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Feb.8, 2016

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66 THE JOURNAL OF COMMERCE www.joc.com FEBRUARY 8.2016 INTERMODAL MARKET REPORT SPECIAL REPORT REDRAWING THE RAIL MAP? THE POTENTIAL MERGER of Canadian Pacific and Norfolk Southern railways, and the resulting tie-up such consoli- dation could spur, would shake up the Class I industry — and their shipper customers — to a degree not seen since the Staggers Act of 1980 dramatically reduced the number of major railroads operating in the U.S. That landmark legislation, giving U.S. railroads more flexibility to set car- load rates and contracts, and the other deregulatory bill that preceded it, spurred industry consolidation. Railroads ulti- mately were able to invest more in their networks, improving service and lay- ing the groundwork to compete more aggressively with trucking companies for freight moving in containers and trailers. Between 1980 and 2000, the number of Class I railroads, those with annual oper- ating revenues of $250 million or more after adjusting for inflation, shrank from 39 to just seven. Now, there's potential for the num- ber of U.S. Class I railroads to shrink to six, a move that could spur western rail- roads BNSF and Union Pacific to acquire eastern railroad CSX Transportation or Kansas City Southern Railway, the smallest of the seven with a north-south network stretching deep into Mexico. CP is promising bet ter ser v ice through smoother interchanges, but doubts remain concerning how much efficiency there is to gain, and some shippers still remember the service dis- ruptions that came from integrating the Burlington Northern and Santa Fe rail- roads in 1993. Railroads normally keep disagree- ments with one another out of the public eye, but tension over the merger has ignited a battle of words, pitting the Class I industry against CP CEO E. Hunter Harrison and his Calgary- based railroad. Union Pacif ic CEO Lance Fritz in January called blocking the deal "job 1" for his railway and the industry at large. A day later, CP fired back, saying it was "surprised and disappointed" by the remarks from UP, "itself the prod- uct of numerous mergers." CP followed

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