Creel was asked whether the advance of E. Hunter Harrison’s operating model — used at CP, Canadian National, CSX Transportation, and which Union Pacific says it’s implementing — increases or decreases the odds of Class I railroad consolidation.
“Yes, eventually it’s going to happen,” Creel said at the railway’s Oct. 4 investor day. “It’s not a matter of if — it’s when. And when it does happen this company’s going to be in a unique position. We’re going to be a leader in this industry in service, a leader in this industry in competition. We’re not afraid of it. We embrace it, we look forward to it. And if it offers compelling value for our shareholders, then certainly we’re going to consider it.”
Combining two railroads running Precision Scheduled Railroading will make it easier to clear regulatory hurdles the Surface Transportation Board has set for major mergers, Creel says.
He laid out his case for merger this way:
As Precision Scheduled Railroading takes root and gains traction, it creates capacity in the industry.
“The challenge is, it’s not enough,” Creel says.
That’s particularly the case in Chicago, where a quarter of North American rail traffic originates, terminates, or passes through. As the population grows, and highway congestion increases, there will be increased demand for freight rail.
“You can’t double traffic in Chicago and solve that problem with just PSR. It just doesn’t happen,” Creel says.
The solution to increasing demand and finite capacity will be to remove operational complexities and eliminate interchanges by combining Class I systems, he says.
Creel says that combining two like-minded railroads running Precision Scheduled Railroading will create capacity and enhance service — two of the things the STB requires consolidating railroads to show in a merger application.
“Eventually it’s going to have to happen,” Creel says. “I don’t know if it’s three years, five years, 10 years.”
The only question, Creel says, is whether railroads will combine out of necessity or if they get ahead of a capacity crunch by taking a proactive approach to merger.
No Class I railroad has filed a major merger application since the STB imposed the more stringent major merger rules in 2001.
