WASHINGTON – Chair of the House Committee on Transportation and Infrastructure Peter DeFazio (D-Ore.) sent a letter to the Surface Transportation Board (STB) opposing the approval of a trust for the proposed merger of the Canadian National (CN) and Kansas City Southern (KCS) railroads. In his letter, DeFazio stated that approving the trust is not in the public interest and would reduce competition.
“A single holding company responsible for this traffic would likely change rail traffic patterns in the significant areas of parallel service overlap and that would reduce the rail service options these 300 customers currently enjoy,” Chair DeFazio wrote in his letter. “I am also troubled that this combination of Class I railroads serving all three nations in North America will exacerbate U.S. job losses from cross-border trade agreements that prioritize profits over people and inflict harm on worker’s rights, consumer safety, and the environment.”
In April 2021, Chair DeFazio issued a statement after Canadian Pacific (CP) and CN each made separate multi-billion dollar offers to buy KCS, warning that the bidding war that ensued for the railroad threatened to usher in a new round of consolidations in the rail sector, ultimately threatening jobs and affecting shipping in the U.S.
DeFazio’s full letter to STB can be found below and here.
July 26, 2021
Ms. Cynthia Brown
Chief, Section of Administration
Office of Proceedings
Surface Transportation Board
395 E Street, S.W.
Washington, DC 20423
Re: Finance Docket No. 36514, Canadian National Railway Company, et al. – Control – Kansas City Southern Railway Company, et al.
Dear Ms. Brown:
I am writing to express opposition to the voting trust proposed by Canadian National Railway Company (CN) in its proposed merger with Kansas City Southern Railway Company (KCS). I am concerned that this proposed trust is not in the public interest. The trust would reduce competition and prejudice the outcome of the Surface Transportation Board’s merger proceeding.
In its May 14, 2021, submission to this docket, the Antitrust Division of the U.S. Department of Justice explained how voting trusts reduce competition both in general for railroad mergers and in particular to the consideration of a voting trust for CN and KCS. In general, putting two formerly competitive businesses under a single holding company immediately reduces the parties’ incentives to engage in competition. While the Surface Transportation Board regularly allowed railroad trusts throughout the many railroad consolidations of the 1980s and 1990s, the board has made the requirements to approve a voting trust more stringent since 2001 as part of an overall reform of merger rules. Now, according to 49 CFR 1180.4(b)(4)(iv), applicants must demonstrate that trusts would be in the public interest. Approving a CN-KCS trust would signal to the rest of the rail industry that the STB is engaging in business as usual, despite the requirement to consider the public interest, and could launch a new round of mergers.
Specifically with regard to the potential for a CN-KCS trust, I am concerned that approximately 300 current customers overlap on the CN and KCS networks. A single holding company responsible for this traffic would likely change rail traffic patterns in the significant areas of parallel service overlap and that would reduce the rail service options these 300 customers currently enjoy. I am also troubled that this combination of Class I railroads serving all three nations in North America will exacerbate U.S. job losses from cross-border trade agreements that prioritize profits over people and inflict harm on worker’s rights, consumer safety, and the environment.
I trust that the Surface Transportation Board will look at the specific facts of this action and conclude that approving a trust is too much, too soon. Too much authority in one company to somehow keep two companies competing against each other that have significant service overlap and too soon because allowing the trust creates a new floor purchase price for any other potential competitive bidders for KCS railroad.
On May 27, the chair of the federal Surface Transportation Board (STB) Martin J. Oberman reached out to all Class I CEOs asking them whether the carriers are prepared to reverse the workforce cuts they have made in anticipation of handling an economic rebound as the coronavirus pandemic wanes.
“I am specifically requesting that you also address whether you have any long-term plans, including your hiring plans for 2021 and 2022, to reverse any of the diminishing workforce levels which have resulted from your strategies in recent years,” Oberman said in his letter.
Rail employment data collected by the board indicate that since the onset of the COVID-19 pandemic in March 2020, that overall Class I rail employment has declined from 127,867 to 115,485, a reduction of 12,382 jobs. Train and engine personnel employment has been reduced by Class Is by nearly 5,000 workers from 51,801 in March 2020, to 46,951 in April 2021, the latest month for which STB data is available.
