In yet another failure for the progressive antitrust movement.
Brian Albrecht recently wrote a piece for Capital Matters about a report he co-authored that looks at the doomsday predictions regarding major corporate mergers of the recent past. “We find that most of the doomsday scenarios that critics predicted never materialized,” he wrote.
I also wrote a post on that report, which looked at Amazon’s purchase of Whole Foods, the consolidation in the beer industry, Bayer’s purchase of Monsanto, Google’s purchase of Fitbit, Facebook’s purchase of Instagram and WhatsApp, and Ticketmaster’s merger with Live Nation. All of those failed to deliver the catastrophes predicted by those who opposed the mergers, and, in many cases, things improved substantially instead.
A more recent supposed doomsday merger is that between Canadian Pacific and Kansas City Southern, two of the seven Class I freight railroads in the U.S. The companies officially combined over the weekend. The freight-rail sector is often decried for its consolidation, with critics pointing out that there used to be dozens of Class I railroads and now there remain only six. This merger is seen as evidence of more anticompetitive behavior.
The first thing detractors fail to mention is that, while the industry has consolidated in the past, this is the first merger between Class I railroads since the 1990s. The second is that Canadian Pacific and Kansas City Southern are the two smallest Class I railroads, and the new combined railroad will still be the smallest.
Regulators came to the sensible conclusion that allowing them to merge would help competition in the sector. As their names suggest, Canadian Pacific’s route network is concentrated in western Canada with connections to the American Midwest, and Kansas City Southern’s network extends south from the Midwest into Mexico. The new combined railroad, CPKC, will be the only Class I railroad that connects Canada, the U.S., and Mexico, which is a selling point for shippers looking to take advantage of the trade deal between the three countries.
CPKC’s network will also allow shippers to bypass Chicago, the most congested node in the U.S. freight-rail network. The Surface Transportation Board (STB) estimated that the increased efficiency would create new capacity for shippers.
The merger itself arose from competition, as Canadian National, the other Canadian Class I railroad, had also bid for Kansas City Southern. CP announced it was buying KCS in March 2021; CN made a counteroffer in April; KCS accepted CN’s counteroffer in May; CP made a new bid in August; KCS accepted CP’s bid in September. Union Pacific, another Class I, opposed the deal, which it likely wouldn’t have done if it thought that further consolidation would benefit its business.
Prior to the economic deregulation of freight rail in 1980, there were 39 Class I railroads. Now, once the CPKC merger is finalized, there will be six. When there were 39 Class I railroads, real freight rates were higher, safety performance was worse, and infrastructure was less well maintained than in the more consolidated post-deregulation environment. The purpose of the freight-rail sector is to move stuff safely and efficiently. Over the long run, the more consolidated version of it has fulfilled its purpose better than the pre-1980 bureaucrat-managed version.
The STB ignored complaints from Biden appointees at the DOJ who wanted to hold up the merger, in yet another failure for the progressive antitrust movement. Like the other mergers that progressives have complained about, expect this one, too, to turn out okay.