Similar to the Big Bank chart we ran on Monday, this graphic shows a series of mergers in the rail shipping industry over the past 50 years has led to the creation of four freight rail giants that now control 90% of all business.

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There are now only four that matter: CSX, Norfolk Southern, Union Pacific and Burlington Northern Santa Fe now take in more than 90% of the market.

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Source: Nicolas Rapp, September 13, 2011 The battle of the rails

Hat tip: Flowing Data

Category: Economy, M&A

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

16 Responses to “The Battle Of The Rails”

  1. Railroads: Cartel or free market success story?
    September 13, 2011: 5:00 AM ET
    With 90% of U.S. rail freight now controlled by only four companies, shippers claim the giants have unfairly banded together. Unapologetic railroads refuse to back down. An epic battle of business vs. business.

    By Mina Kimes, writer

    http://features.blogs.fortune.cnn.com/2011/09/13/showdown-on-the-railroad/

  2. BusSchDean says:

    It actually looks like only two competitors per geographic area, which doesn’t bode well for buyers, and the buyers of buyers, and the buyers of buyers of buyers, and…

    We have been warned that much of what we see in the economy does fit known economic theory. The impact of reducing the # of competitors has been studied and we can predict the inevitable higher prices.

    However, from the investment side of the same coin, owners of RR stock may get multiples just like in the game of Monopoly!

  3. Liminal Hack says:

    Hoffer, The great Schumpter has something to say to answer your question and at the same time shed some light on the ultimate fate of free markets (himself of course, a famous advocate of the latter).

    “As the development of capitalism proceeds the entrepreneur becomes obsolescent. (What Schumpeter says here is reminiscent of Weber on the ‘routinisation of charisma’.) The modern giant corporation has corporate planning and research and development sections in which the firm’s bureaucracy does what entrepreneurs did. ‘Innovation itself is being reduced to routine’ (p. 132). Schumpeter argues that ‘this affects the position of the entire bourgeois stratum’ (p. 134), even though the typical bourgeois is not an entrepreneur.

    The development of capitalism eventually destroys the remnants of the feudal ruling class which it needs to carry on the functions of government, and especially to provide government functions with glamour and prestige. (Cf. Walter Bagehot, The English Constitution, ch. 2, ‘The Monarchy’.) ‘Without protection by some non-bourgeois group [in Weber's terms a status group], the bourgeoisie is politically helpless and unable not only to lead its nation but even to take care of its particular class interest’”

    “Further, the progress of capitalism reduces the importance of the small producer and trader, and thereby erodes the meaning of ‘property’ and ‘free contract’, since property belonging to a giant corporation and contracts entered into with such a corporation do not have the same concreteness of meaning. ‘This evaporation of what we may term the material substance of property – its visible and touchable reality – affects no only the attitude of holders but also that of the workmen and of the public in general. Dematerialized, defunctionalized and absentee ownership does not impress and call forth moral allegiance as the vital form of property did’ ”

    In short, the capitalist search for economy of scale leads to market socialism, aka ‘ikea socialism’.

  4. qguy says:

    I would like to see a similar chart showing mergers in the media industry. I read somewhere recently that we’re down to perhaps 5-7 major media conglomerates now.

  5. Liminal,

    nice Post..

    One of the greatest pains to human nature is the pain of a new idea.
    http://www.en.wikiquote.org/wiki/Walter_Bagehot

    http://search.yippy.com/search?query=Walter+Bagehot&tb=sitesearch-all&v%3Aproject=clusty

    not, very, often, do we get a, well, worthwhile Bagehot-reference..
    ~~

    and, in Parallel to..”…“As the development of capitalism proceeds the entrepreneur becomes obsolescent. (What Schumpeter says here is reminiscent of Weber on the ‘routinisation of charisma’.) The modern giant corporation has corporate planning and research and development sections in which the firm’s bureaucracy does…”

    http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=Galbraith+The+New+Industrial+State

    JKG’s Book, above, goes into Detail–along those lines..
    ~~

  6. rktbrkr says:

    Anybody doubt ATT will bribe their way into merger approval for DT – get us to 2.5 cell networks and then they and VZ can kill off Sprint at their leisure

