Regulatory Winds Shift: How Deregulatory Momentum Could Reshape U.S. Transportation Equity Markets

The U.S. transportation sector stands at a crossroads, with regulatory shifts under the Biden administration creating a stark contrast to the pro-industry policies of the Trump era. While the removal of Robert Primus from the Surface Transportation Board (STB) under Trump never occurred—Primus was appointed by Biden in 2020 and confirmed in 2022—his tenure as STB chair (2025–2025) offers a lens to analyze how regulatory philosophies shape investment opportunities. His vocal opposition to railroad retaliation and merger approvals, coupled with the broader political tug-of-war over regulatory oversight, underscores a critical question: How might a return to deregulatory momentum favor rail operators and infrastructure funds?

The Primus Paradox: Regulation as a Double-Edged Sword

Primus's chairmanship was marked by a confrontational stance toward railroads, particularly his dissent in approving the $31 billion Canadian Pacific-Kansas City Southern (CPKC) merger. He argued that such consolidations risked anticompetitive practices and harmed shippers. While progressive groups praised his stance, industry critics and some analysts viewed his approach as alarmist, lacking empirical evidence to substantiate claims of widespread retaliation. This tension highlights a recurring theme in transportation policy: the balance between fostering competition and enabling industry efficiency.

Under a pro-industry regulatory framework—such as the one championed by the Trump administration—rail operators could benefit from reduced scrutiny on mergers and operational flexibility. For example, the Trump-era STB, led by Martin Oberman, was more permissive of railroad consolidation, arguing that larger entities could optimize networks and reduce costs. This philosophy historically boosted rail equity valuations, as seen in the post-2017 surge of Class I railroad stocks like Union Pacific (UNP) and CSX (CSX), which outperformed the S&P 500 by 20% over two years.

Deregulation's Allure: Lower Costs, Higher Margins

A return to deregulatory momentum could unlock value for railroad operators in several ways:
1. Mergers and Acquisitions: Eased merger approvals could lead to industry consolidation, enabling scale-driven cost efficiencies. The CPKC merger, for instance, created a transcontinental network with $10 billion in annual revenue, potentially reducing per-unit transportation costs by 15–20%.
2. Rate Flexibility: Reduced regulatory constraints on pricing could allow railroads to pass on inflationary costs to shippers, improving profit margins.
3. Infrastructure Investment: Deregulation often pairs with infrastructure spending, as seen in the Trump-era Fixing America's Surface Transportation (FAST) Act. A similar policy under a pro-industry administration could boost demand for construction and logistics firms.

Infrastructure investment funds, such as the iShares U.S. Infrastructure ETF (PAV), have historically outperformed during deregulatory periods. For example, PAV gained 12% in 2018, driven by increased federal spending on highways and rail projects.

Risks and Rebalancing: The Long Game

While deregulation offers short-term gains, investors must weigh long-term risks. Critics argue that lax oversight could stifle competition, leading to higher costs for shippers and consumers. The Biden administration's emphasis on antitrust enforcement and environmental standards reflects a counter-trend that could persist, particularly with a potential Democratic majority in 2026.

Moreover, the STB's role in mediating railroad-shipper disputes remains contentious. Primus's calls for DOJ referrals over retaliation claims, though criticized as unsubstantiated, signal a regulatory environment where policy shifts could rapidly alter risk profiles. For instance, a return to Trump-era policies might reduce litigation risks for railroads but could also invite backlash from shippers, potentially leading to legislative reforms.

Positioning the Portfolio: Strategic Bets

For investors, the key lies in hedging between regulatory cycles. Here's how to position portfolios ahead of anticipated deregulatory momentum:
1. Rail Operators: Overweight stocks of companies with strong balance sheets and exposure to intermodal or coal freight, such as Norfolk Southern (NSC) and BNSF (BNI). These firms stand to benefit from rate flexibility and merger synergies.
2. Infrastructure Funds: Allocate to ETFs like PAV or the SPDR S&P Transportation Average ETF (XTN), which capture both railroad and logistics sector gains.
3. Contingency Plays: Maintain a smaller position in antitrust-focused firms or shipper associations, which could gain traction if regulatory scrutiny intensifies.

Conclusion: Navigating the Regulatory Crossroads

The interplay between regulatory philosophy and market performance is undeniable. While the Trump-era pro-industry approach historically boosted rail and infrastructure equities, the Biden administration's focus on accountability has introduced volatility. As the 2026 election horizon looms, investors should prepare for a potential regulatory reset. By aligning portfolios with the likely contours of deregulatory momentum—while hedging against policy reversals—investors can capitalize on the next phase of U.S. transportation evolution.

In the end, the rails of progress are not just laid in steel but in the policies that govern them. The question is not whether the train will move, but which direction it will take—and who will be best positioned to ride the wave.