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The Last Thing the Railway Industry Needs Is Another Giant Merger
The only win if Canadian Pacific acquires Kansas City Southern is for freight rail's hedge fund investors, who are squeezing operating cash out of these railroads at the expense of workers, community safety, and the overall economy.
Apr 07, 2023
On March 15th, the Surface Transportation Board (STB)—the federal agency that regulates the U.S. freight rail industry—gave final approval to the acquisition of Kansas City Southern by Canadian Pacific. Approving this merger between America's sixth- and seventh-largest railroads was a dire mistake, which will have enormous economic and social costs that resound for decades.
In a nation committed to a competitive market, in a sector that's already as consolidated as American freight rail, it's important to evaluate mergers very carefully, because once big companies absorb smaller ones, it becomes impossible to pull them apart again. And as economics researcher Eric Peinert of the American Economic Liberties Project puts it, "Nothing in the history of rail consolidation suggests this particular merger is a good idea."
Allowing these two railroads to merge is likely to reduce competition in the industry, leading to higher shipping prices, reduced service, and job cuts. It will impair the ability of small businesses to operate. It will lead to increased safety risks and have environmental impacts on the communities where rail traffic will increase. And as cost-cutting pressure from railroads' predatory hedge fund investors continues to mount, it will likely contribute to even more aggressive cuts in service than we have seen over the past five years.
The STB knew all that. They got 2,000 public comments about the merger, from industry experts, researchers, lawmakers, and the general public—hundreds of them laying out reasons why it shouldn't get the green light. On behalf of people across America, U.S. Senators and Representatives weighed in with their concerns, which the STB ignored.
"Cost-cutting demanded by the industry's hedge-fund investors—while generating a cash windfall for them personally—has resulted in safety compromises that risk the lives of employees and the well-being of the densely settled communities freight railroads pass through..."
The most obvious risks are to the competitive marketplace, with both rail customers and rail workers paying the biggest price. Sen. Elizabeth Warren (D-Mass.) called for the merger application to be denied outright on antimonopoly grounds. As Rep. Katie Porter (D-Calif.) put it, as America's Class I freight railroads have dwindled from 33 to just seven, "lack of competition has allowed railroads to gut capacity, capture and extort businesses, fire thousands of workers, and threaten the integrity of America's freight transport network and supply chains – all while extracting monopoly profits."
For American businesses, precision scheduled railroading (PSR), the approach these giant railroads are taking to providing as little service as they can get away with and doing it as cheaply as possible, has meant less frequent, less reliable, and more expensive shipping options. And for the freight rail workforce, it's meant job cuts of 28% across the industry with onerous contract terms and more dangerous working conditions for those who remain.
In the wake of the hazardous Norfolk Southern derailment at East Palestine, Ohio and a string of other high-profile derailments earlier this year, industry-watchers of all stripes have noted that cost-cutting demanded by the industry's hedge-fund investors—while generating a cash windfall for them personally—has resulted in safety compromises that risk the lives of employees and the well-being of the densely settled communities freight railroads pass through, like the Chicago suburbs.
According to employees, extreme schedule pressures under PSR push workers to their physical limits, leaving them with as little as 60 seconds to conduct railcar safety inspections. And due to investor pressure to save money by running fewer, longer trains, it's more and more frequent to see trains as long (150 cars) as the one that derailed in Ohio. Sarah Feinberg, former head of the Federal Railroad Administration (FRA), says that even trains as short as 80 cars can pose size risks.
The American Economic Liberties Project describes the hyper-consolidated U.S. freight rail giants as operating under a "financially extractive business model," which makes but money for the railroads' hedge fund investors at great cost to the public welfare. And Peinert says yet another merger will make things even worse. "This deal sets the stage for future disasters like East Palestine, and will likely lead to even further railroad staffing cuts, even higher cargo loads, and other profit-driven safety shortcuts."
Despite the recent statement by STB chair Martin Oberman that this merger "will be an improvement for all citizens in terms of safety and the environment," their own environmental impact study found that the opposite would be the case in numerous communities along busy rail routes: the merger will increase hazardous cargo transportation along 141 of the 178 rail segments, totaling 5,800 miles of track in 16 states. And even basic public services like Metra passenger rail service—a critical economic engine for the 10-million-population three-state Chicago metro area, which operates on Canadian Pacific tracks, competing with freight services—are at risk. Along some of those track segments, freight traffic is projected to triple, with much of the new cargo slated to include hazardous materials.
