Thursday, January 14, 2016

UP: We don’t need another merger. CP: Really?

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Union Pacific President and CEO Lance Fritz (left) and Canadian Pacific CEO Hunter Harrison Union Pacific President and CEO Lance Fritz (left) and Canadian Pacific CEO Hunter Harrison

In remarks at the Midwest Association of Rail Shippers annual meeting on Jan. 13, 2015, Lance M. Fritz, President and CEO of Union Pacific, while declining to comment specifically on the proposed CP/Norfolk Southern merger, said, “I believe a Class I rail merger is not in the best interests of the rail industry and not in the best interests of our customers.” Canadian Pacific did not appreciate Fritz’s comments, and fired a shot across UP's bow.

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Fritz noted that, as an example, Chicago throughput has significantly improved for UP due to CREATE and the CTCO (Chicago Transportation Coordination Office), and “there’s plenty more we can get.”

“Our concern is that the assets of a merged entity could be used as a competitive advantage against all other railroads in Chicago,” Fritz said. “That doesn’t benefit shippers”. He explained that Chicago’s “shared assets” include railroads like the Indiana Harbor Belt, which provides trackage rights that are used as more efficient joint routes.

“It would not be good if any entity started operating those shared assets to its benefit and to the detriment of all other users,” Fritz said.

Canadian Pacific said that it is “surprised and disappointed” by Fritz’s comments, and that UP is “working behind the scenes with other railroads to support the status quo.”

“A CP-Norfolk Southern merger is clearly in the public interest since it would enhance competition in the industry and would also alleviate congestion in Chicago,” CP said.m “Surface Transportation Board merger rules are designed to enhance competition and, as with U.S. antitrust law generally, they are not designed to protect other railroads from balanced competition.”

CP said that UP “is itself the product of numerous mergers that created one of the largest route networks in North America. In a statement filed to the STB on April 11, 2011, Lance Fritz argued that consolidation enabled the railroad to create ‘an efficient system removing bottlenecks and inefficient operations, including unnecessary interchanges, and increasing single-line service.’ According to Mr. Fritz, UP has ‘been able to provide safer, better, and expanded service because of our ability to leverage the economics of consolidation.’ Mr. Fritz reiterated his statements to the STB on March 1, 2013.”

“It is unfortunate that UP would try to use political pressure to co-opt the regulatory process and prevent other railroads from enjoying these same benefits and becoming more effective competitors to UP,” CP stated. “Mr. Fritz’s attempts to rally support for the status quo among the other Class I’s demonstrate a disregard for competition, the processes of the STB, and the needs of shippers and the broader economy. CP is confident the STB will assess the proposed merger on its merits, without any pre-conceived ideas or external pressure.”

Bill Fahrenwald of James Street Associates contributed to this story.

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