Key representative critical of any rail merger involving Kansas City Southern

WASHINGTON – In the first sign of congressional opposition to further rail mergers, the chairman of the House Committee on Transportation and Infrastructure said today that the Canadian Pacific and Canadian National dueling proposals to acquire Kansas City Southern should set off alarm bells.

Rep. Peter DeFazio, an Oregon Democrat, said an acquisition of KCS would “stifle competition and trigger industry-wide consolidation.”

“We’ve been here before,” DeFazio said. “In 1980, there were 33 Class I railroads. Today there are seven, and a merger between KCS and Canadian National or Canadian Pacific would leave only six. 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. Wall Street will make money from railroad consolidation, but the U.S. economy and workforce will be worse off for it.”

Both CP and CN contend that their proposed mergers with KCS would boost rail competition and take trucks off the highway by creating the first railroad to link Canada, the U.S., and Mexico.

CP today said its $29 billion friendly deal with KCS, which was announced last month, now had the support of more than 415 rail customers, shipper associations, economic development groups, and ports. Former North Dakota Sen. Byron Dorgan penned on op-ed arguing for CP-KCS and against CN-KCS. “CN’s proposed takeover raises all of the concerns that I, and many shippers, have voiced about further Class I consolidation: it would extinguish competition options and it would risk a final round of further consolidation that leaves us with just two networks spanning the continent,” wrote Dorgan, long an opponent of rail mergers. “That is exactly the type of additional rail concentration that will injure shippers.”

Yesterday the North Dakota Grain Dealers Association became the first shipper group to specifically back the CP-KCS deal and express opposition to a CN-KCS merger.

And a Cowen snap survey of more than 100 shippers found more support for a CP-KCS combination than a CN-KCS merger. But shippers were divided on the issue: 36% preferred CP-KCS, 34% said KCS should remain independent, 16% preferred CN-KCS, and 15% said KCS should be broken up like Conrail, which was split between CSX Transportation and Norfolk Southern in 1999, with Conrail Shared Assets surviving as a neutral operator in parts of New Jersey and Detroit.

The KCS board is reviewing CN’s $33.7 billion unsolicited offer, which was announced this week.

The U.S. Surface Transportation Board is an independent agency that has sole authority to review railroad mergers.