Oberman expressed concern that recent rail service problems reported by some shippers may relate to that broader trend of rail labor reductions over the last several years in addition to the furloughs and quarantines brought about by the COVID-19 pandemic.
“I recognize that these rail service challenges, at least to some extent, have been related to workforce reductions resulting from COVID-19 cases, quarantines, and furloughs based on the temporary decline in demand and the resultant adjustments made by railroads in nearly every facet of their businesses,” he wrote. “But I am also concerned by the extent to which these service issues may be related to or exacerbated by a broader trend of rail labor reductions that has been occurring over the past several years.”
Precision Scheduled Railroading (PSR), adopted by CSX under the helm of the late E. Hunter Harrison, has become an acceptable operating scheme among the largest U.S. railroads focused on reducing operating ratios by lengthening trains and emphasizing cost reductions by slashing employment, reducing the time available for inspections and mothballing equipment, as reported by The Associated Press and VICE Magazine.
From an economic perspective, Oberman said the STB has received some significant reports of flaws in the Class Is’ service model.
“Although many shippers have reported that railroads are providing consistent and dependable service, the Board has also received concerning reports from a meaningful number of rail customers of subpar performance, including missed switches, railcars delayed at intermediate yards or interchanges, extended out-of-route movements, and prolonged dwell at origin for some unit train traffic,” Oberman observed. “Additionally, we have been made aware of instances of significant congestion at various intermodal facilities, which has resulted in delayed train arrivals and disruptions to container availability.”
A review of share prices since Harrison was placed atop CSX by a hedge fund in March 2017, shows that shares for most of the Class I carriers have more than doubled since March 2017, except for Canadian National and BNSF (which is privately owned).
Conversely, STB rail employment data from April 2021, indicate that overall Class I employment has declined by nearly 34,000 jobs from 149,323 in March 2017, while train and engine personnel employment has gone down by 12,240 jobs from 59,191 in March 2017.
SMART Transportation Division President Jeremy Ferguson said he was pleased to see STB Chairman Oberman and the board taking an active role in protecting rail shippers and making sure T&E crews are properly staffed.
“This is a good first step in getting people back to work and getting the rail workforce to an adequate level,” President Ferguson said. “Let’s get our members some relief so they’re able to receive adequate rest and a quality of life they deserve.”
Disregarding comments by the SMART TD New York Legislative Board to the contrary, the Surface Transportation Board (STB) has granted an exemption to Brookfield Asset Management and DJP XX LLC that clears the way for their acquisition of short-line/regional railroad operator Genesee & Wyoming.
Genesee & Wyoming controls Class II and III railroads in 41 states and, if considered collectively, its holdings qualify it as a Class I carrier with more than 13,000 track miles.
The notice, published in the Federal Register Nov. 1 after a 3-0 vote by the board, concludes a postponement of the $8.4 billion acquisition put forth by the STB in late July. The acquisition, when completed, will make G&W a privately held company.
Brookfield Asset Management owns and operates assets in the utilities, transport, energy and data infrastructure across North and South America, Asia Pacific and Europe while DJP XX LLC is a subsidiary of GIC, a global investment firm that manages Singapore’s foreign reserves.
In early September, an attorney representing New York State Legislative Director Samuel J. Nasca filed reply comments asserting that the notice of exemption should be rejected or revoked because of the magnitude and nature of the transportation involved.
Nasca’s filing expressed concern regarding the role of foreign interests, including GIC, which would own 27% of equity in DJP XX and has links to the government of Singapore, and was not listed on the exemption application to the STB. He also identified Brookfield as controlling rail investments in Brazil — more than 10,000 km of rail tracks and stated that GWI controls rail carriers that are located in other countries including Canada, Australia and the United Kingdom and are not subject to Board jurisdiction.
Moreover, Nasca argued, employees could face negative ramifications if the deal went through.
