The possible Union Pacific merger could disrupt the rail industry in America.

Concerns Over Proposed Rail Merger

Rail transport plays a crucial role in the U.S. economy, and the potential $85 billion merger between Union Pacific and Norfolk Southern raises worries about excessive market concentration in an already integrated sector.

This could lead to increased transportation costs, diminished services, and pressure on industries dependent on rail, including agriculture and energy.

At this point, it’s vital for regulators not to simply accept the claims from the companies involved. They should really ask for evidence. This has been our stance regarding this merger, and it seems both the Department of Justice and the Surface Transportation Board share this view.

This merger, we fear, could further enhance freight rail consolidation, cutting down competitive choices for shippers and ultimately raising costs for consumers and businesses alike.

As part of its assessment, the Justice Department urged the STB to provide specific executive-level insights about its merger evaluations involving these companies. On March 18, the STB requested that Union Pacific and Norfolk Southern submit internal documents that reflect on how the merger could impact competition, pricing, and market dynamics.

These documents are crucial because they encapsulate how the companies anticipate these changes will play out.

Attorneys general nationwide have pointed out that the merger could solidify freight rail consolidation, limiting competitive options and increasing expenses. In response, the merging companies cite limited “open gateway” initiatives as proof that competition will stay intact. Ironically, Union Pacific previously dismissed a similar commitment during the 2023 merger of Canadian Pacific Railway and Kansas City Southern Railway. Now, they are asking regulators to accept weak assurances about maintaining open gateways under “commercially reasonable” terms, which lack legal enforcement.

Union Pacific argues that the merger will attract growth by removing 2 million trucks from highways through rail transport. This seems a little overly optimistic, especially because the recent merger hasn’t met even modest expectations—only achieving around 65,000 truck-to-rail conversions.

While the companies promise increased efficiency and further investments, they haven’t shared much detailed information on their pre-merger strategies or whether the same advantages could be realized through alternative approaches like partnerships. There’s also the question of whether these efficiencies would truly benefit shippers or primarily serve shareholders.

In essence, regulators shouldn’t simply take broad claims at face value.

The STB is right to question the “trust us” narrative. Internal analyses can reveal whether management expects service interruptions, pricing power shifts, or any integration issues that might impact the supply chain.

This level of scrutiny is essential—especially given the potential for reduced competition to have wide-ranging consequences in an industry that claims to be poised to shape American railways for the next century.

Given the current struggle with inflation and rising commodity prices, the implications of this merger are significant.

As the review continues, it’s crucial for the STB to avoid yielding to pressure for a quick approval. They need to ensure that all parties involved have access to the necessary information to comprehensively evaluate the merger’s true implications, and that there’s enough time for voices to be heard. Failing to do so could result in increased costs and fewer choices for years ahead.