• Class 1 Merger Speculation

  • For topics on Class I and II passenger and freight operations more general in nature and not specifically related to a specific railroad with its own forum.
For topics on Class I and II passenger and freight operations more general in nature and not specifically related to a specific railroad with its own forum.

Moderator: Jeff Smith

  by Shortline614
Recently there has been a lot of speculation revolving around class 1 mergers in the next few years. Mostly in the "Selling Trackage" thread over on the CSX forum.

In October, Canadian Pacific President Keith Creel came out and said that the growth of Precision Scheduled Railroading will make class 1 mergers more likely. CSX President Jim Foote says that he is "completely open-minded" about class 1 mergers.

There does remain barriers to future Class 1 mergers. The Surface Transportation Board's stringent merger rules implemented after the CN-BNSF merger attempt in 2000. Shippers would certainly oppose any future mergers, for fear of service breakdowns, and having fewer options to ship by rail. A barrier to a potential CP-CSX merger comes from, ironically, Hunter Harrison. When Harrison left CP to become CSX CEO in early 2017, there was a clause in his contract stating that CSX could not legally approach any other Class 1s about a merger until 2020.

Union Pacific has not changed their position on opposing future Class 1 mergers, as reaffirmed by Lance Fritz at the RailTrends 2018 conference. Although just because they publicly oppose Class 1 mergers, doesn't mean they aren't interested in merging in the future.

From the Railway Age article: UP: More like CSX? Written by Railway Age Editor-in-Cheif, William C. Vantuono.

"There has been some speculation that UP 2020 is being implemented in preparation for a UP-CSX merger, which in turn could prompt a final round of Class I consolidation. Should that occur, two giant east-west transcontinental systems will probably emerge, with the likely combinations of UP-CSX-Canadian Pacific and BNSF-Norfolk Southern-CN. Whether Kansas City Southern is absorbed by one of these mega-railroads remains to be seen. If anything, KCS de México would most likely remain independent."

While there does remain substantial barriers to class 1 mergers from a regulatory standpoint, it seems that the overall industry opinion has changed on class 1 mergers since CP's attempts at taking over NS in 2016.
  by Engineer Spike
I think mergers are like Billy Joel’s song “We Didn’t Start the Fire.” I look back to a cousin of my great great grandmother. He was an attorney who did charter work for the Connecticut Western. This eventually ended up in Conrail, via the Reading, Central New England, New Haven, and Penn Central.

The underlying theme reminds me of mutually assured distruction. If two railroads merge, then two competing lines merge to be able to offer single line service to the same points. With run through trains, would it be more advantageous to just offer coordinated services? What additional economies of scale are gained? How is this offset by the cost of the merger?
  by mtuandrew
Reduced upper management, one less main headquarters, fewer heavy maintenance facilities, a slight reduction in road engines and car fleet ownership, combined crew bases in places like Chicago, St. Louis, and Memphis. There isn’t a lot of parallel track to abandon anymore, though places like the UP Altoona Sub and the CSX Messina Sub would be in for downgrades or shortlining.

You’d have to expect more terminal switching districts though - full joint ownership & control of the IHB, repurchase & expansion of the Minnesota Commercial, maybe expansion of Conrail to a few more locales - and a STB & Transport Canada insistence on joint rate-making and some reregulation. Best get those mergers started before 2021 though.
  by Jeff Smith
Don’t forget trucks, and I don’t mean the “troublesome” kind :wink: .

If there aren’t a lot of parallel lines left, I think you end up looking at massive, contiguous trunk lines, and a lot of divestiture of branches to short line operators, and potentially Class II’s, in the form of existing II’s or spinoffs. Now THAT would be fun!
  by ProRailProductions
Lets all remember Railroads could talk but the STB makes the final call. :wink: :wink:
  by Engineer Spike
I’m starting to think that we are headed to reregulation. Look at the negative customer feedback from CSX’s implementation of PSR. Back in school we had a final paper about analyzing an industry. With fewer carriers to chose from, my thought is that the industry will become a regulated monopoly or duopoly. Maybe it will all be split back up, in an extreme, just like Ma Bell.
  by Wayside
Looking at the current regulatory environment, I would not anticipate any restrictive changes forthcoming. Industry foxes are watching DC hen houses these days, in case one hasn't noticed.