Federal board allows rail merger, amid fresh questions about safety

A federal board on Wednesday approved a proposed merger between two major freight railroads, a decision that will enable further consolidation in an industry that's already under intense scrutiny for its safety practices.

The Surface Transportation Board, an independent body that oversees the freight rail industry, has given its blessing to a merger between Canadian Pacific Railway and Kansas City Southern, narrowing the field of major North American freight railroads to just six. The two railroads are the smallest major freights operating in the U.S., and the new entity would still be the smallest of those remaining. It will be the first major rail merger in 25 years.

The decision comes as the industry as a whole is under a microscope, with regulators and some in Congress pressing for more stringent safety requirements following the Feb. 3 derailment of a Norfolk Southern freight train in East Palestine, Ohio, that spewed toxins and forced a town's evacuation.

STB chair Martin Oberman said the board approved the merger because "on balance the merger of these two railroads will benefit the American economy, and will be an improvement for all citizens in terms of safety and the environment." He also argued that the bigger entity will be more competitive against larger railroads. He also suggested that in approving the merger, the board was constrained by the laws Congress has enacted, saying their decision "has to be measured against the backdrop of what is our congressional mandate.”

In a sign of the board's normally-sleepy stature, Oberman observed that this was the board's first press conference in recent memory — maybe ever.

Wednesday's decision is a discordant note in a time when the Biden administration has sought to combat consolidation across a swath of industries ranging from technology giants to airlines. However, the board is not strictly an arm of the administration, but rather helmed by presidential appointees from both parties who are confirmed by the Senate.

A White House official noted that the STB is an independent agency and said the White House is "currently reviewing the text of their decision.”

Shortly after the STB's announcement, Sen. Richard Blumenthal (D-Conn.), who sits on the Senate committee that oversees railroads, said the decision "needs to be scrutinized."

The five-member board was not unanimous in its decision — board member Robert Primus dissented, saying he was concerned that the merger increases consolidation, risks service disruptions and could harm communities along the path of the railroad. "Because these detriments to the public interest outweigh the expected benefits, I dissent," he said.

Erik Peinert, research manager at the progressive anti-monopoly group American Economic Liberties Project, called the decision "disgraceful" and said it "sets the stage for future disasters like East Palestine and will likely lead to railroad staffing cuts, higher cargo loads, and other profit-driven safety shortcuts."

"Nothing in the history of rail consolidation suggests it is a good idea," he added.

The Surface Transportation Board placed some conditions on the merger, including a seven-year period of oversight during which certain decisions involving competition, customer service and other transit agencies or Amtrak will have extra scrutiny, along with extensive data reporting requirements intended to help protect competition.

A decision has been expected since the board released the environmental impact statement earlier this year finding that the merger would have minimal impact other than increased train noise in some communities, and that while increased volumes would also mean more hazardous materials spills, the risk on any specific segment "would continue to be low” and any release “would be contained quickly.”

Chicago-area lawmakers asked STB to delay its decision, saying the environmental report cited faulty statistics provided by Canadian Pacific, while the region’s commuter railroad, Metra, predicted a greater increase in freight rail traffic than CP did.

Rep. Katie Porter and Sen. Elizabeth Warren also opposed the merger out of concern that it would mean even more consolidation in an industry that's already controlled by just a handful of companies. On the other hand, four lawmakers from Kansas and Missouri, including House Transportation Chair Sam Graves, last year urged STB to approve the merger.

The STB has increased oversight over the freight railroads over the last year in an attempt to force better service for customers and to help rebuild the railroad workforce, which has been hollowed out over the last eight years as the industry has cut costs through layoffs.

Josh Sisco and Kayla Guo contributed to this report.