Agreements smooth the way for CN/IC merger

Canadian National and Illinois Central have overcome some objections to their proposed merger.

By Staff -- Logistics Management, 12/1/1998

The Canadian National Railway Co. (CN) and Illinois Central Railroad (IC) are taking no chances. In recent months, CN and IC have concluded agreements with labor unions and competing railroads that eliminate several objections to their proposed merger and thus smooth the way for its approval by the Surface Transportation Board (STB).

In just three short weeks, CN announced that it had reached agreements with the CSX, Burlington Northern Santa Fe, and Norfolk Southern railroads over what the Canadian carrier termed "outstanding issues related to the CN/IC merger." All of the pacts are subject to approval by the STB.

The agreement with CSX sets standards for switching services CN/IC provides to CSX in Sarnia, Ont.; Memphis, Tenn.; and Decatur, Ill. It also grants CSX certain operating rights on CN's lines in Michigan and Ontario. That will allow CSX to offer some Canadian customers direct connections with its U.S. rail network.

For BNSF, CN/IC will provide a guaranteed level of service for drayage between BNSF's rail yard and a CN-owned interchange track near Vancouver, British Columbia. CN/IC also gained the right to use a BNSF rail crossing near Chicago, while BNSF will allow CN/IC to construct a line connection on its nearby property. Finally, the agreement requires the railroads to update a joint marketing agreement affecting traffic between Illinois and Tennessee.

Neither CN nor Norfolk Southern revealed the specifics of their agreement. NS Chairman, President, and Chief Executive Officer David Goode said in a statement that the pact "fully and adequately addresses the concerns that NS had raised ... regarding the potentially adverse impacts of the proposed CN/IC consolidation on capacity, competition, and service quality on CN/IC and NS rail lines and facilities."

By separately negotiating private agreements, CN has staged a pre-emptive strike of sorts. All three of those U.S.-based railroads had planned to or already had petitioned the STB to include certain pro-competitive conditions in its approval of the CN/IC merger. As part of these agreements, CSX, BNSF, and NS promised that they would not oppose the merger when it came before the STB. CSX and BNSF also agreed not to file any petitions for conditions, while Norfolk Southern said it would withdraw a request it already had filed.

Labor unions also had expressed concern over how the marriage of the U.S. and Canadian carriers would affect their membership. Some issues have yet to be resolved, but CN/IC did clear a major hurdle in early October when they reached agreement with the Brotherhood of Maintenance of Way Employees (BMWE). Under the deal, all existing collective bargaining agreements on merged properties in the United States will remain intact. Meanwhile, CN agreed to continue service on certain lines in Canada and to "satisfy the interests" of the union's Canadian members.

Another minor hurdle was cleared in early November when the Surface Transportation Board's Section of Environmental Analysis (SEA) issued its Draft Environmental Assessment regarding the CN/IC merger. The report assesses the potential impact of the merger on safety, transportation systems, land use, air quality, noise, and biological, water, and historical/cultural resources.

The draft report concludes that the proposed merger is likely to have a positive impact on air pollution, fuel consumption, and highway traffic. The only area in which the merger would have a significant negative impact is hazardous-materials transportation safety, the report says. According to the agency, a likely increase in hazmat transportation volumes could have a "disproportionately high and adverse effect" on minority and low-income populations. SEA has proposed mitigation measures that include closer cooperation with local emergency-response agencies. CN and IC say they are prepared to comply with SEA's preliminary recommendations.

The final Environmental Assessment is expected to be completed in March 1999. Voting to approve or disallow the CN/IC merger is scheduled for May 25, 1999.