The proposed merger of Class I’s Union Pacific and Norfolk Southern is unlikely to significantly improve the fortunes of North America’s rail freight market, writes Railway Age Contributing Editor Jim Blaze in his assessment for International Railway Journal of recent trends and the outlook for 2026.
The fundamental drivers of the U.S. rail freight business have not changed. It is a private-sector environment, moving products because there is demonstrable market demand. Laying new tracks and ordering more rolling stock creates additional market capacity. That’s the supply function of the business.
So, what has been happening with market side demand? It has not been growing, except in selected geographic locations. Over much of the past decade, market volume and rail’s market share against other modes, including road and pipelines, has been stagnant at best and deteriorating at worst.
Comparing the rail sector with the broader picture of North American industrial productivity shows that volumes are still large, but growth rates are not high.
It is clear that carload traffic has been hit by the long-term decline in the volume of freight offered to railroads. The more-flexible intermodal freight market still allows shippers a 15% cost saving on longer hauls, but volumes have been in decline since around 2018. What it might take to re-energize the high growth rates seen in the mid-1990s and early-2000s is an open question.
What is disappointing is that despite some surges in 2020-21, 2024, and the first half of 2025, the healthy sustainable growth forecast by some has so far failed to materialize.
To obtain market insight, many of my previous clients preferred to examine four-weekly, quarter-to-date, and year-to-date traffic reports. The weekly numbers often change too much to provide much strategic insight.
The data and analysis from other experts suggest that the numbers for 2025 will pan out as follows: Total U.S. rail freight traffic will be less than national GDP growth, caroad traffic will end up slightly down or flat for most types of freight, while intermodal volumes will rise by between 1% and 2% over those seen in 2024.
If these predictions turn out to be true, and I am 90% confident they will, the market will be back to volume levels recorded seven years ago. That is well and good, as no one back in 2018 could have reasonably expected the disruption to markets caused by the COVID-19 pandemic and the more recent imposition of global tariffs on goods entering the United States by the POTUS 47 Administration.
The market outlook for 2026 looks to be rough in terms of lower intermodal and carload volumes into the first and second quarters, unless the overall economic outlook picks up in the U.S.
The Journal of Commerce and others (Railway Age among them) continue to report and comment on overall economic indicators that are flashing warnings. The manufacturing purchasing managers’ index (PMI) has fallen to a four-month low of 51.9, a disappointing number, when anything below 50 suggests the economy is contracting. Other economic indicators are similarly gloomy.
Railcar Fleet
Since around 2020, the combined North American railcar fleet has seen some new purchases to increase capacity and continued long-term maintenance. But annual railcar orders and deliveries appear to be trailing the figure calculated to maintain a steady-state fleet size. That could lead to shortages if a growth surge should develop, something that appears to have not been fully factored in.
Anyone thinking that railway mergers might help matters over the next couple of years should think again. The proposed UP-NS transcontinental merger is unlikely to result in traffic growth. Any positive impact will not emerge until between 2027 and 2030, assuming the merger is approved. But there is little to no evidence to suggest why shippers will change to moving more by rail simply because a large merger might take place. The filing that UP and NS will now have to resubmit to the Surface Transportation Board (STB) following its rejection due to incompleteness should give the market a better understanding of possible changes as the merged business seeks out new opportunities toward 2030.
Yet, there are some positives ahead. U.S. freight railways are still among the best-performing in the world for general carload productivity costs and pricing. They require no taxpayer funding as they work in an unsubsidized private-sector business model. That model is not failing. Based on data published in 2025 by the Class I railways, none are likely to experience the financial and physical asset collapse that saw the Penn Central file for bankruptcy in 1970, the largest corporate insolvency in U.S. history until the collapse of Enron in 2001.
However, over the next two decades, there might be major loss of market share to highways. That has been a possible long-term outcome, as foreseen by Oliver Wyman and discussed openly at North American rail industry events since about 2017. But it is not yet a certainty. And, importantly, not a complete collapse. Trucking will continue to compete, so if rail wants to succeed it will, somehow, need to up its game.
