New Rail Merger Rules Overlook Rail-to-Rail Competition Issue

09 July 2001 00:00  [Source: ICB Americas]

"Time may be running out" to reconsider rail merger guidelines, which fail to provide needed relief for captive shippers, the American Chemistry Council (ACC) recently told Congress.

The federal Surface Transportation Board (STB) issued new rules last month that will make it more difficult for North America's remaining major rail lines to merge.

But an industry official told the Senate Commerce panel on surface transportation that regulators missed an opportunity to make rail-to-rail competition the centerpiece of the new merger guidelines.

"The new rail merger guidelines may have encouraged the railroads to talk about competition and improved customer service when they file their next round of merger applications, but the STB clearly did not adopt any rules that require railroads to compete directly with each other at all points on their merged systems," says William Gebo, manager of rail services for the Dow Chemical Company.

Testifying on behalf of the ACC, Mr. Gebo said captive shippers are convinced that merging railroads will not be required to enhance competition in a future consolidation under current rules.

"Make no mistake, the next round of mergers will be the last round. With almost two-thirds of our members already subject to monopoly conditions, our industry is worried that there will be even more concentration and even fewer alternatives for captive customers," he says.

Shippers fear that another round of consolidation would result in just two trans-continental North American railroads.

The STB, an arm of the Department of Transportation, said June 11 that railroads seeking to combine operations would have to prevent the merger from reducing competition and would have to offer a plan to avoid service disruptions. But STB chairman Linda Morgan did not discount the possibility that another round of rail mergers could occur.

Mr. Gebo says the ACC believes Congress should adopt legislation that would give the Justice Department a role in assessing the impact of potential rail mergers. Currently, all rail mergers are subject to review by only the STB.

"It certainly would be appropriate to give more authority to an agency with a balanced view of competition," Mr. Gebo states.

He also proposes that the STB's authority be explicitly clarified to require examination of "marketing alliances" and other cooperative agreements between railroads. The STB generally has not interpreted its authority to include such transactions.

"There is a risk that rail mergers could occur without any meaningful federal scrutiny," Mr. Gebo says.

Some industry analysts predict the new rules will spawn joint ventures and alliances among railroads that provide many of the benefits of mergers without as much regulatory hassle.

On June 26, Sens. John Rockefeller (D-W.Va.), Byron Dorgan (D-N.D.) and Conrad Burns (R-Mont.) introduced a rail competition bill.

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