NCPA - National Center for Policy Analysis

A Privatized Canadian Railroad Runs Up Against U.S. Regulators

July 14, 2000

Prior to privatization a few years ago, the Canadian National Railway was in sorry shape. It ate up government subsidies and still lost money. It was burdened with debt, riddled by inefficiency and beset by labor strife.

Today, five years after its sale to the private sector and radical deregulation, CNR is regarded as the most efficient rail company on the continent.

  • The company steers more traffic with less than half its former staff and has reduced its costs as a percentage of revenue to 72 percent from 95 percent.
  • The remaining employees have racked up enormous gains in productivity and make more money.
  • The sale of CNR shares returned C$2.2 billion to the government's coffers -- and as a private company CNR pays millions to the government in taxes.
  • Since its initial public offering, CNR's share price has risen 210 percent on the New York Stock Exchange.

But the story doesn't end there. CNR wants to merge with the Burlington Northern-Santa Fe Corp. Although the company expected a degree of political opposition to the merger in Canada, it never anticipated that American regulators would interfere in the deal. But the U.S. Surface Transportation Board -- which usually rubber-stamps mergers with alacrity -- this March put all mergers on hold for 15 months.

It seems a parade of representatives of competing railroads showed up at STB hearings on the merger. They objected that the proposed marriage would hurt their interests. Observers at the hearings report that they were like a flashback to the regulated past, with competitors lining up to sabotage the chances of their rivals.

The two railroads have taken their case to a U.S. appeals court to try to speed the STB to an earlier decision.

Source: Peter Holle (Frontier Center for Public Policy, Winnipeg), "U.S. Regulators Jolt a U.S.-Canadian Merger Off Track," Wall Street Journal, July 14, 2000.

 

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