“A number of the GWI carriers operate in or through New York State, and are represented by SMART/TD in collective (bargaining). Those GWI carriers not so represented by SMART/TD are nevertheless important for SMART/TD employees as such carriers interchange traffic with other GWI-represented carriers, or with other carriers outside the GWI family,” his filing stated. “Accordingly, SMART/TD employees stand to be adversely affected by Brookfield management decisions revising the structure of GWI or taking actions which may divert business to other units of the Brookfield organization.”
The board disregarded the concerns expressed for workers, about foreign interests and about the scale of the acquisition as well.
“SMART/TD-NY’s comments about the magnitude and nature of the transportation at issue do not support rejection of the notice or revocation of the exemption,” the board stated in the Federal Register notice.
STB member Marty Oberman, while voting to approve the exemption, did express some reservation about the magnitude of the exemption, stating in the Federal Register filing:
“This is by far the largest and most geographically diverse collection of railroads impacting the U.S. freight network ever to be processed as a class exemption under the Board’s existing regulations,” Oberman wrote. “In my opinion, this proceeding raises significant questions regarding whether transactions of this magnitude were contemplated when the class exemption regulations were adopted, and therefore raises questions as to whether it is appropriate for such major transactions to be eligible under those regulations in the first place.”
The proposed acquisition of G&W is expected to close by the end of 2019 or early 2020 pending review by the Committee on Foreign Investment in the United States (CFIUS).
A notice of a meeting of the Surface Transportation Board’s (STB) Rail Energy Transportation Advisory Committee (RETAC) appeared in the Federal Register April 30.
The meeting, which is open to the public, is scheduled for 9 a.m. Wednesday, May 15, at STB headquarters, 395 E. Street SW, Washington, D.C. 20423.
The stated purpose of the meeting is to continue discussions regarding rail performance, capacity constraints, infrastructure planning and development, and the effective coordination among suppliers, carriers and users of energy resources. Items potentially on the agenda include a performance measures review, industry segment updates, a presentation on energy transportation logistics and a roundtable discussion.
RETAC was formed in 2007 to provide guidance to the STB on issues concerning the transportation of coal, ethanol and other biofuels by rail.
Surface Transportation Board (STB) Vice Chairman Daniel R. Elliott III announced he will leave the Board September 30, 2017. He informed President Donald J. Trump of his plans by letter.
Vice Chairman Elliott was appointed Chairman by President Barack Obama and joined the Board on August 13, 2009, following his Senate confirmation. He served as STB Chairman until December 31, 2014, and returned for a second term on June 26, 2015. He served as Chairman until January 25, 2017, when President Trump designated Ann D. Begeman as Acting Chairman.
“It has been an honor to serve the United States at the Surface Transportation Board. My tenure as Chairman and Vice Chairman of the agency has brought both rewards and challenges, but most of all an appreciation for the sophisticated rail transportation industry and its shippers that serve as the backbone of our nation’s economy,” Elliott said. “A lot has occurred since I first joined the Board, from new regulatory proposals to becoming independent from the Department of Transportation. But one thing has remained constant, and that is the distinguished group of professionals and good people at the agency that I have had the privilege of working with for the last eight years.
“During the six years that I have worked with Dan, I have always appreciated his genuine dedication and commitment to the Board’s work and to the transportation community—both shippers and railroads alike,” said STB Acting Chairman Begeman. “I particularly admire the respectful manner by which Dan treats everyone he meets. I will miss having Dan as a colleague, but wish him much success as he enters the next new phase of his career.”
STB Member Deb Miller said, “When I first came to the Board, the agency was in the midst of several difficult issues and as the Chairman at the time, Dan helped me quickly transition into my new role. Since then, the Board has undertaken a number of important regulatory initiatives in which he was instrumental. Dan will be missed at the Board, and I wish him well in his future endeavors.”
Prior to his appointment to the STB, Elliott worked in the UTU’s legal department.
President Donald J. Trump has appointed Ann Begeman to serve as Acting Chairman of the Surface Transportation Board (STB). Begeman is currently serving a second, five-year term as a Member of the Board following her recent nomination by President Barack Obama Dec. 7, 2016, and her unanimous confirmation by the U.S. Senate Dec. 9, 2016. Ann first joined the Board May 2, 2011. Her current term expires Dec. 31, 2020.
