STB Imposes Rail Merger Moratorium

The Surface Transportation Board has put a 15-month hold on new railroad mergers while it tries to fashion rules to prevent the problems that have attended the last two major consolidations.

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The decision, issued March 17, came after four days of hearings earlier this month triggered by the announcement of a planned merger of Burlington Northern Santa Fe with Canadian National.

The two railroads announced their intention to combine on Dec. 20 and touched off a storm of protest, including statements from other railroads urging the STB to proceed carefully in considering the cross-border merger.

BNSF Chief Executive Officer, Robert Krebs told Bloomberg News Service that the railroad may consider legal action to reverse the decision.

"It is hard to believe that a federal agency can change the rules and deny us a forum, established by law, to have our case heard," Krebs said.

However, CSX Chairman John W. Snow, said the STB decision reflects the fact that "the proposed BNSF-CN merger, or any other rail merger for that matter, is not in the public interest at this time."

"Although a longer pause would have been preferable," Snow said, "the Board's action clearly reflects the unstable nature of the industry and the overwhelming concern expressed by rail customers, railroad employees, the financial community and the public – all of which are so dependent upon a financially strong and stable freight system."

Bloomberg reported that other railroads and some customers had hoped for a moratorium of at least three years.

In announcing the decision Friday, STB Chairman Linda Morgan not that "merger implementation has not typically gone smoothly" and the shipping public has not recovered from service disruptions associated with the previous round of mergers.

The Norfolk Southern and CSX railroads were the latest to fall when their June 1, 1999, assumption of Conrail lines – after a joint $10 billion purchase – spun quickly into an embarrassing welter of computer problems, misdirected trains and long delivery delays.

The NS-CSX problems came on the heels of service problems on the Union Pacific – which had just absorbed the Southern Pacific – that observers called a nationwide "meltdown."

Shippers appearing before the STB not only feared new service disruptions, they also were concerned that the BNSF-CN merger would set off yet another round of consolidations.

"Therefore," the Board statement said it had "concluded that it needed to revisit its merger rules in light of the current transportation environment and the prospect of an North American transportation system composed of as few as two transcontinental railroads."

The full text of the STB decision can be found here.