April 7, 2000

Acting in response to objections from major industries, including agriculture and members of Congress, the Surface Transportation Board last month announced a 15-month suspension on all railroad mergers.

The suspension was timed to block the filing of a merger of the Burlington Northern Santa Fe and Canadian National railroads, which means STB could be headed for a court battle with BNSF-CN. The STB indicated it would use the next 15 months to review and, perhaps, rewrite merger rules.

"Based upon the history of rail mergers, the suspension is going to give everybody a chance to see what happens, give us time to work with legislation or the transportation board," said Ned Meister, Texas Farm Bureau director of Commodity and Regulatory Activities. "Mergers tend to create, as we’ve noticed in the past, a lack of service to farmers. I think the suspension will cause less disruption than if we continue the mergers."

The proposed BNSF-CN merger would create North America’s largest railroad, stretching 50,000 miles from Los Angeles to Halifax, Nova Scotia, and from the Gulf of Mexico to Vancouver, British Columbia. The new holding company, North American Railways, would surpass all other railroads in North America in revenue, miles of track and number of employees.

On March 10, in testimony before the STB rendered its de-facto moratorium on the mergers, Eric Aasmundstad, president of the North Dakota Farm Bureau, told the board, "We may have already allowed railroads to concentrate to such an extent that providing agricultural shippers with meaningfully competitive shipping options may no longer be possible. Future mergers will only make this worse..."

Aasmundstad emphasized that transportation is a critical link to farm markets for agriculture and, as a general rule, agricultural shippers are less able than mining and utility companies to command the market power necessary to negotiate with a railroad company.

"We are often forced to deal with poor service, such as trains that are not delivered to the loading point in a timely manner, that may not be picked up for days or weeks, and miss connections to our customers," Aasmundstad said. "Farmers and agricultural shippers must also absorb extremely high freight rates that railroad companies can demand due to their monopoly market power."

There were 42 Class I railroads operating in the U.S. in 1980 and many agricultural areas were served by three or four railroads that could move grain and other bulk commodities to virtually any point to enter international markets. Today, only two railroads carry the vast bulk of the traffic that moves west of the Mississippi River, and, according to Aasmundstad, in many areas they do not compete with each other. He warned that any future merger could have international trade consequences, such as affecting the movement of grain, timber and other Canadian commodities into U.S. markets.

A recent article in Agricultural Outlook suggested the proposed merger would likely have little effect on total U.S. agricultural exports to Canada, the second-largest U.S. market, because most products in this trade are not transported by rail. "In fact," the article states, "57 percent of the $9 billion of agricultural and forest products shipped from the U.S. to Canada in 1998 consisted of items that almost always move by truck—fresh and processed fruits and vegetables, meats, dairy products, snacks, and other consumer-ready foods. Other commodities bring the ‘non-rail’ market share to at least 75 percent. Only 6 percent of the value of U.S. agricultural exports to Canada consists of commodities that typically move long distances by rail (e.g., grain and forest products). Consequently, unless new markets develop as a result of the BNSF-CN merger, it should have no appreciable effect on U.S. agricultural exports to Canada.