Cutting to the chase on the 2027 STB merger decision: On July 30, Union Pacific and Norfolk Southern submitted to the Surface Transportation Board their prefiling notification, which is basically a heads up on their official merger application, expected in three to six months (between Oct. 30, 2025 and Jan. 29, 2026).
Receipt of the application starts a ~15-month STB process, which places a final merger decision by the Board in February, March or April 2027. It’s possible in 14 months if everything runs smoothly; for example, if the merger application is quickly deemed complete and accepted by the Board, rather than sent back to UP and NS with a request for more detail.
As we go through the STB process, every step is going to be written about and overanalyzed to a tortuous degree, particularly regarding the untested enhanced competition requirement within the public-interest test framework of the 2001 Merger Rules. We’ll no doubt get sucked into that morass as well, but today we’re going to get in our time machine, hit the fast forward button past all of that, and step out of the TARDIS (Time And Relative Dimension In Space) the night before the STB Board members vote on the merger in early 2027. What will they be thinking?
By that time, we should have a reconstituted five-member Board, and each member will be under immense pressure to get this decision right. Whether they have an R or D after their name will have little or no bearing on their decision, in our view. The STB is far from an overtly political body.
For the merger to go through, three of the five members will have to vote to irreversibly change the industry structure, from the current UP-BNSF rail duopoly in the West and NS-CSX duopoly in the East, to a nationwide rail duopoly* of UP+NS and BNSF+CSX. Even if BNSF and CSX haven’t filed a merger application of their own by that time, this is the big “downstream effect” the 2001 Merger Rules will require the STB to assume.
Everybody knows the word duopoly is bad, so it’s a case of pick your poison. Is the United States better off with one big rail duopoly vs. the two regional ones we have now? Let’s pretend we’re an STB Board member that voted “yes” to the merger(s) in 2027, and then watched the integrations unfold over subsequent years. Here are the best-case and worst-case scenarios we would be trying to assess:
Best Case
It’s now 2032 and I really got that decision right. The UP and NS guys were correct, and it was the elimination of the interchanges that finally did the trick in terms of taking on the trucks and unlocking volume growth in this industry. The integrations were relatively smooth, just like they promised, and they can now run coast-to-coast on one set of tracks while customers have one point of contact for sales, customer service and billing, and they’re getting rate quotes dramatically faster. While the railroads are still not easy to do business with vs. truck, they’ve materially closed that gap and it’s as good as it can be. Home run.
Worst Case
Boy, those UP guys really snowed me. Blessing that merger meant I had no choice but to approve the BNSF-CSX one that followed, and we’ve created the two laziest corporations in America. That whole interchange/watershed thing was exaggerated, and after two brutal integrations that blew up service for a year each, these two railroads have simply used the injection in pricing power to further squeeze customers, grow profits and buy back tons of stock. Operating ratios are down in the low-50s, which means they’re turning away business in the 60s and 70s, and volumes remain stagnant as the industry continues to lose relevance in the U.S. economy. The only thing that will save us now is open access.
Maybe some of the language is a bit flamboyant, but you get the point. For the STB members to vote yes, UP and NS must make the case that reality will unfold much closer to the best-case scenario rather that the worst. It’s a brutal decision the Board members will be making, and no amount of research by us or anyone else is going to accurately handicap it. Good luck.
*We’re beating the rails up a bit for being duopolies, but in the interests of fairness this requires some context. They’re invariably compared with trucks, and while it’s possible to have 50 trucking companies competing fiercely for business between New York and Chicago, you’re obviously never going to have 50 railroads due to their expensive and self-funded right-of-way versus trucks running over government-funded interstates. If you have three railroads running between two points that’s about as good as it gets in terms of rail-to-rail competition. When you get down to two you arguably get into the grey zone regarding willingness to compete aggressively, point being that rail duopolies are difficult to avoid and somewhat normal in the absence of some sort of open access structure. We rely on truck vs. rail competition to keep them in check for a lot of their business, but this of course doesn’t help bulk shippers that can’t use truck.
