ON JUNE 11 the Surface Transportation Board announced its long-awaited rules for large railway mergers in the USA. Applying to railways with annual revenue exceeding $250m, they require any future combination to meet public interest criteria set by STB.

The ruling makes the merger approval process much more complex. This is because future deals will have to take into account the effects on short line and regional railways, passenger operations and seaports, as well as employee rights under union contracts. Most important for shippers is STB’s requirement for any merger proposal to demonstrate that it will increase competition, not just improve efficiency.

Given the recent history of mergers, notably the Union Pacific - Southern Pacific combination of 1996 whose effects were instrumental in prompting the 15-month merger ban imposed by STB from March 2000, the Board now requires applicants to submit a Service Assurance Plan to handle any potential adverse effects. ’While mergers have their place,’ wrote STB Chairman Linda Morgan in comments attached to the rules, ’recent events have shown that no major merger takes place in isolation, and that, once a round of mergers begins, it can be all-consuming, distracting, and disruptive, to the detriment of the nation’s transportation system, rail shippers, rail employees and communities across the country.’

STB’s announcement attracted a mainly critical response, with CSX issuing a statement saying the rules ’raised the bar for rail consolidation in a way that makes future transactions all the more difficult to achieve. It is disappointing that potential mergers, and their accompanying benefits, will be judged on a decidedly harder and more complicated set of regulatory standards than those faced by other US businesses.’

Last July Canadian National called off its proposed merger with Burlington Northern Santa Fe last year following an unsuccessful court challenge to STB’s moratorium (RG 9.00 p512). So it was perhaps surprising that CN President & CEO Paul Tellier should welcome STB’s final ruling, saying that ’CN is pleased that the rules adopted ... will raise the bar for the quality of customer service in future railroad mergers.’