“It is an honor to serve the public on the Board, and I am grateful to President Trump for the opportunity to lead the agency at this time,” said Begeman. “I look forward to continuing the important mission of the STB in my new capacity as Acting Chairman, working with the new Administration, my fellow Board Members, Daniel Elliott and Deb Miller, our dedicated agency staff, and our important stakeholders. I also wish to recognize former Chairman Daniel Elliott for his service and leadership, and his sincere efforts to facilitate a smooth transition during the change in administrations.”
Prior to her 2011 appointment, Begeman held Senate staff positions on Capitol Hill for more than 20 years, playing a key role in the crafting of major transportation legislation, including the ICC Termination Act, which created the STB. She served as the Republican Staff Director for the Senate Committee on Commerce, Science, and Transportation under the leadership of U.S. Senator Kay Bailey Hutchison and as the Committee’s Deputy Staff Director and Transportation Policy Advisor under the leadership of U.S. Senator John McCain. Begeman has also served as Legislative Director and Acting Chief of Staff for Senator John McCain and as a Legislative Assistant for U.S. Senator Larry Pressler. She has also worked in the private sector, serving as a benefits specialist for First American Bankshares, Inc.
Begeman is a native of Humboldt, South Dakota. She earned a B.S. in business administration from the University of South Dakota.
The CTA is the economic regulator of the freight railroads and other modes of transportation in Canada. Chairman Elliott signed the MOU with Dr. Scott Streiner, chairman and chief executive officer of the CTA.
The MOU memorializes the ongoing relationship that the two agencies have cultivated in recent years. It recognizes the importance of their engagement to promote ongoing information exchanges on developments in rail transportation, best practices in their respective regulatory approaches, and recent regulatory activities and current events. The agencies will exchange only information that is in the public domain in the United States and Canada to ensure that no confidentiality concerns are breached.
“The United States and Canada are linked in so many ways, not least of them by a vast rail network,” Chairman Elliott stated in Ottawa. “It is an honor today to be signing this Memorandum of Understanding between the STB and the CTA, marking our commitment to be a resource to each other in the economic regulation of freight railroads. This friendship will enable us both to engage in productive dialogue on better regulatory practices to our stakeholders and the citizens of our countries.”
Click here to view the electronic version of the MOU.
The Surface Transportation Board released two decisions related to its oversight of Amtrak’s operations under the Passenger Rail Investment and Improvement Act of 2008 (PRIIA).
First, the Board decided that it would consider on-time arrival and departure at all stations along a passenger train’s route for purposes of assessing on-time performance. The Board will deem a train “on time” if it arrives at, or departs from, a station no more than 15 minutes after its scheduled arrival or departure.
The Board also announced that it is withdrawing its proposed policy statement on issues that may arise, and evidence to be presented in proceedings under PRIIA, in favor of a case-by-case approach to these complex matters.
“Reflecting careful consideration of an extensive public and stakeholder response to our most recent passenger rail proposals, these decisions will better position the Board to implement its responsibilities under the Passenger Rail Investment and Improvement Act of 2008,” stated Board Chairman Daniel R. Elliott III. “Improved passenger train on-time performance is an important goal, and the Board’s decisions will support that goal by clarifying the trigger for starting a proceeding, while allowing more complex and detailed issues to be resolved in the context of individual cases.”
Bloomberg reported that Canadian Pacific is seeking a declaratory order from the U.S. Surface Transportation Board regarding the proposed voting structure in its attempted acquisition of NS. Read the entire article here.
In a letter dated, January 14, SMART TD President John Previsich wrote the Surface Transportation Board opposing a Canadian Pacific Railway proposal to acquire Norfolk Southern Railroad.
See the letter in its entirety below or click here to read the letter.
