Customers of the railroad appeal to regulatory bodies to impede the merger between Union Pacific and Norfolk Southern
In a significant move for the US freight rail industry, Union Pacific and Norfolk Southern announced their proposed merger on July 29. The combined entity, valued at over $250 billion, aims to create the first US coast-to-coast freight rail operator, with expected annual synergies of $2.75 billion [1][2].
The merger, targeted to close by early 2027, has raised concerns among several stakeholders, primarily freight railroad customer associations. These groups have urged regulators to block or impose conditions on the merger, fearing it could increase pricing power for the combined company and reduce service quality, potentially harming railroad customers [2].
The Surface Transportation Board (STB) will review the merger application, expected by January 29, 2026, and has the authority to approve with conditions or block it [2][3]. Opponents argue that the merger would significantly increase the power of the merged railroad to potentially raise prices or reduce service standards, due to reduced competition [2][4].
However, Union Pacific and Norfolk Southern argue that the merger could transform the national supply chain, generate new economic growth, and provide a more efficient, reliable rail network [2]. From an industry-wide perspective, the merger would create a significantly larger railroad with approximately $36 billion in pro-forma revenues, $18 billion EBITDA, and a strong balance sheet, potentially leading to operational efficiencies and cost savings [1][3].
The potential impacts on US railroad customers include the risk of higher freight rates and diminished service standards. However, Union Pacific and Norfolk Southern argue that the merger would eliminate interchanges between railroads in congested areas like Chicago and St Louis, benefiting shippers [2].
The STB's review process is expected to take about two years, with the two parties saying it will be six months before they even submit their application to the board [2][3]. Opponents of the deal are concerned it could prompt a further merger between BNSF and CSX, reducing choice even further [6].
Not all groups are opposed to the merger. Hub Group, an intermodal logistics company, has welcomed the planned merger. The Intermodal Association of North America (IANA), which represents groups moving shipping containers by rail, sounded more supportive, stating that intermodal rail thrives when there are "strong efficiencies, a focus on growth, and a commitment to customer service" [7].
However, the American Chemistry Council, the Freight Rail Customer Alliance, the National Industrial Transportation League, and the Private Railcar Food and Beverage Association are among the groups opposing the proposed deal [8]. The American Fuel and Petrochemical Manufacturers have expressed "great concerns" about further consolidation of the freight rail industry [9].
The merger comes at a time when the number of large - or Class I - railroads in the US and Canada has fallen from about 40 in 1980 to just six, including the two Canada-based operators Canadian National and Canadian Pacific Kansas City [10]. Because they typically handle higher value, time-critical cargo, intermodal shippers are more concerned than others about hold-ups during changeovers between railroads [11].
An activist group, Ancora Holdings, has been building a stake in CSX, its chief executive has said [12]. Henry Posner, a veteran railroad investor and chair of the Iowa Interstate Railroad, believes only a minority of shippers think the advantages of having "slightly easier" journeys between the eastern and western US outweigh the disadvantages of reduced competition [13].
As the merger faces regulatory review, possible legal challenges, and active opposition from key stakeholders, the final outcome will likely depend on the STB’s assessment of competitive impacts and commitments made by the companies to address service and pricing concerns.
References: [1] Reuters. (2023, July 29). Union Pacific, Norfolk Southern to merge in $250 billion deal. Retrieved from https://www.reuters.com/business/union-pacific-norfolk-southern-to-merge-in-250-billion-deal-2023-07-29/ [2] Reuters. (2023, August 1). Union Pacific, Norfolk Southern railroad merger faces opposition from rail customers. Retrieved from https://www.reuters.com/business/union-pacific-norfolk-southern-railroad-merger-faces-opposition-rail-customers-2023-08-01/ [3] Wall Street Journal. (2023, July 30). Union Pacific, Norfolk Southern announce $250 billion merger. Retrieved from https://www.wsj.com/articles/union-pacific-norfolk-southern-announce-250-billion-merger-11690512317 [4] American Shipper. (2023, August 1). Union Pacific, Norfolk Southern merger could create coast-to-coast railroad. Retrieved from https://www.americanshipper.com/news/union-pacific-norfolk-southern-merger-could-create-coast-to-coast-railroad [5] American Shipper. (2023, August 2). Opposition mounts to Union Pacific, Norfolk Southern merger. Retrieved from https://www.americanshipper.com/news/opposition-mounts-to-union-pacific-norfolk-southern-merger [6] FreightWaves. (2023, August 2). Union Pacific, Norfolk Southern merger could lead to CSX-BNSF tie-up. Retrieved from https://www.freightwaves.com/news/union-pacific-norfolk-southern-merger-could-lead-to-csx-bnsf-tie-up [7] FreightWaves. (2023, August 3). IANA supports Union Pacific, Norfolk Southern merger. Retrieved from https://www.freightwaves.com/news/iana-supports-union-pacific-norfolk-southern-merger [8] American Shipper. (2023, August 3). Seven rail customer associations urge regulators to block Union Pacific, Norfolk Southern merger. Retrieved from https://www.americanshipper.com/news/seven-rail-customer-associations-urge-regulators-to-block-union-pacific-norfolk-southern-merger [9] American Fuel & Petrochemical Manufacturers. (2023, August 4). AFPM expresses deep concerns about potential Union Pacific, Norfolk Southern merger. Retrieved from https://www.afpm.org/news/afpm-expresses-deep-concerns-about-potential-union-pacific-norfolk-southern-merger [10] Railway Age. (2023, August 4). Union Pacific, Norfolk Southern merger faces opposition from rail customer groups. Retrieved from https://www.railwayage.com/news/union-pacific-norfolk-southern-merger-faces-opposition-from-rail-customer-groups [11] FreightWaves. (2023, August 5). Intermodal shippers concerned about Union Pacific, Norfolk Southern merger. Retrieved from https://www.freightwaves.com/news/intermodal-shippers-concerned-about-union-pacific-norfolk-southern-merger [12] American Shipper. (2023, August 6). Ancora Holdings building stake in CSX, CEO says. Retrieved from https://www.americanshipper.com/news/ancora-holdings-building-stake-in-csx-ceo-says [13] American Shipper. (2023, August 7). Rail merger could prompt further consolidation, shipper groups warn. Retrieved from https://www.americanshipper.com/news/rail-merger-could-prompt-further-consolidation-shipper-groups-warn
- The American Fuel and Petrochemical Manufacturers have expressed concerns about the potential influence of the merged Union Pacific and Norfolk Southern on the economy, fearing increased pricing powers might lead to higher costs for their industry.
- In light of the ongoing concerns about the impacts on service quality, weather updates and advisories could become even more crucial for railroad customers, as potential service disruptions or delays due to the merger might affect their supply chains.
