FINANCIAL EDGE, RAILWAY AGE AUGUST 2025 ISSUE: Statistics indicate that married couples are better savers and do better financially than single people. It’s not over most married couples’ natural propensity to nest vs. the go-go life of a swinging single. Two people sharing one set of common expenses is more cost-effective and efficient than a single household. According to The Wall Street Journal, the median net worth of married couples between the ages of 25 and 34 is nine times that of similarly aged single households. That frees up more capital for fun (vacations and nice cars) and savings and therefore leads to the perception of a better quality of life. This is not true just for people, but for corporations as well.
The announcement that Union Pacific intends to acquire Norfolk Southern wasn’t the most surprising news wire in 2025. (That might be that the museum commemorating the great Johnstown, Pa., floods was closed due to … wait for it … flooding.) The buzz surrounding a possible transcontinental railroad merger was quite intense. UP’s initial announcement that it was in “advanced discussions” with NS could have been a product of confirmation bias, but more likely it was a response to a Presidential Administration that seems friendly to some kinds of business.
Jason Seidl, Wall Street Contributing Editor for Railway Age, noted that UP was reading the politics in the room and that this overture felt serious. Seidl said that UP was expecting the fifth STB board member to support a merger and that the railroad hired an investment bank to assist in the evaluation. He was correct! As long-time Financial Edge columnist Tony Kruglinski often said, “If they’re spending money, then I know they’re serious.”
It had become difficult to pick up any state of the rails summary that didn’t discuss the possibility of a transcontinental merger. Some were surprised by the target of NS over CSX, but that was just noise. The real news is that if the six Class I’s become five, how long will it be before there are four or even three?
In a similar yet completely different vein, in mid-June, GATX announced an acquisition of Wells Fargo Rail in conjunction with Brookfield Asset Management. Over a period of ten years, GATX will have the option to acquire almost 100% of the Wells Fargo Rail fleet. This will make GATX the largest operating lessor of railcars and locomotives in North America and give them control/ownership of 23% of the operating lessor-owned railcar fleet.
Railcar operating lessor consolidation has been on a low simmer over the past decade. Some of the impetus has been a private equity infusion (directly or indirectly) into the railcar market; some has been the recognition that railcar prices (and rental rates for leasing cars) hadn’t exactly kept up with inflation.
After this transaction, there will be five railcar operating lessors with more than 100,000 cars, a couple with fewer than 100,000 and more than 20,000, and a larger group with 20,000 or fewer.
Here’s the point: North American rail is an incredibly mature industry that runs fluidly (more or less) over a continent. The industry frets and frets and frets again and again over growth. Mergers and acquisitions at lofty levels between some of the largest companies in a segment is about expense consolidation and reduction, efficiency and of doing more with less. It is rarely about increased prospects for organic growth.
Some people can convince (or con) themselves that a transcontinental railroad will provide better service. A railroad that can move intermodal across the country and avoid the Chicago interchange can be better at moving that freight. Ask most shippers what generally offers them better service and most would say having two railroads compete for the same business. Mergers promise improvements. North American rail hasn’t always delivered on those promises.
Mergers at these levels seem almost defensive as well as opportunistic. Like a married couple, the sum of two may deliver better financial reports together than separately.
Key differences between the mergers exist: A new railroad is not going to appear anytime soon. Generally, the existing track is all the track there is going to be. Railcar leasing is different than running a railroad. Even if the industry only intends to produce about 30,000 railcars in 2025, new railcars are easier to manufacture than new lines of track. Lessor consolidation at these levels can allow new entrants into the market that could steal market share from larger companies.
Both deals amplify the ubiquitous concerns about growth that have been and will continue to dominate the rail industry news cycle..
Got questions? Set them free at dnahass@railfin.com.
