Merger Not on Track

Article excerpt

Rail companies and their customers are lining up this week against the planned merger between Canadian National Railway Co. and Burlington Northern Santa Fe Corp., a union that would create the largest rail company in North America.

"The mere existence of this proposal at this time places the future of the American rail industry in serious jeopardy," said Rob Gould, spokesman for Richmond-based CSX Corp., a competing rail company embroiled in its own problems as a result of a recent merger.

"It is coming arguably at the worst possible time, given the extremely unstable state of the industry," he added.

The national Surface Transportation Board, the federal agency that must approve the merger, is holding four days of hearings starting today to discuss the plan and the impact of steady consolidation in the rail industry.

One board official said the agency has not received a formal merger announcement from the two companies, so the official combination is at least a year away. Scores of industry leaders testifying this week will be looking for signs that the government may take steps toward regulating the industry, which has been struggling with disgruntled customers and sagging stocks after recent mergers.

Burlington Northern of Fort Worth, Texas, and Canadian National of Montreal announced their $6 billion merger in December. If approved by U.S. and Canadian regulators, the combination would create the largest rail system in North America with $12.5 billion in revenue.

The combined company, to be called North American Railways, would have 50,000 miles of track running from Halifax, Nova Scotia, to Los Angeles and from Vancouver, British Columbia, to the Gulf of Mexico.

Major companies that depend on railroads to help deliver their products - from coal for electricity to automobiles - complain that the steady consolidation of the rail industry is costing them money because of delays and infrastructure problems.

While combining companies often insist that their merger will result in better service and lower rates, United Parcel Service has found the opposite to be true. Atlanta-based UPS, the largest corporate customer of rail service, last summer shifted nearly half of its rail shipment to trucks because of massive delays on the CSX-Norfolk Southern rails, said company spokesman Tad Segal.

Similar problems plagued Union Pacific's acquisition of Southern Pacific Rail Corp. three years ago, which left service tangled throughout the Southwest for more than a year. …