  7. also, with..”… the bourgeoisie is politically helpless and unable not only to lead its nation but even to take care of its particular class interest…”

    http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=The+disappearing+Middle-Class
    ~~

    and, here..”…erodes the meaning of ‘property’ and ‘free contract’…”

    http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=robosigning

    http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=Kelo+v.+New+London
    ~~
    and, w.”…Dematerialized, defunctionalized and absentee ownership does not impress and call forth moral allegiance as the vital form of property did’ ”…”
    ~
    “…In Controversies in Voting Behavior, Richard G. Niemi and Herbert F. Weisberg point out that election turnout in the United States has dropped steadily and significantly from a high point in 1960, when 65.4 percent of eligible voters went to the polls, to 1996, when the absolute level of turnout dropped to below half of the eligible electorate…”
    Can Cultural Change Explain the Decline in Voter Turnout?
    http://www.karlonia.com/2008/04/11/voter-turnout-decline/

    to begin with..~

  8. Liminal Hack says:

    Hoffer thanks for the JKG link – need to add that to my reading list. And regarding the pain of new ideas, my own take on that penned some time ago…

    http://liminalhack.wordpress.com/2010/11/21/psychoanalysis/

  9. Orange14 says:

    You can go back and read about the beginning of the transcontinental RRs in the fine new book by Richard White, “Railroaded.” There was not much difference between the development of the RRs in the 1860-1890s and new financial instruments in the 1970-2008s except the railroads did leave a physical legacy that was useful. The financial instruments have left nothing but grief.

  10. MikeinMass says:

    I love these charts. Imagine the number of companies if it was expanded an additional 50 years back.

  11. rktbrkr says:

    This is just a continuation of preferential treatment of RRs starting with land grants and now defacto duopolies in their service territories.

    The most important action by free market capitalists is to lobby to obtain preferential treatment to reduce/eliminate competition.

    The TBTF have taken their lobbying success one step further with their private profits/ public losses scheme.

  12. wunsacon says:

    I will hazard a guess about what happened to many of these. A bunch of financial engineers came in, stripped the companies of their operating cushion, borrowed money against company assets, and sold the remains in bad times. In the end, they turned what was mostly a series of “train robberies” into case studies for business schools texts to celebrate “industry consolidation” to “achieve scale” and “deliver higher ROI”. What does the public get out of this? The public pays higher train shipping fees (thanks to less competition) and guarantees loans to pay for the textbooks to teach more misinformation.

    Just a guess…

  13. BusSchDean says:

    Thanks, Orange14!

    The heft needed to move that much of the economy may have been similar, and may argue for the need for large and powerful players. That said, the difference goes way beyond the physical legacy to the very underlying personal motivation. The IBG/YBG attitude in the finance community guaranteed no legacy because the actors actually knew they were tearing down something socially valuable. They were not even trying to build something worthwhile. It wasn’t business with them; it was a game they would walk away from.

    Final point, the history of the Pullman Company and George Pullman in particular shows someone who created a virtual monopoly service for the railroads that made them all a lot of money, and made customers happy.

  14. Liminal,

    re: JKG link, no prob.

    ’tis a good book..

    also, w/ http://liminalhack.wordpress.com/2010/11/21/psychoanalysis/ thought-provoking..going to let it ‘sink-in’, a spell..~
    ~~

    also, ‘these Charts’, as in the Post, are a far cry from G.H.W. Bush (#’s 40 b. & 41)’s “Thousand Points of Light”, no?

    with that, I’ve long thought that, if “We” ’twere to get this “Ship” (“Our” Economy) out of the doldrums..the S&P 500 needed to be turned into the ‘S&P 500,000′..”Back to the Future”, so to speak..

  15. Liminal Hack says:

    “”with that, I’ve long thought that, if “We” ’twere to get this “Ship” (“Our” Economy) out of the doldrums..the S&P 500 needed to be turned into the ‘S&P 500,000′..”Back to the Future”, so to speak..”

    Totally agree. Global money supply=60 tn, global bond mkt=95tn, developed world real estate=115tn

    global equities=50tn.

    I imagine we’ll see cap moving out of bonds and into equities over the long term, due to various structural issues incl demographics, lack of risk free rates, rating uncertainties etc. Course for that to happen we do need more new equity issuance, from a range of smaller concerns.