While railroads have been “deregulated” since the Staggers Act of 1980, mild government oversight does remain to protect public and shipper interests, overseen by the Surface Transportation Board (successor to the hated Interstate Commerce Commission that existed until 1996).
Railroads are required to submit mergers for STB review. Any transaction is expected to demonstrate public benefit (a relatively low hurdle).
A merger of two class 1 railroads (CSX, NS, CP, CN, UP, BNSF, KCS) is considered a major transaction. Mergers of shortlines or regional railroads (including acquisition by a class 1) are normally considered minor transactions but can be upgraded to “significant” or a major transaction if significant public interest questions are involved. Major transactions have a larger burden of showing public benefit and longer process (more lawyer fees . . . ). Certain transactions are considered “Exempt.”
The STB goal is to preserve competition and prevent railroad from using market power to abuse shippers.
The STB can impose conditions on approval of a merger to ensure competition and protect labor or the environment. In the past, other railroads have sought expanded rights to new traffic through conditions, but more often than not, they are not granted. The STB almost always approves minor and significant mergers (with some conditions) but major transactions have been rejected.
Railroads often negotiate with potential opposition ahead of time as well as lining up support so a merger application can be filed with as little controversy as possible.
The process for STB consideration of a merger is:
- Applicants in major and significant transactions submit a pre-filing notification describing the transaction and the information included in the application.
- STB establishes a schedule allowing interested parties to comment and to request conditions or otherwise protect their interests. Major transactions get 1 year; Significant transactions get 180 days; minor transactions get 105 days.
- Final decisions are issued 45-90 days after comment periods.
The STB is required by statute to approve significant and minor transactions unless it finds both that the transaction is likely to cause substantial lessening of competition and that the anti competitive effects of the transaction outweigh the public interest in efficient transportation which the merger supposedly furthers.
Major transactions may only be approved if the STB finds the transaction is ‘consistent with the public interest’. The STB does not favor class 1 mergers that reduce shipper options (basically all large mergers) and none have occurred in two decades.
The STB does not consider foreign ownership of a railroad in merger approval, but if a foreign entity were to control a US railroad it would trigger review by The Committee on Foreign Investment in the United States
STB approval is required not only for mergers but to be a railroad operator in any way (industrial switching operations are exempted). The STB regulates line sales and new railroads and abandonments.