newsworthy
To pull off the unprecedented,
CP’s Harrison crafts shipper-centric
The proposal has languished at the agency for nearly four
and a half years, with only a docket number (Ex Parte 711)
assigned to it as any indication of regulatory movement.
Anthony B. Hatch, a long-time rail consultant who runs
his own firm, called the CP competitive-access proposal
a “whopper,” especially since shippers are not known to
be Harrison’s most fervent supporters. In fashioning the
proposal, Harrison also effectively thumbed his nose at the
rail industry, something that hardly surprised Hatch since
Harrison, who was coaxed out of retirement in 2012 to turn
around a then-struggling CP, has achieved almost mythical
status and is at a point in his life where he doesn’t care what
his peers think of him, his strategy, or his tactics. In a note,
Hatch wondered if Harrison was “trading ship-
go figure …
4.2%
merger proposal
If E. Hunter Harrison, CEO of Canadian Pacific Railway,
wants to steer his unprecedented $28.4 billion transcontinental merger proposal with Norfolk Southern Corp.
through a phalanx of hostile shippers, skeptical U.S. and
Canadian regulators, fellow railroaders who view him with
a mix of awe and concern, and a chilly Norfolk Southern
board, he will have to step into the shoes of the shippers.
A consulting firm’s projections for the increase in
2015 holiday sales, driven by early deal promotions,
advances in mobile shopping technology, and speedier fulfillment options. The projected volumes could
be a new record, and the pace would exceed the
3.7-percent increase forecast by the National Retail
Federation (NRF).
SOURCE: TOMPKINS INTERNATIONAL
That, it appears, is what Harrison plans to do.
As part of the unsolicited stock-and-cash offer, made
public Nov. 17, Calgary, Alberta-based Canadian Pacific
(CP) has proposed that, should the combined company
fail to provide adequate service or offer competitive rates,
it would allow another railroad to operate from a point of
connection over the combined company’s tracks and into
its terminals. In addition, shipper customers of the combined company, which would constitute the continent’s
largest rail network, could decide where their freight could
interline with another railroad along that carrier’s network.
CP also said it would end a practice in the U.S. under which
an origin railroad dictates where it interchanges a customer’s freight with another carrier, even if other interchange
points are more advantageous to the shipper. The practice
is illegal in Canada.
Shippers, for their part, have groused for more than a
decade about the railroads using their geographic leverage
to drive up rates, deliver inconsistent service, and block
the use of any alternatives. Many shippers, because of their
location, commodity type, or both, are “captive” to the
railroads, and in a lot of cases, to just one.
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The combined two-part proposal is a “new approach” to
track and terminal access “that will change the status quo
in U.S. rail transportation,” CP said in a statement. The
first part “provides an unprecedented alternative” to shippers, who’ve long complained about the inability to access
another railroad if they felt their primary carrier offered
inferior service, was gouging them on rates, or a combination of the two.
It is also, on the face of it, an attempt to win over
aggrieved shippers and to mollify regulators on both sides
of the border that must approve the deal. U.S. regulators
have watched the country’s rail industry shrink to four east-west “Class I” carriers since it was deregulated in 1980. The
Surface Transportation Board (STB), the U.S. agency that
oversees the remnants of rail regulation, has shown little
appetite to approve any further consolidation. A proposed
1999 combination of Montreal-based Canadian National
Railway Co. and Fort Worth, Texas-based BNSF Railway
Co. was scrapped the following year after a federal appeals
court upheld the STB’s authority to impose strict merger
guidelines after a decade of subpar rail service. There has
not been a merger proposal of Class I carriers since.
Shrewdly, CP crafted the proposal to resemble what the
National Industrial Transportation League (NITL), a group
of industrial shippers that are heavy rail users, has sought
since it first proposed “reciprocal switching” rules to the
STB in July 2011. Under reciprocal switching, a railroad, for
a fee, moves a car between its interchange tracks and a customer’s private or assigned siding on another railroad for
loading and unloading freight. The NITL proposal allows
a captive shipper or receiver to gain access to a second rail
carrier if the customer’s facility is located within a 30-mile
radius of an interchange where regular switching occurs.
Only true captive customers could qualify, and the switch
would not occur if the affected railroad proved the practice
would be unsafe or if it were infeasible or harmful to existing rail service, under the group’s proposal. The proposal
would provide badly needed relief to captive shippers and
save customers between $900 million and $1.2 billion a
year in freight costs, the group said. The entire rail industry
opposes the measure, claiming it would raise costs and herald a new era of reregulation.
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