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Next month, the Surface Transportation Board — a federal agency that regulates, well, surface transportation, like it says on the tin — is holding a hearing on a railroad merger. Specifically, it will hear testimony on whether or not the Canadian Pacific and Kansas City Southern railroads should be allowed to join together.
This, I imagine, very under-the-radar issue actually has big implications for local communities, workers, and even the U.S.’s current supply chain struggles. The STB should do everyone a solid and block the deal.
First, let’s look at the national issues. Combining Canadian Pacific and Kansas City Southern would reduce the number of Class I railroads in the U.S. — which is the class composed of the largest railroads — from seven to six, down from 63 as recently as 1976. That consolidation, which was set off by the deregulatory zeal that gripped both Democrats and Republicans in the 1980s, has led to a wave of job losses, with more than half a million railroad jobs in 1980 becoming fewer than 150,000 today.
Rampant consolidation has also led to shoddier service, as railroads, much like retailers with their just-in-time inventorying, focused on squeezing every last cent they could out of the system, instead of building it to absorb some level of external shock. For railroads, this is called “precision scheduled railroading,” and led to fewer, heavier trains, and lagging investment in the rail system in favor of enriching stockholders through stock buybacks and dividend payouts. Between 2010 and 2021, railroad corporations spent $50 billion more on buybacks and dividends than they spent on rail infrastructure, according to the STB.
The downsides of such a system became particularly apparent when the coronavirus pandemic struck, and there was no capacity or workforce to handle the sudden uptick in goods that homebound buyers were demanding.
As The American Prospect put it, “the largest rail companies intentionally gutted their own spare capacity, which meant the surge in goods production during the pandemic has produced skyrocketing freight prices — and then record profits — instead of more deliveries.”
The proposed Canadian Pacific-Kansas City Southern merger has caught the attention of some folks in Congress who are concerned about these potential effects on the American cargo rail system. “Lack of competition has allowed railroads to gut capacity, capture and extort businesses, fire thousands of workers, and threaten the integrity of America’s freight transport network and supply chains — all while extracting monopoly profits,” wrote Rep. Katie Porter, a California Democrat, in a letter to the STB. “This transaction would enrich the merging firms and their bankers, lawyers, and shareholders — at the expense of the public and the U.S economy.”
Then there are the local concerns. Recently, Illinois Democratic Rep. Raja Krishnamoorthi hosted an event with a bunch of Illinois officials, including mayors and county executives, who pointed out several problems the merger could cause in their communities. The largest one is that it will significantly increase traffic on their local rail lines, which is shared by Metra, the area’s commuter rail, as the merged companies consolidate their service and reroute traffic into Illinois.
Post-merger, eight to 11 more freight trains per day would pass through the western Chicago suburbs. Metra claims this will cause commuter rail delays to increase by 1,200 percent. (No, that’s not a typo.)
“As things stand, this merger would more than triple freight rail traffic between Bensenville and Elgin while providing no meaningful mitigation or relief to local communities for the negative consequences that rail activity will have in terms of public safety, noise increases, environmental impacts, and the timely function of local Metra service. So far, we have received no proposals that seriously address the needs of our constituents,” Krishnamoorthi said.
A group of Illinois towns and one county have banded together, calling themselves the Coalition to Stop CPKC, to try to block the merger, alleging that the rail companies have not provided “any analysis or consideration of the potential for service disruptions that would literally shut down each of the Coalition member communities from functioning and cause severe safety, environmental, and other issues.”
As an example, the city of Elgin, Illinois, claims that the length of the merged companies’ trains could theoretically block all of its downtown rail crossings at once, causing a traffic mess and a safety hazard, as first responders would have to go well out of their way to get where they’re trying to go when a train is on the tracks.
The coalition also alleges that costs to taxpayers for new facilities and upkeep on the more heavily-used lines will lead to billions in costs that they’ll have to bear. The rail companies say they’re working with the communities to assuage those concerns, though the residents and elected leaders there don’t seem too impressed with what they’ve been hearing.
The companies also allege that the benefits of the merger, which would create a single line from Canada, through the U.S. and down to Mexico, would be significant. But even leaving aside the concerns so many local communities have espoused, having control of that kind of line would give the new merged entity tons of power to continue the sort of capacity-reducing, wealth-extracting practices that have led us to where we are today.
After hearing testimony on the Canadian Pacific-Kansas City Southern merger next month, the STB has until the end of the year to issue a decision about whether or not it will block it. This is one of those instances during which a deliberation within one of the random alphabet soup-sounding federal agencies in D.C. will have a direct impact on the lives of folks elsewhere. You can draw a direct line between future traffic jams in an Illinois suburb and what the Surface Transportation Board decides to do.
Given the concerns locals have about what the merger would mean for their own backyard, as well as legitimate larger issues with what it would mean for the rail system as a whole to experience even more consolidation than has been allowed already, I’m certainly on team “stop this merger in its tracks.”
Such a move would also fit in with a wider revival of antitrust scrutiny at agencies like the Federal Trade Commission and the Department of Justice. Sure, preventing consolidation from seven companies down to six when there were dozens a few decades ago is a bit like putting a band-aid on a gaping wound, but you have to start somewhere.
Or the STB can just let this merger leave the station, turning, for these Illinois communities, the light at the end of the tunnel into an actual, onrushing train.
This post initially appeared in a slightly different form on the author’s Substack, Boondoggle, on July 28, 2022.
Pat Garofalo is the author of The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs, the Boondoggle Newsletter, and the director of state and local policy at the American Economic Liberties Project.