In response to the market consolidation concerns raised by merger opponents, the STB has imposed some conditions. They will require that interchanges within other railroads be kept open, that a process be provided for challenging rate increases, and that the companies provide data so the STB can monitor compliance. But as Sen. Warren noted, these measures are insufficient. That's especially true given that there's already evidence that Canadian Pacific and Kansas City Southern may have been violating antitrust law against collusion, by sitting down together at a luxury hotel in Florida to plan the future of the company in early February, even before the merger was approved.
Cutting routes, service, and workers may be good for profits, but it's bad for American competitiveness, for workers, for industry, and for public safety and quality of life. The only win here is for freight rail's hedge fund investors, who are squeezing operating cash out of these railroads—cash they used to use to pay employees, fund service, and finance safety improvements—and taking it to the bank.
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Derailment Spree Proves Railway Regulations Urgently Needed, Say Union Members
"These companies siphon billions into share buybacks, dividends, and bonuses rather than into the vital maintenance and infrastructure growth we need to build a safe, modern, and thriving rail industry," said one worker.
Apr 03, 2023
After at least six major freight train derailments occurred across the United States over the past week, the need for stronger rail safety rules couldn't be clearer, an interunion alliance of rail workers said Monday.
"The recent uptick in derailments across the U.S. highlights the dire need for stricter regulations on the length and weight of trains, as well as a focus on preventing unsafe operational practices such as precision scheduled railroading (PSR) which prioritizes short-term financial gains for Wall Street over the safety of communities and railroad workers," Jason Doering, a locomotive engineer and general secretary of Railroad Workers United (RWU), said in a statement.
The past week "was not a good one" for the nation's Class 1 rail carriers, RWU observed.
On Sunday, March 26, a Canadian Pacific train carrying hazardous materials careened off the tracks outside Wyndmere, North Dakota, spilling liquid asphalt and ethylene glycol and releasing propylene vapor.
Last Monday, a Union Pacific iron ore train reached 118 miles per hour as it ran away down Cima Hill in the Mojave Desert before wrecking on a curve, destroying two locomotives and 55 cars in San Bernardino County, California.
On Wednesday, a Canadian National iron ore train derailed in Butler County, Pennsylvania.
On Thursday, a BNSF train carrying ethanol and corn syrup crashed near Raymond, Minnesota, causing a fire that forced local residents to flee.
On Friday, a Norfolk Southern train went off the tracks in Irondale, Alabama.
One day ago, a train operated by the Class 2 regional Montana Rail Link—soon to be owned by BNSF—derailed on the banks of the Clark Fork River in Paradise, Montana.
"The recent uptick in derailments across the U.S. highlights the dire need for stricter regulations on the length and weight of trains, as well as a focus on preventing unsafe operational practices such as precision scheduled railroading."
"Rail workers are not surprised to see the dramatic increase in rail incidents following the widespread cuts to the industry," said locomotive engineer and RWU steering committee member Paul Lindsey.
"Each year these companies siphon billions into share buybacks, dividends, and bonuses rather than into the vital maintenance and infrastructure growth we need to grow a safe, modern, and thriving rail industry," Lindsey added.
Norfolk Southern has become the poster child for freight industry greed as the toxic aftermath of February's fiery train derailment and ensuing chemical spill and burnoff continues to unfold in East Palestine, Ohio.
Questioned last month at a U.S. Senate hearing about the ongoing public health and environmental disaster, Norfolk Southern president and CEO Alan Shaw refused to commit to giving workers seven days of paid sick leave or halting stock buybacks.
More Perfect Union has calculated that payouts to Norfolk Southern's shareholders soared by more than 4,500% over the past 20 years, from $101 million in stock repurchases and dividend bumps in 2002 to $4.7 billion in 2022.
Shaw also refused to commit to ending PSR, the profit-maximizing scheduling system that forces fewer workers to manage longer trains in less time, even though unions and progressive lawmakers argue the Wall street-endorsed model makes the U.S. rail system more dangerous and contributes to the 1,500-plus derailments seen nationwide each year.
