THE ANNOUNCEMENT on September 5 that Canadian Pacific Railway is to purchase the Dakota, Minnesota & Eastern Railroad Corp for US$1·48bn came as a surprise to US industry experts and financial analysts, who queried the high price that CPR is paying for the 4?000 km network.

However, President & CEO Fred Green insisted that 'there are natural synergies between our two railroads which make this a very attractive transaction.' Subject to regulatory approval, the takeover is expected to be completed within a year.

CPR is planning to spend US$300m over the next few years to upgrade the DM&E's infrastructure. But the key to the acquisition clearly lies further west, where DM&E has been developing an ambitious scheme to build a new line into Wyoming's coal-rich Powder River Basin. This is currently served by a joint BNSF-UP line which is bursting at the seams as demand and production continue to rise. Announcing a record throughput of 17·2 million tonnes for August, UP said on September 13 that operational improvements and capital investment had enabled it to run no less than 1?118 trains in the month.

DM&E hopes to enter this lucrative market by upgrading 965 km of its existing route and building 450 km of new line. The Surface Transportation Board approved the plan after DM&E agreed to environmental, safety and operating conditions, but an application for a US$2·3bn loan from the government was rejected by the Federal Railroad Administration in February.

Not only is CPR expected to finance the project, but it has agreed to pay US$350m to DM&E shareholders if construction begins by December 31 2025 and a further US$700m if a specified volume of coal is shipped out of the basin by that date. There are suggestions that increased rail capacity could see the annual output of low-sulphur coal from Powder River rise from around 400 million to more than 600 million tonnes a year.

Despite this obvious demonstration of market forces, STB announced on September 13 that it was commissioning a study into the US rail freight industry. To be completed within a year, this will look at 'competition, capacity and the interplay between the two'. STB is responding to an October 2006 report by the Government Accountability Office which reflected shippers' concerns about possible abuses of market power.

  • On September 19 the Association of American Railroads and Cambridge Systematics unveiled their National Rail Freight Capacity & Investment Study, which suggests that US$148bn needs to be invested over the next 30 years to increase capacity on the US rail network, to meet a projected doubling of demand. The study is intended to inform the National Surface Transportation Policy & Revenue Study Commission established by Congress to look at future US transport needs and how to fund them. 'If these investments aren't made, everyone in the country will feel the impact', warned AAR President & CEO Edward R Hamberger.