The Board also conducts oversight of mergers that have been approved. Merger Approval Involves Assessing the Public Interest and Mitigating Potential Harm to Competition

In determining, under the ICC Termination Act of 1995, whether proposed mergers are consistent with the public interest, the Board is required to consider a number of factors that relate to competition. Whenever necessary and feasible, the Board imposes conditions on mergers that it approves so as to mitigate potential harm associated with a merger, including harm to competition. We found that the merger reduced rail rates for four of the six commodities we reviewed. However, in one instance, the merger placed upward pressure on rates, even though other factors caused overall rate decreases. Again, these studies have focused on the overall direction of rate changes and have shown that rail rates in the Buffalo area have generally decreased. Recommendation for Executive Action

To better assist the Board in the oversight of railroad mergers and in ensuring that conditions imposed in such mergers protect against potential harm to competition, we recommend that the Board, when appropriate, require railroads and others to provide information to the Board that separately identifies the factors affecting postmerger changes in rail rates and the specific impact of these factors on rate changes. Conditions were attached to preserve competition where necessary. To address the role of the Board in approving and overseeing railroad mergers and to determine how merger oversight is conducted, we reviewed relevant laws and regulations and analyzed documents prepared by the Board addressing its merger authority and functions. Organizations Contacted

		Federal Agencies

		Shipper Associations

		Railroad Associations

		Railroads

Burlington Northern and Santa Fe Railway Co. CSX Transportation, Inc. Norfolk Southern Corporation Union Pacific Railroad Co.

		Law Firms Representing Railroads or Shipper Associations

Appendix III: Description and Discussion of Econometric Model Used to Conduct Rail Rate Analysis

This appendix describes and discusses our analysis of the effects of the 1996 UP/SP merger on rail rates in selected geographic areas where the merger had the potential for harm to competition because 2-to-1 shippers could have lost one of the two railroad carriers upon which they had relied. 3. We found that the effects of other factors on rail rates during the period are generally consistent with what has been found in previous studies.
Why GAO Did This Study

Railroads have been a primary mode of freight transportation for many years, especially for bulk commodities such as coal and grain. Over the last 25 years, the freight railroad industry has undergone substantial consolidation largely to reduce costs and increase efficiency and competitiveness. Some companies that rely on rail shipments are concerned that the mergers have reduced railroad competition and led to higher rail rates and poorer service. This report reviews (1) the role the Surface Transportation Board plays in reviewing proposed railroad mergers and overseeing mergers that have been approved and how post-merger oversight is conducted, (2) how the Board mitigates potential harm to competition, and (3) how the Union Pacific/Southern Pacific merger affected rail rates in selected geographic areas.

What GAO Found

GAO found that the Board reviews railroad merger proposals and approves those that are consistent with the public interest, ensures that any potential merger-related harm to competition is mitigated to preserve competition, and oversees mergers that have been approved. The Board imposes conditions on mergers to mitigate potential harm to competition. The Board also focuses on the overall direction and magnitude of rate changes when analyzing rail rates as part of merger oversight. It does not isolate the effects of mergers on rates from other effects. When GAO used this approach to analyze how the Union Pacific/Southern Pacific merger affected rail rates, it found that the merger reduced rates in four of six commodities studied. However, for two of the commodities, the merger put upward pressure on rates, even though other factors caused overall rates to decrease. By focusing on overall rate decreases, the Board will be unable to determine whether the decrease is due to the merger or other factors.