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Real Clear Policy: White House Rail Comments Ignore Threat Posed By Merger

American rail carriers are the latest to fall into the crosshairs of the White House.

Originally published at Real Clear Policy on June 29, 2022.

The White House has spent the last several months lost at sea in its efforts to arrive at a cohesive plan to address inflation. The flailing has taken a harsh political toll on President Biden and has, more importantly, failed to take the wind out of soaring prices.

Perhaps even more maddening is the fact that the few actions the administration has taken have been rhetorical at best and actively counterproductive at worst.

The tendency to search for inflation scapegoats has been particularly frustrating. As outlined in the Wall Street Journal in May, American rail carriers are the latest to fall into the crosshairs of the White House despite the fact that they moved freight at record volumes in 2021.

Former White House Press Secretary Jen Psaki attacked America’s Class I rail carriers in recent remarks, cryptically suggesting that the administration would soon take actions to “address situations where a monopoly railroad isn’t providing adequate service.”

If the White House is concerned about a lack of competition in the rail sector, their ire should not be directed towards American carriers that have done so much to keep the economy functioning amid excessive volatility and uncertainty across the supply chain. Their focus, instead, should be on the looming mega-merger between Canadian Pacific – a foreign owned, if friendly company – and Kansas City Southern.

This $31 billion blockbuster of a deal has thus far failed to earn any real scrutiny from the highest office in the land despite the fact that its approval would stand in direct opposition to the administration’s purported focus, and executive order, on increasing competition within the American rail sector.

The disconnect between public rhetoric and practical action points to a troubling trajectory. It is consistent with a White House that has repeatedly failed to act in a meaningful, thoughtful manner to address challenges associated with our supply chain, opting instead for political digs and punitive, unhelpful policy shifts (such as the prospect of forcing rail carriers to share switching facilities).

The Canadian Pacific-Kansas City Southern merger would, according to the figures shared by its advocates in their “Summary of Benefits” paperwork filed with federal regulators, result in about $1.15 billion in “revenue synergies” and $195 million in “cost synergies.” That is, as it happens, the only benefit listed in the official company paperwork.

There are no broad claims of improved service and no expectation of better or more efficient performance for shippers. Just a billion or so in increased profits for the Canadian rail magnates leaning on our government to approve the merger.

Beyond failing to quantify the benefits of the merger, the application is also lacking in efforts to address concerns associated with the merger. Communities along the route can expect a huge influx of additional Canadian rail traffic hauling loads of crude oil and all its accompanying environmental and safety implications. There is no plan for how to address congestion and traffic back-ups at the crossings that will have to accommodate the additional traffic.

Perhaps most disconcertingly, despite the fact that it is barely possible to put up a lemonade stand without a rigorous period of permitting and public input, communities within the railroads’ expanded network have had no opportunity to engage via in-person public hearings.

The White House will eventually have the opportunity to determine whether this massive merger is allowed to proceed. This is a big decision – one with implications that will shape the future of the American rail sector for decades to come. In my view, approval would meaningfully shift the balance of power in North American rail away from the United States and toward Canada. Approval would also run counter to many of the Biden Administration’s broader goals related to the environment and create risks and repercussions for Americans living in the footprint of the newly expanded network.

Here are a couple of things approving this merger will not do: it won’t improve American rail service or prop up the day-to-day operations of shippers nationwide; it won’t address the ongoing supply chain crunch exacerbating inflation; perhaps most importantly, it won’t enhance competition.

Serious times call for serious policy. I sincerely hope that as we continue to navigate this imposing economic landscape, the White House will focus its efforts on purposeful actions that strengthen key sectors like railroads rather than on attempting to score points and avoid blame.

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