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Senior U.S. lawmaker warns against railroad industry consolidation

Stock MarketsApr 23, 2021 02:20PM ET
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2/2 © Reuters. FILE PHOTO: FILE PHOTO: A wagon of a freight train of KCS Railway Company is pictured in Toluca 2/2

By David Shepardson

WASHINGTON (Reuters) -The chairman of the U.S. House of Representatives Transportation and Infrastructure Committee said on Friday the potential acquisition of the Kansas City Southern (NYSE:KSU) freight railroad should set off "alarm bells" about industry consolidation.

Representative Peter DeFazio, a Democrat, said the deal could spark a "new wave of railroad mergers that stifle competition and trigger industry-wide consolidation."

"Wall Street will make money from railroad consolidation, but the U.S. economy and workforce will be worse off for it," he said in a statement.

Both Canadian National Railway Co and Canadian Pacific (NYSE:CP) Railway Ltd have offered to buy Kansas City Southern.

Canadian National said on Thursday it had informed Kansas City's board about its confidence in winning regulatory approvals for its $33.7 billion offer for the U.S. railroad.

Canadian National told the U.S. Surface Transportation Board the merged railroads “would remain only the fifth largest railroad in the United States - both on a track-mile basis and on an operating revenue basis” and would not be anti-competitive.

Canadian argued that “the fiercest and most aggressive ‘competitor’ to the freight rail industry is the trucking industry, which has a dominant market share for the transportation of most commodities - including intermodal traffic.”

The railroads would have limited overlap - just 1% of their network - and Canadian said it would work with customers to ensure they would not be served by just one railroad as a result of a merger.

DeFazio said that there were 33 Class I, or major, railroads in 1980. "Today there are seven, and a merger between KCS and Canadian National or Canadian Pacific would leave only six."

He added that a series of mergers "will likely result in a significant reduction of the railroad workforce, a workforce that has lost tens of thousands of jobs since 2015, and will negatively impact the rail network’s ability to provide affordable and reliable access for our nation’s shippers."

The railroads did not immediately respond to a request for comment.

Senior U.S. lawmaker warns against railroad industry consolidation

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