With only 7 Class 1’s left in North America, I’d like some opinions from you guys on who will be the next railroad to get sucked up in merger mainia. And who will be merged into who? I don’t know much about the economics and profitability of each railroad, so I’m looking to you guys for help. My admittedly non-expert opinion would be that KCS would be the next candidate because it’s the smallest and is surrounded geographically by a lot of other, larger railroads. I would think that NS or CSX would be good candidates for them to merge with. But then again, I don’t know a whole lot about the other companies.
So who will be the next to go (not neccessarily soon), and who will they fall to?
There wont be another merger period. The STB has stated that "if " there should ever be one,the railroad is going to have extremely tough rules and regulations to abide by. The railroad is going to have to show alot of proof as to how it plans to avoid congestion,make competition equal,and if there was a merger,you can damn well be sure that the rest of the railroads would want alot of trackage rights over much if not all the areas that they used to have with the merged road. A big exampleof how things can get out of hand is the UP/SP merger.BNSF wanted and demanded that if the UP could not keep up with certain provisions within the Chemical Gulf Coast,set by the BNSF and the STB, that it (BNSF) would want trackage rights,if not also total control of the areas involving the Chemical Gulf Coast, and UP failed to acheive that sanction,so now UP has to compete with BNSF,due to their(UP) screw-up. I’m sorry.but I dont see any more mergers happening.If it should,I’d like to see where they plan on getting the money,and what about the employees…are they to be discharged or what?
Why would someone want KCS? What would a suitor gain through a merger with it? A merger must do something more than sound cool or pit a larger railroad against a smaller one. (Remember, it was smaller Rio Grande that initiated the merger with SP back in 1988.)There must be significant benefit to the suitor.
KCS has a hilly profile and is tough to operate – meaning it’s expensive to operate. It has one of the highest operating ratios of any Class 1. It’s not that profitable, and Wall Street isn’t likely to applaud a proposed merger with it.
Access to NAFTA traffic would be one reason, really the only viable reason, that someone would consider merging with KCS. But why would a suitor want to take on the hassles of operating KCS when KCS can keep those operating problems and deliver NAFTA cars to connections to the other Class 1s? Why should another Class 1 take on an expensive problem when a smaller Class 1 is handling it, albeit with a thin profit margin? Why would a bigger Class 1 take on a cash drain?
cnwfan11,
No more mergers? I wouldn’t state that categorically. I can think of one candidate – DM&E, if it gets access to the Powder River Basin, would be an attractive target for CN, or CP. It would be similar in scope to the WC/CN merger, which the STB allowed to occur with little interruption.
I can see a DM&E going to NS or CSX, giving east coast utilities a direct link to PRB coal without the hassles of putting up with BNSF and UP.
I still say break up BNSF and UP into “new and improved” versions of their former parts, and let’s get back to some real multiple competitive rivalries.
Don’t know about a merger, but I wouldn’t be surprised if NS and BNSF bought a controlling interest in KCS to connect themselves in the South, tap KCS’s chemical traffic, and reach Mexico. Obviously this would have to wait until KCS finishes digesting its Mexican acquisition/control/whatever it is they’re doing.
KCS’s location could make it a heck of a railroad (its southern end) if the acquirer(s) had deep enough pockets to fund the work necessary to fully exploit the location. The only problem is that no other RR would want KCS north of about Hope, AR to the north side of the Ozarks. I’ve seen the area north of Hope (Mena, AR to Heavener and Poteau, OK) and it’s very user-unfriendly for a railroad.
Saw a rumor of CN and CSX getting together - not that I think it’s all that likely, but it did get me thinking.
CN would be the dominant partner, maybe the outright purchaser. CSX has no leverage in a merger with CN.
The reaction to this would be NS & CP, with NS being the dominant partner.
That would leave 4 big roads, two in the east and two in the west. It would also even up the playing field between the east and the west, so whose management would dominate any eventual east-west deal is no longer certain.
I’ve heard just about every merger in the book, and I’ll believe it when I see it. The latest one I heard was from the BLE chairman at my terminal. He said he read in a publication (which I didn’t hear which one it was) claims CSX and CN will merge. [sigh]
Of course, you didn’t hear which one it was, he probably doesn’t know himself where he read it or if he heard it or if it was published on someone’s computer. Railroads are riddled with rumors and they’re frequently someone-read-something-somewhere type-stuff. If you corner them and ask them where they read it, they never quite know, or if they do know, you can go to the back publications and you’ll never find it. Believe me, I’ve done this more than once when someone quoted specifically, THE WALL STREET JOURNAL.
Personally, I don’t expect any mergers, not for awhile, just as I don’t believe some other company is providing CSX with funding to make payroll, just as BNSF wasn’t providing funding to help NS make payroll back in 2000. But plenty believed it.
First off,the D M &E hasn’t even begun to do to the project yet of getting into the Powder River Basin.Secondly, the track that DME has is sectional track dating to the days of the CNW.For the DME or any railline to merge with the DME they would have to do a major reconstruction of the railroad main line.Then you have Rochester,Mn to deal with in regards to the rail crossings being blocked for a specific amount of time,with emergency vehicles to get to the Mayo clinic. Third,the DME has been talking about this since 1998!,and what has been going on,…nothing.Fourth,doesn’t it seem a bit odd or being very curious for a railroad (CN) to sign a 99 year lease with another railroad (WC) just to get their traffic from Superior,WI to Chicago? The reason for the STB granting the CN control of the WC is quite clear…the 99 year lease. Also from a book called:Railroad Mergers,History,Analysis,Insight,by Frank Wilner, he stated " that the railroads intent of merging is being motivated by mangement looking out for the interest of the franchise. Furthermore if the raillines want to get people and Wall Streets attention,it needs to develop a revenue growth strategy. " As much as railroads claim to have improved service over the past decade,the customers have claimed the railroads one-step forward has only been eclipsed by three steps forward by the trucks,and when the railroads stop being distracted by who has the biggest network,or locomotive fleet and begin to really focus on their customers demands and expectations-especially the small-to-medium customers,including their short-line feeders,t
Issues which, a) don’t preclude the DM&E from providing service to the PRB and b) are being addressed as part of the EIS. Do you honestly think DM&E would not/could not upgrade its right of way to accommodate more frequent, heavier traffic? It’s part of the plan.
In this day and age of environmental nitpicking, delays and lengthy processes are to be expected. And progress is being made. See above.
Your argument provides the answer to what you try to rebut: CN or any other Class 1 could just as