Senator Klobuchar Raises Concerns About Potential Canadian Pacific Railway/Norfolk Southern Railway Merger
Combined, the two railroads would have approximately $17 billion in annual revenue and would operate approximately 34,000 miles of track; in a letter to the Attorney General and Surface Transportation Board Chairman, Klobuchar said one of the most concerning aspects of the potential merger is that the railroad’s current antitrust exemption prevents the Department of Justice (DOJ) from blocking the merger even if it is predicted to harm competition
As long-time leader and ranking member of the Senate Judiciary Antitrust Subcommittee, Klobuchar has introduced legislation to repeal the outdated and anticompetitive antitrust exemption for railroads and make railroad mergers subject to full antitrust scrutiny by the Department of Justice
Since 1980, number of class one railroads in U.S. has gone from 26 to 7; today 90 percent of the freight traffic is handled by only four railroads
WASHINGTON, DC –U.S. Senator Amy Klobuchar (D-MN) today raised concerns about the recent proposal by Canadian Pacific Railway to merge with Norfolk Southern Railway. Combined, the two railroads would have approximately $17 billion in annual revenue and would operate approximately 34,000 miles of track. In a letter to Attorney General Loretta Lynch and Surface Transportation Board Chairman Daniel Elliott, Klobuchar said one of the most concerning aspects of the potential merger is that the railroad’s current antitrust exemption prevents the Department of Justice (DOJ) from blocking the merger even if it is predicted to harm competition. As ranking member of the Senate Judiciary Antitrust Subcommittee, Klobuchar has introduced legislation to repeal the outdated and anticompetitive antitrust exemption for railroads and make railroad mergers subject to full antitrust scrutiny by the Department of Justice.
“Significant consolidation has already occurred in the railroad industry,” Klobuchar wrote. “Increased prices and diminished service, such as delayed deliveries, has burdened the shipping industry, American producers and those who rely on freight rail for distribution. The Railroad Antitrust Exemption makes further consolidation particularly dangerous. We can all agree that competition leads to low prices, high-quality service, and innovation, but I am concerned that further consolidation will complicate efforts to promote those goals.”
Klobuchar and Senator David Vitter (R-LA) have introduced bipartisan legislation to help promote fairness and competition in the railroad industry. The Railroad Antitrust Enforcement Act removes the railroad industry’s obsolete exemption from the antitrust laws. Doing so would require that the railroad industry play by the same antitrust rules as other industries, resulting in more competitive pricing that helps keep costs down for shippers and customers. In 2014, Klobuchar raised competitive concerns about Canadian Pacific Railway’s proposed acquisition of CSX, a merger that was later abandoned.
The full text of Klobuchar’s letter is below:
Dear Attorney General Lynch and Chairman Elliott:
I am writing to express my concerns about concentration in the railroad industry following the recent proposal by Canadian Pacific Railway to merge with Norfolk Southern Railway. Despite Norfolk Southern’s rejection of Canadian Pacific’s offer, Canadian Pacific has reiterated its intent to acquire Norfolk Southern.
Significant consolidation has already occurred in the railroad industry. In 1980, there were approximately 26 major (“Class I”) railroads in the United States. Today, however, there are only seven Class I railroads, four of which handle over 90 percent of United States rail freight. Increased prices and diminished service, such as delayed deliveries, has burdened the shipping industry, American producers, and those who rely on freight rail for distribution. These effects are costly to Minnesota, which ranks third in the country for agricultural exports ($8 billion in 2013. I am also concerned that this proposed merger, if completed, would become the catalyst for a final round of railroad industry consolidation.
The railroad antitrust exemption makes further consolidation particularly dangerous. In other industries, that level of concentration would trigger substantial antitrust review by either the Department of Justice (DOJ) or the Federal Trade Commission to ensure any merger would not harm the nation’s consumers in violation of Section 7 of the Clayton Act. Because of the exemption, the DOJ has only an advisory role in the process. The Surface Transportation Board (STB) has sole authority to approve Class I railroad mergers if it finds them to be “consistent with the public interest,” 49 U.S.C. section 11324. I introduced the Railroad Antitrust Enforcement Act, S. 1634, to repeal the outdated and anticompetitive antitrust exemption. Until Congress enacts that bill, the Surface Transportation Board’s review must protect consumers.
I have specific concerns about this transaction. Combined, the two railroads would have approximately $17 billion in annual revenue and would operate approximately 34,000 miles of track. The CEO of Canadian Pacific has proposed placing Norfolk Southern into a so-called “voting trust” under 49 C.F.R. section 1013 during the period of the Surface Transportation Board’s review. As you are well aware, the voting trust is an instrument that ensures that a purchased railroad remains independent from the purchasing railroad until the Surface Transportation Board completes its review of the transaction. In 2001 the Surface Transportation Board added the following requirement for merger applicants contemplating the use of a voting trust:
[A]pplicants … contemplating the use of a voting trust must explain how the trust would insulate them from an unlawful control violation and why their proposed use of the trust … would be consistent with the public interest. 49 CFR section 1180.4(b)(4)(iv).
I believe that any proposal by Canadian Pacific to have current or former Canadian Pacific executives assume operational control of Norfolk Southern as Trustees of the potential voting trust would raise serious concerns about their true independence and essentially cede operational control before the Department of Justice has had an opportunity to provide its views and the Surface Transportation Board has reviewed whether the combination is in the public interest. To protect competition, review of the transaction must occur before any possible coordination between the two parties. I urge you to carefully scrutinize any such proposal and ensure that any voting trust structure is truly independent.
We can all agree that competition leads to low prices, high-quality service, and innovation, but I am concerned that further consolidation will complicate efforts to promote those goals. I look forward to working with you on these important issues.
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