If federal regulators ever needed an example of why they should not rubber-stamp corporate merger and acquisition activity, the Union Pacific/Southern Pacific fiasco is a textbook case.
More than a year ago, Larry Thomas, president of the Society of the Plastics Industry Inc. in Washington, called the merger plan ``bad precedent and bad government'' for creating a rail monopoly in a region critical to the plastics industry.
Prior to the July 1996 merger approval by the federal Surface Transportation Board, rail officials dismissed such concerns. They argued that the large resin companies that opposed the deal were ``so large that they are in a position to dictate to their transportation providers far more than those providers can dictate to them.''
Even when the larger Chemical Manufacturers Association withdrew its objections to the deal, SPI stood alone against the $5.4 billion merger.
SPI and Thomas could not have been more correct.
Union Pacific has serious safety problems — a dozen employees and bystanders killed in accidents since January. Congestion problems are at the heart of the situation.
Traffic in the Houston area — a major manufacturing and distribution hub for resin suppliers — has turned to molasses. Empty rail cars get lost in the system. Fully loaded cars take days just to get across town, let alone across the country.
Suppliers have had to adjust production levels to deal with the transportation nightmare. Some have enlisted truck transportation to get precious resin to processors.
Before the merger, the railroad companies argued that the merger would not create a monopoly because alternative modes of transportation did indeed exist. Federal officials accepted that foolishness.
The truth is, allowing any company to assume a monopoly share of an industry — UP controls 85 percent of Houston rail traffic — is dangerous. The federal government's proper role here is not to regulate the rail industry. Instead, it needs to allow the invisible hand of competition to moderate shipping costs and keep crucial transportation lines running smoothly.
In this case, SPI has every right to say, ``I told you so.''