Larry MacDougal via A
A Canadian Pacific locomotive is seen next to rail tanker cars near Medicine Hat, Alberta, in August 2016.
The train derailment in East Palestine, Ohio, last month has sparked renewed attention by lawmakers to a pending rail merger between the sixth- and seventh-largest U.S. rail companies, which would also heighten the risk of runaway “bomb trains” carrying tar sands oil. The Prospect first wrote about the merger last July.
Last week, Sen. Elizabeth Warren (D-MA) sent a letter to Surface Transportation Board chair Martin Oberman, urging him to block the $27 billion deal between Kansas City Southern and Canadian Pacific. Her letter argues that concentration in the railroad industry has given the dominant carriers greater market power to throttle shippers and jack up fees. It also makes the case that the deal will invigorate the very conditions that caused the East Palestine disaster by undercutting labor staffing and decreasing service quality. Canadian Pacific in particular has been routinely cited by transportation authorities for safety violations related to its outdated braking system, which has led to fatal crashes.
The Norfolk Southern derailment in East Palestine “raised significant questions about … the extent to which safety concerns have been exacerbated by government deregulation, industry cost-cutting, and efforts ‘to squeeze as much productivity out of these workers as they can,’” the letter reads. As if more evidence was needed, another Norfolk Southern train derailed in Ohio on Saturday, once again without adequate staffing, though this time not involving any toxic chemicals.
A spokesperson for the Surface Transportation Board said the agency expects to announce a decision on the merger in the first quarter of this year, which ends on March 31.
Warren’s broadsides echo the calls by a collection of outside groups who wrote to the STB back in December to spur the board to nix the deal. Organized by the Open Markets Institute, the letter pointed to many of the underlying problems across the rail industry that would show up months later in Ohio. These groups highlighted how years of downsizing and cutting corners escalated the risks of poor rail service quality.
“By allowing massive consolidation in our railroads, we’ve exposed ourselves to worse service and safety while Wall Street investors siphon off greater profits,” said Phillip Longman, Open Markets Institute policy director. “Opposing this merger is an important start at bringing back competition and real investments that actually improve rail, not pull money out of it.”
If the STB deems the merger not in the public’s interest, it would join a series of independent commissions and Cabinet agencies that have taken unprecedented actions to resist economic concentration. The Federal Communications Commission last week acted to block hedge fund Standard General from acquiring broadcaster Tegna using its public-interest authority, and Bloomberg reported Monday that the Department of Transportation will do the same to stop a merger between JetBlue and Spirit Airlines. The STB could join this drumbeat reflecting the Biden administration’s whole-of-government approach to competition policy.
Brushing off transportation authorities in the wake of accidents has become routine for Canadian Pacific.
Sens. Dick Durbin (D-IL) and Amy Klobuchar (D-MN) and Rep. Katie Porter (D-CA), along with a host of local lawmakers, have spoken out against the merger because of the impact on their states. The deal has received an unprecedented amount of opposition from interest groups across the board, from environmentalists to unions and even local firefighter groups.
“This is one of the rare issues I’ve worked on where virtually every stakeholder thinks there is no merit to the deal, except of course the management of the companies trying to jam it through,” said Liz Mair, a political consultant working to block the merger.
Under the corporate management system known as “precision scheduled railroading,” the seven Class I rail companies (which would reduce to six with this merger) have focused on delivering shareholder returns while slashing costs. That means placing fewer workers to operate each railcar and not spending funds to upgrade outdated equipment and infrastructure. In 2019, Norfolk Southern announced around 3,000 layoffs, capping off a decade that saw its workforce dwindle by 30 percent. Over that same time, the rail carrier dolled out $191 billion on stock buyback and dividends, far more than it put toward capital investments. In fact, the only other major expenditure Norfolk Southern seemed willing to make was on multimillion-dollar lobbying blitzes to stop any new safety regulations that could have prevented the chemical explosion in East Palestine, as Lever News uncovered.
Canadian Pacific bears all the same features of a railroad monopoly prone to disaster. The firm’s former CEO, Hunter Harrison, pioneered PSR, and its controlling stakeholder is currently the hedge fund Pershing Square Capital Management, run by investor Bill Ackman. The rail line has followed the same model as Norfolk Southern by cutting thousands of jobs over the past decade.
Despite some shareholder resistance, CP has sought to purchase Kansas City Southern to create the first direct route from Canada’s bitumen oil sands mines in Alberta to heavy crude refineries in Port Arthur, Texas, a town along the Gulf of Mexico. Known as tar sands, burning this fossil fuel causes even higher carbon emissions than other energy sources and leaves massive amounts of toxic wastewater after processing. Its climate impact ultimately led the Biden administration to oppose the construction of the Keystone XL Pipeline in 2021.
For these reasons, the deal has raised an outcry from local environmental groups, who point to the potentially damaging health effects for residents of the local areas that the unified rail line would run through. The top concern is the prospect of a train derailment carrying crude tar sands.
The National Resources Defense Council calls freight railcars carrying tar sands oil “bomb trains,” because of the hazardous possibilities of a highly flammable material catching fire. Just outside Quebec in 2013, a 74-car freight train carrying tar sands oil exploded, killing 47 people and setting half the town on fire. That kind of explosion occurring around a densely populated area like Chicago, which CP’s unified rail line would run through, makes the risks even more alarming. Oil spills are another concern, as well as the dangerous waste, known as petcoke, produced by refining the tar sands.
Rail lobbyists have tried to wave away the uproar over the East Palestine disaster by pointing out that thousands of train derailments happen every year. Canadian Pacific crashes rank high up among them. Just in the past year, CP already suffered several train derailments, one involving potash, a hazardous chemical, though the crash didn’t require a controlled release.
In a 2019 accident at Field Hill, near British Columbia, three workers died, one of whom investigators later discovered had prepared a whistleblower memo set to be released the next day cataloging a range of dangerous safety conditions. Because of a downhill stretch at the Field Hill site that strains the railcars’ brakes, CP’s train crew previously flagged safety warnings to the company. Year after year, those reports were ignored without any maintenance upgrades, according to the Canadian Transportation Safety Board.
The TSB investigated the fatal crash and found numerous “safety deficiencies.” Those included degraded braking systems, failure to test brakes properly, as well as inadequate training and inexperienced operators.
In response, Canadian Pacific denied responsibility for the brake failures. The company claimed that the TSB’s conclusions “misrepresented the facts,” and were riddled with “inaccuracies and misrepresentations.”
Brushing off transportation authorities in the wake of accidents has become routine for the company. In 2020, a massive oil spill from a CP freight car derailment released 1.6 million liters of oil near Guernsey, Saskatchewan. The incident prompted the U.S. Federal Railroad Administration to propose a rule that would require rail carriers to have a bare minimum of two crew members per train, which CP vowed to oppose.
To fight greater regulatory scrutiny, CP has ramped up its lobbying efforts this past year. In 2021, after announcing its proposed merger with Kansas City Southern, the two firms doubled their spending to over a million dollars and hired the high-powered consulting firm Mehlman Consulting.
According to experts, Canadian Pacific’s recent derailments are a by-product of running exceptionally long trains, upwards of two miles long, without adequate staffing. A 2019 Government Accountability Office report found that longer freight trains are more difficult to handle, leading to higher accident rates. Because of the recent findings, the bipartisan infrastructure bill commissioned a study to look into the use of ever-longer trains by Class I railroads and their impact on safety, freight and passenger service, and the environment.
