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What happens when fewer companies control the entire rail industry?

In this Nov. 20, 2015 photo, a worker’s shadow is cast against boxes as he unloads them from a truck trailer at Worldport in Louisville, Ky. (AP Photo/Patrick Semansky)

For over a century, unionized American railroads have provided millions of well-paying jobs and served as a backbone for communities across the country. 

For generations, unionized jobs tasked with building, operating and maintaining our freight and passenger railroads (plus shipping and logistics industries) have provided workers and their families with fair pay and dependable long-term employment.

America’s railroad system has undergone decades of consolidation. The system reached its peak a hundred years ago and both trackage and employment have consistently declined since. While change is inevitable, the recent accelerated pace of consolidation has defied reasonable expectations.

Fifty years ago, our country had 63 Class I railroads; now we have seven. The “Big Seven” own or operate virtually all the long-distance track and determine when passenger trains may pass, with four of the seven controlling 83 percent of America’s rail freight. If the pending $30 billion merger between Canadian Pacific and Kansas City Southern is approved, the Big Seven will become the Bigger Six.

Across industries, consolidation has led to higher prices, worse service and reduced customer choice. We’ve seen it happen in telecommunications, where a few enormous companies now control cellular and land communications services across the nation. We’ve seen it in media and entertainment,where a few conglomerates own almost every company that makes the content you see on your screens. Most of all, we’ve seen it in Big Tech, where four or five companies — you know their names — dominate everything about your online life, from how you search, use social media, to how you get your online purchases.

What happens when fewer and fewer companies control an entire industry, as the Biden administration is considering letting happen now with railroad freight? Three things:

1) As they eliminate competition, surviving companies are empowered to hike prices, even as consumers are left with fewer alternatives. In the upper Midwest, where the non-viability of waterway shipping makes industry dependent on rail, consolidation has led shippers to reportedly pay twice the rates charged elsewhere in America. This has led to  hundreds of price-fixing lawsuits against the Big Seven in recent years.

2) Companies with longer networks and the capacity to serve larger contracts tend to prioritize long-distance and high-volume customers, which gives unfair preference to big corporate customers. For manufacturers, shipping is not an optional cost: When local manufacturers are forced to deal with giant rail conglomerates that can charge whatever they want, we put their businesses, the communities they serve and the supply chain at risk.

These reasons alone are enough to make railroad industry consolidation deeply alarming, which is why a wide range of industry groups are on record expressing their concerns about the KC Southern and Canadian Pacific merger.

3) But there’s a third reason to be alarmed by our shrinking railroad industry: Its impact on families who’ve built their lives around secure, well-paying jobs in the sector.

As the Big Seven face competition internationally and from other shipping modes, they are trying to squeeze every possible drop of profit out of their railroads, putting these cherished jobs and communities that depend on them on the chopping block if action isn’t taken.

The Big Seven have adopted tactics such as precision scheduled railroading (PSR), a scheduling approach that maintains service between busy city-to-city pairs at the cost of flexibility and reliability, especially for smaller shippers on lower-traffic routes. Most routes have no competition nowadays, and if your railroad says you have to wait, you have no choice but do so while your inventory sits in a warehouse costing you money.

According to the federal Surface Transportation Board (STB), which regulates freight rail, the industry has cut almost one-third of its headcount in just six years. STB chair Martin Oberman stated at an April hearing that “in my view, all of this has directly contributed to where we are today – rail users experiencing serious deteriorations in rail service because, on too many parts of their networks, the railroads simply do not have a sufficient number of employees.” The STB knows the railroad sector better than anyone, and Americans should listen to the agency’s warning that our railroads have cut their employees too deeply to provide safe and reliable service.

The disproportionate market power created by rail consolidation doesn’t just put railroad jobs at risk, but also other well-paying jobs in other crucial sectors, such as ports jobs Canadian Pacific has admitted that some of the growth that the proposed merger could generate would harm competing U.S. ocean ports. Workers in the ports of Seattle and Tacoma expect that if their port becomes too expensive, most of that cargo will shift north to cheaper Canadian alternatives.

Our nation can’t maintain its global competitiveness without a healthy freight logistics sector, which includes safely operated and sufficiently staffed railroads.  If our nation is serious about supporting small businesses (President Biden issued an executive order about it a year ago), it can’t let one company control of a rail corridor running west to east across Canada, north to south through the middle of the U.S., and deep into Mexico’s industrial heartland.

Matt Kent is a competition policy advocate with expertise in antitrust law and the effects of industry concentration at Public Citizen, a national consumer advocacy organization. He is a former specialist in transportation policy in the maritime sector.

Tags anti-trust Freight rail mergers Railroads Shipping shopping Unions

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