The railroad dating game is at hand

Posted by Fred Frailey
on Thursday, September 25, 2014

Jack Koraleski, the chief executive of Union Pacific, was 63 this year. So was Michael Ward at CSX. Wick Moorman at Norfolk Southern was 61 and Dave Starling at Kansas City Southern 64. Carl Ice at BNSF was a relatively young 57. What I’m suggesting is that the next year or so could end the merger stalemate that has lasted the past two decades.

Like it or not, North America will likely end up with two national systems. Often, the impediment is that a new chief executive wants to make his mark on a railroad and not surrender it. Was it a total coincidence that Rob Krebs entered into merger talks with Canadian National a year or so before his intended retirement as top dog at BNSF in 2000? I think not. So as you look at the ages of people running these railroads, the stars seem to be coming into alignment.

Here’s what I think. Ice has a number of years left at BNSF (so too does Chairman Matt Rose), and owner Berkshire Hathaway is unafraid of making bold strategic moves when it believes it can create value. So don’t be surprised if BNSF becomes the instigator of an across-Chicago merger.

Don’t look for either CN or Canadian Pacific to be part of a railroad reconfiguration this time around. CN’s Claude Mongeau is in his early 50s and on a roll. Keith Creel, heir apparent to the throne at CP within the next year or so, is still in his 40s.

You can make the case that the operational difficulties most railroad are having will either expedite or impede a merger. They certainly demonstrate that the present wall between east and west in Chicago is not working; how much easier it would be if the delivering railroad and accepting railroad of a train in the Windy City were the same. But it could also be said that the current chaos as the industry begins to set new ton-mile records every week makes people unable to think far ahead.

For all I know, the spark could be a bid for KCS. Starling fired his heir apparent in June, reportedly for not being a team player and acting as if he was already the CEO. To my knowledge, there is nobody in the wings.

To those who say a cross-country merger is politically impossible, I say think outside the box for a minute. What do shippers want more than anything? Open access! So give it to them as a condition. The process of poaching business from a competitor will be so expensive, I imagine, that it will not be that big a factor in the end.—Fred W. Frailey

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