Although Norfolk Southern epitomizes how railroad executives prioritize profits above all else, the corporation is far from alone in pushing for deregulation and implementing anti-worker, pro-investor policies.
An OpenSecrets analysis published last month found that the rail industry spent more than $713 million lobbying against enhanced rail safety rules at the federal and state levels between 2002 and 2022. Top spenders include the Association of American Railroads trade group, CSX, Union Pacific, Norfolk Southern, and BNSF's parent company Berkshire Hathaway, which is owned by billionaire Warren Buffett.
While RWU has made the case for nationalizing the railroads, it has also outlined a plan for reforms that can be quickly implemented in the absence of such a sweeping transformation. Specific provisions the alliance has called for include sufficient staffing; limits on train length and weight; adequate maintenance and inspections; and better training and employee benefits.
Last week, Sens. John Fetterman (D-Pa.), Bob Casey (D-Pa.), and Sherrod Brown (D-Ohio) introduced the Railway Accountability Act, which includes some of the measures sought by RWU and is supported by unions including the Transport Workers of America (TWU), the National Conference of Firemen & Oilers (NCFO), and the International Association of Sheet Metal, Air, Rail, and Transportation Workers-Mechanical Division (SMART-MD).
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'The Last Thing We Need': Critics Decry US Government's OK of $31 Billion Railroad Merger
"The East Palestine disaster raised significant questions about rail safety," Sen. Elizabeth Warren said in response to the approval of Canadian Pacific's acquisition of Kansas City Southern. "Allowing this merger is a mistake."
Mar 15, 2023
U.S. federal regulators on Wednesday approved the first major railroad merger in more than two decades, a move that follows the East Palestine rail disaster and that critics warned would reduce competition, raise prices, cost jobs, and threaten safety.
The Surface Transportation Board (STB) approved Canadian Pacific Railway Limited's proposed $31 billion acquisition of Kansas City Southern Railway Company, a merger that will create a single railroad linking Canada, the United States, and Mexico. The agency said the merger will take roughly 64,000 truckloads off the road and add more than 800 union jobs.
"The decision includes an unprecedented seven-year oversight period and contains many conditions designed to mitigate environmental impacts, preserve competition, protect railroad workers, and promote efficient passenger rail," STB said, adding that it "also anticipates the merger will result in improvements in safety and the reduction of carbon emissions."
"Shame on STB for disregarding both the administration and the rail workers who know all too well that corporate consolidation leads to a more dangerous rail industry."
However, opponents of the deal pointed to the East Palestine, Ohio disaster and other recent railroad accidents, which they said underscored the need for a more cautious approach to consolidation.
"The merger brings the total number of Class 1 railroads to six, down from over 100 just a few decades ago," the progressive news site More Perfect Unionnoted on Twitter. "Corporate consolidation in the railroad industry compromises safety and risks lives by prioritizing profits and cutting corners to reduce costs."
"Despite concerns from small towns and suburban Chicago cities, the STB ruled, based on data provided by industry, that the only community and environmental impacts of the merger would be an increase in noise," More Perfect Union continued.
"The Biden administration has taken a strong antitrust stance by blocking the $3.8 billion JetBlue-Spirit merger and urging the STB to do the same for Canadian Pacific-Kansas City Southern (CP-KCS), citing the need to promote competition in the railroad industry," the outlet said.
"Shame on STB for disregarding both the administration and the rail workers who know all too well that corporate consolidation leads to a more dangerous rail industry," More Perfect Union added. "The last thing we need is another merger right now."
U.S. Sen. Elizabeth Warren (D-Mass.)—who earlier this month wrote to STB Chair Martin Oberman asking the agency to reject the merger—similarly tweeted that "we don't need another rail merger that'll crush competition, reduce safety, increase prices, and destroy jobs."
U.S. Rep. Raja Krishnamoorthi (D-Ill.), who represents some Chicago suburbs through which the new international railway will run, wrote on Twitter Tuesday that "even before the disaster in Ohio, I had been warning about the threats to communities in my district that would come from a potential CP-KCS merger."
Itasca, Illinois Administrator Carie Anne Ergo—who chairs the Stop CPKCS Coalition—toldThe Washington Post that "the tragedy in Ohio is an illustration of what we've been talking about can happen."
"If what happened in East Palestine happened here in Itasca, the entire community would need to evacuate," she added. "It's terrifying."
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