American Chemistry Council urges caution on Class I mergers

A photograph of tank cars rolling down a railroad track.

Chemicals shippers want the Surface Transportation Board (STB) to thoroughly mull over service impacts before agreeing to any merger between Kansas City Southern (NYSE: KSU) and another Class I railroad.

The American Chemistry Council (ACC) “is concerned about further consolidation in the freight railroad industry. Past mergers between Class I railroads have concentrated railroad market power and diminished the ability of rail customers to access competitive rail service,” ACC said in testimony submitted to the Surface Transportation Board on Thursday. “ACC fully supports the Surface Transportation Board’s [STB] 2001 merger rules that set a higher bar for future merger approvals and believes the board should apply these rules to its review of all pending and future Class I railroad mergers.”

ACC is referring to plans by CN (NYSE: CNI) to acquire Kansas City Southern (KSC). CN is seeking STB approval for the merger, including approving an initial step to allow CN and KCS to form a voting trust as part of the merger process.

KCS had also last week terminated a merger agreement with CN rival Canadian Pacific (NYSE: CP). CP is also seeking to acquire KCS, but the company opted for CN’s offer.

“The cost of shipping by rail continues to rise dramatically while our member companies have no effective remedies for rate or service issues,” said ACC President and CEO Chris Jahn in a Thursday blog post. “We are concerned that unless the STB takes the necessary steps to put appropriate safeguards in place and to shore up competition between railroads any merger could have a negative impact on manufacturing in the U.S. – and the broader economy.”

ACC said it doesn’t take a position on either CN’s or CP’s merger proposal. However, the group wants STB to consider five issues: maintaining access to existing gateways so that shippers have access to all existing interchange options; ensuing fair rates for service to and from gateways; promoting enhanced competition through means such as reciprocal or competitive switching; preventing service disruptions through the use of service assurance plans; and adapting reasonable railroad practices when reviewing proposed mergers.

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