Tuesday, January 05, 2016

Leaked letters to STB indicate shipper concerns over CP+NS

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Kentucky Association of Manufacturers CEO Charles Higdon. Kentucky Association of Manufacturers CEO Charles Higdon.

Reuters, which originally broke the story late last year about Canadian Pacific’s targeting of Norfolk Southern for acquisition before CP officially announced it, has published excerpts of several letters to the Surface Transportation Board from industry groups representing several major NS freight customers. The letters ask the STB to reject a merger application.

“The opposition from a broad array of customers to the hostile bid for [NS] could significantly harm CP’s case if an expected lengthy proxy battle is resolved and a merger reaches the STB for a review,” Reuters noted. “The proposed merger could face a tough review, and the regulator is expected to give customers even more time than in the past to air concerns at public hearings.” Representatives from several state legislatures as well as at least one short line railroad also wrote STB.

Sent in late December, the letters “express concerns [that] CP’s plans to cut costs at Norfolk Southern would hurt service levels and that a merger would lead to a continental duopoly, meaning higher prices for customers,” Reuters said.

Norfolk Southern declined to comment on the letters. CP told Reuters the railroad “is aware of some shipper concerns but looks forward to discussing the benefits of its bid with all stakeholders.”

Among the letters are a joint one to CP, with a copy to the STB, from the heads of the Alliance of Automobile Manufacturers and the Association of Global Automakers, which between them represent large automakers and suppliers such as General Motors Co and Toyota Motor Corp.

“[P]revious rail mergers of this magnitude have been followed by prolonged periods of poor service levels and higher rates,” the joint letter states. “We urge CP to abandon its merger ambitions and to focus its attentions upon enhancing its current levels of customer service.”

In a separate letter, Subaru Motor Co. said it opposed a merger “as we believe it would limit the competitive balance among North America’s railroads.”

Manufacturers associations in Kentucky, Indiana and West Virginia, the Michigan Agri-Business Association and the Palmetto AgriBusiness Council, which represents farmers, banks and agricultural investors in South Carolina, wrote to STB.

“We are justifiably concerned that Canadian Pacific’s proposal to slash resources available to the current Norfolk Southern threatens the economy of our state,” said Kentucky Association of Manufacturers CEO Charles Higdon. Xcoal Energy & Resources CEO Ernie Thrasher wrote he was “concerned that the short-term nature of CP’s operating plan would be detrimental to the long-term requirements of the U.S. coal industry and energy sector.”

Watco CEO Rick Webb said that the proposed CP-NS merger “likely would result in a national duopoly, which would dramatically reduce competitive rail options for customers.” He added that “many in the rail industry expect the next round of mergers will be the last,” according to Reuters.

The source of the leakage is unclear. However, as Railway Age Contributing Editor Frank Wilner points out, STB standard protocol dictates that virtually all correspondence it receives be publicly disclosed. That apparently didn’t happen. Click HERE to access Wilner’s comments.

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