Railroad Giants Union Pacific, Norfolk Southern Cite Competitor Alliances to Support Merger

Union Pacific and Norfolk Southern, two major railroad companies, have highlighted the recent alliance agreements between their competitors as evidence supporting their proposed merger. The executives from both companies emphasized that these alliances demonstrate the potential for increased competition within the industry, which aligns with their merger objectives.

During an investor conference, the chief executive of Norfolk Southern stated that the concept of creating a transcontinental railroad has already enhanced industry competition. This point is crucial, as it validates their merger proposal. The Surface Transportation Board (STB) has regulations that encourage companies to achieve "near-merger benefits" through alliances, while avoiding transportation service issues that could arise from mergers. These regulations also require that large mergers must "enhance" rather than merely "maintain" industry competition.

Union Pacific's chief executive echoed this sentiment, noting that the current competitive landscape is intense and that this competition will aid in their STB approval process. Last month, BNSF and CSX announced a partnership to offer seamless transportation services across the United States, including a new international route connecting BNSF's Kansas City hub with CSX's East Coast ports. This week, CSX and Canadian National further announced plans to develop a new route connecting Nashville, Tennessee, with Vancouver and Prince Rupert in British Columbia, Canada, via Memphis.

Executives from BNSF, CSX, Canadian National, and Canadian Pacific Kansas City emphasized that Class I railroads do not need to merge to grow; instead, they can focus on interline cooperation to provide more options for freight customers. While Union Pacific acknowledges that alliances can enhance competitors' capabilities, they argue that a merger would have a more lasting impact. A merger would centralize decision-making within a single company, providing more permanent benefits compared to temporary alliances.

Union Pacific's chief executive provided an example: if a railroad company faces a shortage of locomotives, it might abandon a "run-through power agreement" with another company. This is because, during times of scarcity, companies prioritize their own needs, leading to the breakdown of such agreements. Union Pacific also downplayed the potential impact of the Canadian National and CSX alliance, noting that their proposed route from the West Coast to Nashville is 700 miles shorter than the Canadian National and CSX route from Vancouver to Nashville via Memphis.

Both Union Pacific and Norfolk Southern highlighted the potential benefits of their merger, including driving economic growth, enhancing the competitiveness of American businesses globally, and revitalizing American industry. Union Pacific's chief executive met with high-level officials from the Trump administration, who expressed understanding and support for the merger proposal, recognizing its potential benefits for the country.

Norfolk Southern's chief executive compared the merger to the construction of the U.S. Interstate Highway System under President Dwight D. Eisenhower in 1956. He stated that this merger could have a similarly transformative impact on the freight industry, potentially reversing the shift of freight volume from rail to road that occurred after the highway system was built. Despite criticism from freight customer associations, some labor unions, and certain elected officials, who argue that the merger could reduce customer choices and cause service issues, Norfolk Southern's chief executive reported receiving generally positive feedback from these groups.

Union Pacific's chief executive noted that the current fragmented railroad network, with two major railroads in the East and West and two Canadian railroads operating in the U.S., cannot efficiently meet customer needs. He emphasized that the goal is not to return to an era with 40 major railroads or to give railroads absolute control, but rather to compete effectively against trucking, which is currently the primary competitor. The teams from Union Pacific and Norfolk Southern are preparing a comprehensive merger application, expected to be over 4,000 pages, to be submitted to the STB after October 29. Norfolk Southern plans to hold a shareholder vote on the merger before the end of the year.