the White House and noted his own longer-term concerns:

“While recognizing the independence of the Surface Transportation Board (STB), the decree designates the STB as one of the federal agencies mandated by law to protect ‘conditions of fair competition’ through the exercise of its authority. More specifically, the decree encourages the STB to consider actions that promote competition in the railway industry; provide accessible remedies to shippers; and focus on the rigorous application and accounting of punctuality standards in order to avoid undue delays in passenger rail service.

“During my tenure on the Board of Directors, I have been continually concerned about the significant consolidation in the rail industry that occurred as a result of a series of mergers decades ago, which significantly reduces the number of Class I carriers. It is evident that while the consolidation may be advantageous in certain circumstances, it has also created the potential for monopoly pricing and reduced service for captive rail customers. Since consolidation, productivity gains have often been retained by carriers rather than passed on to consumers, as one would expect in a truly competitive market. For these reasons, I have previously expressed my concerns about the adequacy of competition in the rail industry and my interest in exploring ways in which the board can improve the competitive landscape of the rail industry to ensure fairer pricing. In my opinion, competition in the freight market is essential. In the absence of a truly competitive market, the board can and should focus on using its competition authorities to the extent possible and reforming its competition policies where necessary.

“Therefore, while stressing that the STB is an independent agency and that maintaining its independence is vital, I welcome the national policy contained in this new decree. The President’s emphasis on improving the competitive landscape across the economy fits well with my vision for the board’s mission in today’s rail environment.

The STB website includes comments on all aspects of the issues.

DTN / The Progressive Farmer noted that of the 1,700 comments posted, more than 1,000 are in favor of the voting trust that Canadian National and Kansas City Southern have requested to structure the deal. Senators Lindsay Graham, RS.C., and Jerry Moran, R-Kan., Urged the STB to consider the voting trust.

–The Hagstrom Report

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