The reason we stay in school, pursue advanced degrees, merge and acquire competitors is to increase market power. The former two are celebrated by society, the latter two often derided negatively as anticompetitive and made subject to regulatory and judicial punishment.
So it is that two competing eastern railroads—CSX and Norfolk Southern (NS), geographically, figuratively and frequently in hand-grenade tossing distance of each other—are currently in locked-and-loaded regulatory combat over allegations of monopoly. The Surface Transportation Board (STB) docket is Norfolk Southern Railway Company—Control Acquisition—Norfolk & Portsmouth Belt Line Railroad Company, FD No. 36836.
CSX alleges that an NS application to gain from the STB fast-track control of Norfolk & Portsmouth Belt Line Railroad (NPBL), which serves Norfolk International Terminals (NIT) through which substantial containerized cargo flows, should be rejected by the agency. CSX alleges NS and NPBL have improperly conspired to limit CSX access to NIT in contravention of NPBL’s creation more than a century ago as a neutral terminal railroad. NS owns a 57% majority of NPBL and CSX the remaining 43%.
In a separate CSX action filed several years ago and working its way to the Supreme Court is an antitrust complaint alleging NS majority control of NPBL is anticompetitive in violation of antitrust law. CSX says the NS-NPBL relationship is also under investigation by the Justice Department’s Antitrust Division. (Notably, while railroads risk running afoul of the antitrust laws in their dealings with each other, Congress made railroads largely immune from shipper antitrust allegations in favor of STB regulation—something shippers argue hasn’t worked out too well for them.)
While this latest CSX-NS punch-up will be decided by the STB and courts, there appear parallel (in some respects) cases from a century ago of dominating stock control and impeding of a competitor’s access.
In 1907, the Justice Department launched an antitrust action against Union Pacific Railroad (UP), which, through its subsidiary Oregon Short Line Railroad (OSL), held a 46% interest in competitor Southern Pacific (SP) with which UP ran parallel for some 2,000 miles. (OSL was not a short line in today’s sense, but named to communicate it was the shortest route between Wyoming and the Pacific Northwest.)
In deciding the case, the Supreme Court held that while UP did not hold through its OSL subsidiary a majority interest in SP, the 46% was “sufficient to obtain control.” UP was ordered to divest its holdings—the Court ruling the 46% dominating stock interest “does, as a matter of fact, abridge free competition, and is an illegal restraint of interstate trade under the Sherman [Antitrust] Act.”
And in 1912, the Justice Department launched an antitrust action against Terminal Railroad Association of St. Louis (TRRA), organized in 1889 by financial speculator and railroad baron Jay Gould to achieve control of Mississippi River crossings at St. Louis and thus impede competitors’ access.
At the time, two railroad bridges—the James B. Eads and Merchants—spanned the Mississippi River between St. Louis, Mo., and East St. Louis, Ill., while Wiggins Ferry Co. provided a third competing crossing via water. These three Mississippi River crossings were essential to 24 separate railroads reaching St. Louis as not a single one operated its own river crossing.
In addition to gobbling up 14 of those 24 railroads, Gould gained control of the Eads and Merchants bridges, the Wiggins Ferry Co., and terminal and switching facilities on either side of the river. The remaining 10 railroads were at the mercy of Gould’s TRRA pricing and practices if they wished to cross the Mississippi River at St. Louis. In its charging documents, the Justice Department sought dissolution of TRRA.
The Supreme Court found that the coordinated ratemaking and other activities of the TRRA “are not consistent with free competition”—that “this control and possession constitute such a grip upon the commerce of St. Louis and commerce which must cross the river there, whether coming from the East or West, as to be both an illegal restraint and an attempt to monopolize.”
But rather than dissolve TRRA as sought by the Justice Department, the Court instructed TRRA to act with neutrality in its pricing and service toward all railroads converging on St. Louis, thus transforming a so-called “bad trust” into a “good trust.” In doing so, the Court cited a Rule of Reason it first articulated in 1899—that large size and monopoly in themselves are not necessarily evil.
Like so much else in the railroad industry, what’s new is actually old—although those cases were decided in an era before ubiquitous motor truck competition.
A more complete discussion of railroads and the antitrust laws is found in Frank N. Wilner’s “Railroads & Economic Regulation,” available from Simmons-Boardman Books at https://www.railwayeducationalbureau.com, 800-228-9670.
