Canadian Pacific joins Buffett in rejecting railroad consolidation

Two major rail operators have taken themselves out of the merger game that has gripped the industry for the past month, reshaping the competitive landscape and raising the regulatory stakes for Union Pacific’s proposed $85-billion tie-up with Norfolk Southern.

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Canadian Pacific Kansas City joined Warren Buffett’s BNSF Railway on Tuesday in publicly rejecting participation in any near-term rail industry consolidation.

The move makes it less likely that a proposed $85-billion merger last month between top US railroad operator Union Pacific and Norfolk would lead to more corporate marriages.

The merger would create the first east-west US railroad operator, reshaping the movement of goods ranging from grains to autos across the country. The news raised concerns about market concentration and prompted heated speculation that rivals would need to join forces to remain competitive.

REGIONAL DUOPOLY

The US rail industry has already undergone significant consolidation in recent decades, shrinking from dozens of carriers to six major class I railroads.

The US freight rail industry is dominated by four top US-based carriers — two in the west and two in the east. That means shippers have only two carrier options considering the point of origin.