Canadian Pacific Railway Employee
Communications
Room 500 401-9th Ave S.W. Calgary AB T2P 4Z4
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VOLUME THIRTY-ONE
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NUMBER THREE 2001
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Is There a Better Way? You
Bet!
by Greg Gormick
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Greg Gormick is a Toronto transportation analyst and writer. The
views expressed are his own and do not necessarily reflect those of the Canadian Pacific
Railway.
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When it comes to mergers, I feel like Scarlett O'Hara in the
Civil War: "Merger, merger, merger! I get so bored I could scream."
The simple truth is that many of the mergers of the past 40 years have failed. Yes, they cut costs, reduced
employment, and stabilized railways that had the cash to dine on their weaker partners.
But mergers haven't increased the industry's marketshare, dramatically improved service to shippers, or resolved
the longstanding inequities in transportation funding and taxation. All these benefits - and more - were promised
by merger proponents.
The service snarls, shipper demands for open or forced access, and the continuing inability of many Class I
railways to fully fund their capital needs ar proof of broken merger promises.
So, too, are the new merger rules of the US Surface Transportation Board (STB), released on
11 Jun 2001. They don't block mergers, but they certainly raise the height of the hurdles that Class
I roads will have to leap.
This is not to say there haven't been positive mergers. The CPR's acquisition of the Milwaukee Road in 1985 and
the Delaware & Hudson in 1991 are good examples. So, too, is CN's purchase of Illinois Central.
All of these were end-to-end mergers with little or no market overlap or potential track abandonment.
All grafted under used but strategically valuable lines on to a stable transcontinental system. All expanded
shippers' routing and pricing options.
Most of the other mergers since the late 1950s haven't done any of these things, especially the latest ones. In a
recent column, Railway Age contributing editor Lawrence Kaufman raised the issue of CSX Transportation and
Norfolk southern getting into a bidding war where they collectively coughed up $10 billion US to carve up Conrail.
Kaufman writes, "Few in CSXT, NS, or elsewhere in transportation today, defend paying such a high price for
a railroad that was generating less than $4 billion in annual revenue and which had a monopoly in much of its
territory".
Was there a better way? You bet. One of the best transportation history books of recent years is H. Roger Grant's
"Erie Lackawanna: Death of an American Railroad", 1938-1992 (Stanford University Press, 1994).
Part of Grant's tale of "Weary Erie" hints at a "what if" scenario and deals with the mergers
advocated by many transportation analysts from the 1920s onward. These were rejected by the presidents of the
biggest and (then) healthiest railways. Instead of seeing the railway industry as a massive and interconnected
grid that delivered a vital service as a whole, they looked only for piecemeal advantage over less wealthy but
well-placed rivals.
Even worse, these captains of the industry were seemingly blind to the rising competition of trucks rolling over
government-funded highways. This expanding road system increasingly gave truckers a geographical
reach far exceeding each individual railway, as they then existed.
Most intriguing and logical was a 1921 government-sponsored study recommending the creation of five
strong eastern railways based not on the financial clout of each of the old roads, but the potential utility and
competitive position of the new proposed mega-railways, virtually equal in size, territory, and
traffic mix.
You might say, "That was then, this is now, end of story".
Not quite. Don Phillips, Washington Post and Trains Magazine transportation reporter, recently wrote about a
theory that is quietly circulating in the transportation community.
Contemplating an anticipated final round of North American railway consolidation, some veterans of former mergers
are suggesting it isn't a matter of grafting Class I-to-Class I like big electric train sets.
Instead, they suggest, it should be the cooperative creation of a new, merged system based on protecting
competition for shippers through line swapping, the granting of trackage rights, and the expansion of
inter-switching agreements. It would also be a logical attempt to balance each new company's market
access.
The plan has merit. But even this may not satisfy shippers who watched service temporarily go down the drain with
each recent merger and wound up switching to trucks.
This CP Rail News article is
copyright 2001 by the Canadian Pacific Railway and is reprinted here with their
permission. All photographs, logos, and trademarks are the property of the Canadian Pacific Railway
Company.
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