CN, BNSF continue to promote merger proposal

By Staff -- Logistics Management, 3/1/2000

Canadian National Railway and Burlington Northern Santa Fe have requested a 365-day schedule for the Surface Transportation Board's review of their proposed merger. The two carriers plan to file a joint application for approval of their combination "as soon as practicable" after March 20.

If approved, the merger would create the largest railroad in North America by far, with service stretching across Canada and down to the Gulf Coast. It would create a new company, North American Railways, which would include 50,000 route miles providing service to eight Canadian provinces and 33 Western and Central states.

The CN and BNSF filed their proposed schedule in February, prior to a highly unusual hearing held by the STB in Washington earlier this month. That hearing was called to allow railroads, shippers, rail employees, and others to give their views on major rail consolidations and the structure of the railroad industry.

The BNSF/CN proposal has already met with criticism from competing railroads and skepticism from shippers. Shippers are skeptical in large part because there have been so many service problems following other major rail mergers. After the Union Pacific absorbed the Southern Pacific, for example, service along the UP's Gulf and West Coast lines disintegrated. Norfolk Southern and CSX Transportation, meanwhile, are still struggling to improve service levels following their absorption of Conrail last year.

In a joint statement, BNSF Chairman and Chief Executive Officer Robert D. Krebs and CN President and Chief Executive Officer Paul M. Tellier recognized those concerns. "[W]e've heard the message loud and clear," the statement said. "[Shippers] do not want service problems or loss of route options such as those that followed the Union Pacific-Southern Pacific merger and the breakup of Conrail."

As part of their effort to win shippers' support, the two companies said in a separate announcement that they would guarantee that after the combination, shippers would receive rail service that was equal to or better than what they had now. They also said they would offer routing options to shippers--specifically, that they would keep existing gateways open to assure alternative routes for shippers that would no longer have a choice of carriers after the merger.

Despite such assurances, concern over the potential impact of the merger runs so deep that at least one BNSF customer is demanding that the STB look again at the 1995 merger that created that company. Roquette America Inc. (RAI), a major corn processor based in Keokuk, Iowa, claims in a petition to the STB that it has experienced "substantial harm" as a result of the loss of pre-merger competition between railroads. BNSF, it says, has gained a "revenue windfall."

Lee Williams, director of logistics for RAI, says he has tried for several months to negotiate an agreement with BNSF. "Our petition to the STB should be a warning to the shipping community that negotiated merger conditions imposed to preserve competition do not always work out as planned," he says.

A BNSF spokesman expressed surprise that RAI had filed that petition with the STB.