While consolidation sentiment varied at the NEARS conference, there was a belief that the deal would get done. Comments on the economic backdrop were not positive, varying from sub-seasonal to weakening. We continue to believe the Union Pacific+Norfolk Southern deal has a 90% chance of getting approval and expect synergy numbers to be walked up over time.
In a fireside chat with TD Cowen Managing Director Industrials and Railway Age Wall Street Contributing Editor Jason Seidl, Union Pacific CFO Jennifer Hamann struck a very positive tone regarding the company’s proposed acquisition of NS. She noted that UP was fairly conservative when publishing its synergy targets and ranked transcontinental intermodal as having the most potential and quickest benefit to the railroad’s top line. Watershed freight opportunities were also called out with a tip of the proverbial cap to our note quantifying the opportunity that was published last week. That said, she was quick to point out that these watershed opportunities would take longer to develop than the transcontinental intermodal business. Although no update on when the official filing would reach the desk of the STB, it was noted that they are targeting the lower end of the three- to six-month window deadline. This means our next major catalyst beyond 3Q25 earnings could come in the first half of November.
NS Vice President Business Development Stefan Loeb offered a sobering industrial development outlook, noting that the number of projects moving into engineering and construction declined from 30 in 1Q25 to 20 in 2Q25 and then sharply down to 5 in 3Q25. Tariff uncertainty was attributed for the freeze, and 3Q’s number was the lowest number the NS panelist has ever seen. Tariffs present a hurdle to reindustrialization due to the degree of import input that takes place in industrial projects.
First mile/last mile service was in focus, and panelists highlighted short line partnerships and visibility. Short lines help serve ~40% of NS’s industrial business. As a result, NS implemented a system to track interchange performance daily with short line partners in 2024. Volumes on monitored interchanges grew 4.5% by the end of the year. NS also set up a dedicated sales team to interact with the short lines. Visibility technology such as RailPulse and internally developed solutions for smaller customers have also been deployed.
A supply chain panel consisting of a railroad shipper, a major TMS (transportation management system) provider and a short line railroad noted that the economic conditions remain very challenged. One panelist stated that while his company has finalized plans for next year, he would not be surprised to see it flat-to-down. When asked about the proposed UP+NS transaction, it was noted that none of the companies on stage have taken an official stance (with one stating they always remain neutral). The TMS provider stated agreement with many of the stated goals of the merger in principle and is hopeful it is successful as this company is a large UP partner. The shipper expressed a good deal of concern, given his experience over the years with mergers, including the recent technology glitches from the CPKC.
BNSF General Director of Marketing – Industrial Products Mark Ganaway introduced a new first/last mile team that focuses on carload growth. Partnership with 200 short lines has helped BNSF grow into new markets, including a new intermodal facility in Salt Lake City won from a competitor. Despite the uncertainty, BNSF is investing in improving service; it has rolled out new initiatives for customer service, AI that identifies track defects, and streamlined processes for customer communication. Policy uncertainty around tariffs has created a visible slowdown in projects, and many customers are questioning when to make investment decisions. The macro-outlook has worsened, as we’ve moved through the year, with hope that deregulation and rate cuts will help spur the industrial economy, though there are no signs to be seen.
STB Vice Chair Michelle Schultz spoke to STB procedures while remaining measured on merger-related questions. The Vice Chair attested to measures the Board has taken to issue decisions quickly and reduce delays. Once UP and NS file their merger application, the Board is required to decide on whether the application is complete within 30 days, following which a comment period commences for up to one year.
