The challenges for the North American rail industry are daunting. Freight volumes are unpredictable, labor and fuel costs are going up, and shippers expect better and more consistent service. Patrick Fuchs, recently installed Chairman of the U.S. Surface Transportation Board (STB) in January by former President Donald Trump. He is now leading the charge for a more holistic approach to how regulatory bodies review mergers in the space.
Fuchs is looking for shorter deadlines for preliminary merger reviews. This new amendment can potentially jumpstart key processes that have sometimes faced decades-long delays. He emphasizes the importance of competitive balance over outright blocking consolidation efforts, suggesting that allowing mergers could ultimately benefit the industry by fostering competition among rail networks.
Fuchs has been a clear outlier on mergers. He argues that he’d rather enforce mitigation conditions on approved deals after the fact than deny those deals outright up front. This approach demonstrates a broader trend within the STB. Since early this year, they have been more conducive to friendly mergers in the industry. It remains to be seen how such a shift would play out in some pending, deal-heavy transactions facing a mountain of regulatory obstacles.
The North American rail industry has undergone significant consolidation over the decades. A perfect case in point is the $31 billion Canadian Pacific and Kansas City Southern merger that created the first truly seamless rail network among Canada, the U.S. and Mexico. With the finalization of this deal just recently, this continues to be an industry turning point. It is considered the last big agreement to win approval under great regulatory duress. The merger’s successful completion would set a new harmful precedent for many transactions to come.
Fuchs’s leadership comes at a pivotal time. With this demand comes increasing pressure on the rail industry to innovate and respond to new market conditions. Shippers are complaining about their service failures, and reliable service has taken on new importance with increased costs of doing business. Under Trump, the STB had taken an increasingly hostile stance towards antitrust litigants. This change will be a significant bellwether for the future of all rail mergers and acquisitions.
While the industry does have some huge hurdles to overcome, Fuchs remains hopeful. To him, the answer is successful strategic consolidations that expand service offerings and increase operational efficiencies. Instead of blocking deals outright, he hones in on creating competitive balance. This strategy puts him as an ace card in determining the future topography of North American railroads.