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Rail Mergers Likely To Continue Despite New Rules

posted on November 23, 2001

For the past 20 years, the nation has been coping, if not benefiting, from a series of deregulations of once tightly governed industries. In many cases, the moves have resulted in lower costs to consumers. But the benefits of de-regulation have flowed largely to more populated regions. Much of Rural America has endured a decline in a host of services. Air service became less frequent and sometimes non-existent. Large phone companies in some cases abandoned rural communities, or declined to deploy new technologies like high-speed internet access. But, perhaps the most visible impact of deregulation in Rural American is the abandoned rail lines connecting small towns with the rest of the world. Even with the development of short-line carriers utilizing abandoned lines, rail disconnection remains a troubling trend in Rural America.

Rail Mergers Likely To Continue Despite New Rules

Within a decade, the United States, Canada, and Mexico may have as few as two major rail freight carriers serving all of North America. That's according to the head of the U.S. Surface Transportation Board, the federal agency that oversees rail mergers. About 40 percent of the nation's freight, as measured by tons per mile, is carried by rail. So for shippers that must move large bulk commodities, like grain and oilseed, the freight rail choices could become as limited as those in other deregulated industries, like the airline and telecommunications. That's a major worry for grain elevators and other rural customers concerned about shipping costs and reliable service. Since the industry was deregulated under the Staggers Act in 1980, there have been five major mergers. And analysts believe more are on the way. But it's not just the big guys swallowing up the little guys. Early last year, the Burlington Northern Santa Fe proposed a merger with the Canadian National, one of two transcontinental Canadian railroads that operate freight lines in the U.S. The Surface Transportation Board ordered a temporary moratorium on major railroad mergers while it studied the impact of freight rail consolidation. The deal was called off by the rail lines after a federal appeals court upheld the moratorium. Since then, the STB has issued new rules governing railroad merger and acquisition. Under the new rules, merger partners must prove the transaction would enhance competition and reliable service. The old benchmark merely required them to prove there would be "no identifiable harm to competition." The new standard is expected to slow but not halt future mergers. Indeed, some industry analysts predict the remaining six major railroads operating in the U.S. will eventually merge into three.

This week the U.S. Environmental Protection Agency and the Justice Department announced an agreement with the nation's second largest pork producer, Premium Standard Farms. The settlement resolves a host of environmental complaints from government and citizen organizations.

Premium Standard Farms may have to spend up to 50-million dollars on so-called "next generation" technology at its Missouri hog farms to clean wastewater and reduce air pollution to the standards required by the agreement.

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