“Dear Chairman Elliott, Vice Chairman Miller and Member Begeman:
“I am writing to you on behalf of the Transportation Division of the International Association of Sheet Metal, Air, Rail and Transportation Workers (SMART TD), regarding Canadian Pacific Railway’s (CP) proposal to acquire Norfolk Southern Corporation (NS).
“As the representative of more than 125,000 active and retired railroad workers, I am writing to convey that we are strongly opposed to this takeover proposal. This action has the real potential for a far-reaching, detrimental impact on America’s rail network, including lost jobs and an equally negative impact on those who ship by rail. We also strongly oppose CP’s scheme to circumvent the regulatory requirements through the establishment of a voting trust to assume control in advance of regulatory approval. Such a trust would violate existing statutory and regulatory prohibitions regarding unlawful control.
“CP’s relentless pursuit of short-term profit with little regard to the impact on the greater good—workers, communities and our nation’s rail shippers is well known. History shows what happens when railroads harvest revenue for immediate self-enrichment of officers and stockholders at the expense of investing in maintenance and capital projects to ensure a viable industry well into the future. If approved, this merger would mean fewer railroads and less competition in the industry. The certain results will be fewer rail jobs, higher freight rates and diminished rail service.
“E. Hunter Harrison, CEO of CP, has already boasted in the press that NS will be a “cash cow” because he will be able to sell off what he says are “excess” rail yards for real estate development. He has also stated that NS has a “gold plated” infrastructure that is overly maintained and he could greatly reduce capital investment on that road. Such a disinvestment in the nation’s rail network could only occur in a merged environment with diminished competition among carriers. The end result is higher costs and reduced service for the nation’s shippers.
“In addition, Harrison recently announced that he will reduce capital spending on CP in 2016 by $400 million and extend his moratorium on purchasing new locomotives until 2018 or longer on that railroad. His strategy is clear; use up the current railroad infrastructure and wear out the locomotives, leaving a railroad that will need dramatic investment once he leaves. The railroads’ officers, investment bankers, consultants and stockholders will walk away greatly enriched at the expense of the future health of our nation’s rail service. In fact, a January 12, 2016 white paper issued by CP in Calgary reveals that CP’s scheme for NS is to improve service by reducing investment, a plan that they note in their closing remarks may not produce the desired results: “CP’s forward-looking information involves numerous assumptions, inherent risks and uncertainties that could cause actual results to differ materially from the forward-looking information” and that “forward-looking information is not a guarantee of future performance.”
“In summary, if Harrison is allowed to take his CP model to the NS, through either a voting trust or with regulatory approval, the end result will produce an irrecoverable disinvestment in NS’s infrastructure, substantially diminished freight service, and a marked loss of jobs.
“We urge members of the STB to safeguard our jobs and protect our nation’s freight rail infrastructure and those who ship by rail by advocating for the public interest, not enabling short term profits for the benefit of a few at the expense of the future viability of our nation’s rail system. We ask that the STB reject the proposed acquisition and also take legal action as required to prevent the circumvention of your regulatory authority through the establishment of a voting trust.”
Last week, President Obama signed the Surface Transportation Board (STB) Reauthorization Act of 2015 into law, which realigned the STB an independent entity, autonomous of the U.S. Department of Transportation.
Yesterday, STB Chairman Daniel Elliott III released a summary that outlines the major points and details of the Act. To read the complete press release, click here.
The Surface Transportation Board announced today that its staff will hold informal meetings with stakeholders between November 16, 2015 and December 7, 2015, on proposed rules for reporting railroad service performance data in the pending proceeding United States Rail Service Issues, EP 724.
The meetings will enable the STB to better assess what types of data might be useful to the public, and how individual railroads monitor performance. With measures in place to ensure public notice, fairness, and transparency, the Board is waiving its general prohibition on ex parte or private communications for a limited time in this proceeding.
“This will be the Board’s first permanent collection of service-related data. These informal meetings will allow open and candid conversations between STB staff and stakeholders regarding the highly technical data questions at issue here,” STB Chairman Daniel Elliott said. “Dialogue between stakeholders and STB technical staff is especially valuable and efficient in these informal circumstances, outside of an appearance before the Board.”