Canadian National-Burlington Merger Sparks Ag Worries

December 21, 1999

The announced merger between the Canadian National Railway Co. and Burlington Northern Santa Fe Corp. may affect how efficiently grain is transported from Midwest elevators and terminals. Sen. Charles Grassley (R-IA) says the merger "obviously reduces competition to some extent."

Canadian National and Burlington Northern announced Monday their boards of directors had approved "a definitive agreement" to combine their businesses. The merger would produce a company with about 50,000 route miles of track, 67,000 employees and about US$12.5 billion in combined revenues, making it the largest railroad in North America.

In the announcement, the companies noted that more than 40% of Canada's gross domestic product is generated by exports, almost all of which face strong competition in price and product substitution. Competitiveness depends on a transportation sector with "the efficiency required to overcome inherent disadvantages related to distance."

The merger "ensures that CN is well positioned to support the growth of export trade to the benefit of its customers and the Canadian economy," the companies say. It adds three "strategically located, single-line north-south rail corridors for the movement of goods between Canada, the United States and Mexico to the one created by CN's 1998 acquisition of Illinois Central and marketing alliance with Kansas city Southern."

For the United States, the companies claim the merger will provide "an important rail alternative for numerous domestic markets...(and) will enhance U.S. efforts to be both price and product competitive in export markets by providing an efficient rail transportation system that encourages a more even balance of trade."

Union Pacific Corp. made a brief statement on the merger that read, in part, "We will be meeting with our customers to solicit their views and decide what Union Pacific can do to protect their interests, particularly in those areas where competition would be adversely affected by the proposed connection." An area of immediate concern, Union Pacific said, is how this will be viewed by rail shippers who have already expressed strong reservations about further rail mergers."

Grassley said he is "particularly interested" in the effect the merger will have on Union Pacific. "I think it will have a tremendous effect," he says, "and we've already had some concerns about the Union Pacific meeting the needs of midwestern farmers to move grain, since they took over the Chicago Northwestern. It's been a major problem for some elevators and farmers."

"We're concerned about all segments of the economy being helped or hurt by this merger, but there's one that we in the Midwest are always cognizant of and that's the ability to move the production of grain that we have" to move, he adds. Grassley implied Congress will have to take "a close look" at the merger to make sure there's adequate competition and "that it doesn't hurt other modes of transportation in the process."

The merger also must be approved by the Surface Transportation Board.