Shipper group urges tougher rail-merger rules

By Staff -- Logistics Management, 6/1/2000

The National Industrial Transportation League (NITL) wants changes in the rules governing rail mergers. In comments filed with the Surface Transportation Board (STB), the league urged the board to revise its rules "with an eye to affirmatively enhancing, rather than simply preserving, competition."

The STB has launched a 15-month review of its rules on rail mergers. It began the process following hearings it held earlier this year on the future of the rail industry-hearings sparked by the proposed merger of the Burlington Northern Santa Fe and Canadian National railroads. If approved, that merger would create the largest railroad in North America, with 50,000 route miles in eight Canadian provinces and 33 states. Because many believe that it would lead to mergers among those railroads' competitors, the agency has placed a moratorium on rail mergers, including the BNSF/CN deal, while it revamps its rules. Those railroads have challenged the moratorium in federal court.

Though it supports the BNSF/CN effort to overturn the moratorium, the league applauds the STB's plan to rewrite the rules. In particular, it wants the board to review its "bottleneck" and competitive-access rules. The former allows a so-called "bottleneck carrier"-a railroad that controls either the origin or destination end of a route-to offer only through rates for the entire trip. Shippers can ask a railroad to provide separate rates for the bottleneck portion and for the competitive sections, but so far the railroads have refused to do so. According to NITL, the only way shippers could get a rate on the competitive section of a route would be to win a competitive-access case. But the competitive-access rules have been so narrowly interpreted, the league says, that shippers have never won a case. The league therefore wants new rules that would require railroads to provide separate rates for the two route segments.

Meanwhile, the league supported two suggestions made by the STB. One would require merger applicants to offer contracts to shippers for the competitive portion of joint line routes when a joint line partner has a bottleneck segment. The other would require applicants to create a new through route from a reasonable interchange point when they control a bottleneck segment and the shipper has a contract with another carrier on the competitive segment.

The NITL received support from high places when Secretary of Transportation Rodney E. Slater filed comments urging greater scrutiny of rail mergers and calling for additional protections for shippers in future merger cases. Major gateways should be maintained in order to provide shippers with leverage, Slater said, and competitive options should be expanded by requiring reciprocal switching at terminals. Like the NITL, he suggested making it easier for shippers to obtain relief in bottleneck situations.

Slater said the STB should consider implementing mergers in stages and require carriers to provide detailed contingency plans and benchmark data in order to avoid the post-merger service breakdowns that have beset some recent mergers.

In the meantime, both CN and BNSF filed their own requests with the board. BNSF called for completion of the rulemaking within four to six months. The railroad also suggested that future merger applications should include such elements as a service-integration plan, performance measurements and service guarantees, analysis of "downstream" effects of the merger, and the merging railroads' commitment to maintain open gateways.

BNSF and CN both argued that the STB should not consider whether their merger would lead to the formation of two transcontinental railroads, as many observers predict. The board is unlikely to acquiesce, given that concern about the potential effects of the proposed merger was one of the reasons why the STB imposed the moratorium.

Canadian National also asked the STB to enact any new requirements by November. CN further requested that the STB issue a statement saying that mergers could increase the efficiency of the rail network.