One has to wonder if traffic losses will finally lead to a final round of mergers. Looking at the situation Appalachian coal is facing and CBR this could be a possibility. Now when dealing with commodities they’re obviously cyclic and change with market manipulation (That’s right I said it market manipulation, let’s quit sugar coating things). Yet, let’s say these two traffic sources never recover? Appalachian coal while said to be expensive to mine is not done. Being at it’s lowest point it won’t return to record levels, but I can see it making somewhat of a comeback down the road. CBR while that traffic has died down will it recover to previous levels? They are opening up new pipeline capacity between Bakken and points South, and East. So we’ll see who pulls the strings with that scenario…Please chime in. Could; BNSF+NS, and UP+CSX finally happen? Or are these combinations possible because of these factors; BNSF+NS+CN+KCS, and UP+CSX+CP+Ferromex. Or will business continue as usual?
I cannot see any new mergers for the forseable future. The STB is dead set againts any new merges. As for new pipelines, the Keystone pipeline is dead and no new ones are being built as far as I know. It would be a great suprise to me if any new mergers between any of the seven class one railroads occur for at least the next ten years. It would take a major shakeup at the highest levels of the STB and a radical shift in polcy.
Just an opinion - I think if there ever is further consolidation, there will be consolidation, but also required divestment of parallel routes and trackage rights to ensure three or even four viable national systems in order to preserve and enhance competition and ensure trunk route mileage is preserved.
Powder River Basin coal is still being moved at a large rate.
Why would the management at BNSF or UP want to burden themselves with a merger?
The CSX plan is to increase intermodal and lower the operating ratio. And I have to say as a stockholder (1500 shares) I was impressed with the last earnings call this past Tuesday, they did in fact lower the operating ratio to 68.3 percent which is a record for CSX. So they were able to report flat earnings despite declines in Coal and Oil traffic. Their plan to hold their own is working so far.
I know Trains is all glum about the job layoffs in Clinchfield country and their speculating is probably correct, CSX may spin those lines off or abandon them once they come to a conclusion Coal is not comming back. Personally, I feel it would be prudent to wait for the next occupant of the Oval Office than to give up in the next year or two on Coal and Oil.
Coal has bounced up a few times this year and I think it’s market decline is more political than market driven…same with Oil. I’ll believe this is a perm decline when I see it over a 5 year period.
As for the merger activity. I think the rails are pretty much pre-occupied with spending for capacity improvements and infrastructure replacement in some circumstances (a lot of steel bridges nearing or past the century mark). We’ll see in another five years where they are though.
Also, average speed or velocity of handling traffic has increased on CSX this past quarter which could be due to traffic declines or due to better management, time will tell but Wall Street was happy with that news.
What’s CBR?
Management is the same. Pencils got sharpened.
Crude By Rail
( [:-,] or maybe Coal By Rail . . . [:-^] )
Exactly what problem will any of these suggested mergers solve ? Precisely where, how, how long, how fast, and how much, etc. ? Without those answers, suggesting a merger is like waving a magic wand and just hoping for better results - not gonna happen.
Many mergers - esp. in transportation - result in financial disappointment (or worse). Some are perhaps inevitable, because the impetus to merge is to try to save 2 (or more) failing businesses - e.g., Penn Central. But even among ‘going concerns’, it doesn’t always end well, or go smoothly, with major to severe service disruptions. Recent examples: UP+ C&NW; UP+SP; attempted SF+SP; American + United Airlines.
Because of those, back in 2000 or so when the similar CN + BNSF merger was proposed, the STB declared an 18-month moratorium on mergers until it could draft new rules for reviewing major merger cases. That caused the CN-BNSF merger to be dropped. The only significant merger since then was CN+EJ&E, essentially just a small regional. Even that was a monumental undertaking, which involved a multi-volume Environmental Impact Statement and monitoring of grade crossing signals by an independent consultant, etc. To think of the documentaton and submittals required for a merger of Class 1’s boggles the mind.
Also - and others have pointed this out before and elsewhere - we now have a competitive balance of sorts between the 4 major US systems - 2 in the East and 2 in the West. So, any railroad in a region is pretty much free to use either road in the other region (subject to ‘gateways’ and physical proximity to the shipper or receiver, etc., of course). But any merger involving one road in a region will result in the other one in the territory being essentially persona non grata = don’t send them any traffic that doesn’t absolutely have to go that way.
Highly unlikely.
Ultimately two large transcontinental systems would make more sense than the current four regional ones. And competition wouldn’t suffer as shippers in the east and west would continue to have their choice of two railroads. Costs would be reduced through economies of scale and streamlining administrative and management functions. It’s only a matter of time.
Practically speaking, we have that now. While loose car railroading changes railroads at interchange points, unit trains traverse the country pretty much intact, including the motive power.
Fiction. Parallel railroads offer few opportunites for elimination of duplicate facilities and functions. Crews will still have to report to change points or yards, same yards will be needed, MOW work will have to cover the same routes, same no. of locomotive needed, etc., etc.
Administrative functions have already been streamlined, but there might be some duplication that could be consolidated and elimnated - purchasing, accounting for annual reports, finance, etc.
But with the property now about double in size, the average trip for upper management to go out and check or see things themseves will also be twice as long. Failure to do that or less frequently will lead to a loss of performance and value.
- Paul North.
I have wondered the along similar lines. It was because of something I read, either in Trains (or one of the blogs) or in Railway Age about life after coal and oil/frac sand. One of the points focused on intermodal and how it’s easier for BNSF and UP to make intermodal work because of their longer routes. That CSX and NS are at a disadvantage because of shorter lanes. It didn’t say that they couldn’t do it, just that it’s harder.
I don’t expect to hear any of the carriers to announce talks anytime soon. (I do think they each have an idea on how they will pair up. UP will most likely go with CSX.) I don’t however, discount the possibility that eventually we will see a final round of mergers and I think the rise of intermodal could be one of the triggers. A change in the political winds wouldn’t hurt and may be all that’s kept them from trying.
Jeff
I would not be suprised to see an eastern railroad get taken private first.
If it came to this - would the Two Ginourmous Railroad merger procede if univeral access to shippers were a condition for approval?
When the elephants dance, the mice get squashed. How do you like your phone service or cable service competition? Is it costing you less now? Antitrust is a joke. The ones who will make money are the bankers and merger specialists. Do you think the beer you drink will be a better bargain after the two large brewers merge? There may be some mergers that make sense but many are ego trips for the top man who can justify a larger bonus. I wont go political but you can thank the 1%ers who seem to hold sway over the politicians and let the justice dept. allow some of the reductions in competition that we have had.
Although I agree with what you said, there has been little competition between railroads for a long time, if ever. If you are Joe Shipper, you are lucky if you have had any rail service (even if a railroad goes past your back gate) in the past ~30 years, let alone competing lines. And in fairness, beer is a very different animal.
Going from four systems to two here doesn’t change the competitive dynamics. Shippers currently have a choice of two…NS and CSX for eastern shippers and BNSF and UP for shippers in the West. End to end mergers resulting in two transcontinental systems would not change that. Shippers in the east and west would still have access to two large systems, albeit both systems would now be much larger and have a much larger service area. Thus, the argument that these mergers would somehow diminish competition just doesn’t hold water. And for most shippers who ship nonbulk commodities there’s always trucking. Replacing the four regional systems we now have with two larger systems with a transcontinental reach makes alot of sense to me.