We hosted a former Class I CEO to review the recent Union Pacific-Norfolk Southern merger application. He sees a very strong filing with acceptance likely though not until 2027. The CGP (Committed Gateway Pricing) solution enhances competition and should pass STB’s test. The network plan supports disclosed truck conversion opportunities in transcontinental and watershed lanes. Competitors are likely compelled to adapt and could eventually propose their own combinations.
Our panelist (who prefers his identity not be disclosed) believes UP and NS have put forward a very strong application that is likely to be accepted, though finalized likely in 2027. Review could likely take longer than planned, and a 1Q27 timeframe for a final decision is reasonable with little possibility that the process can be expedited. We believe this could very well get pushed to later in the 1Q27 quarter. Public comments on the merger application’s completeness are due 12/29/25. Overall, Our panelist views the filing as adequately showcasing enhanced competition with no glaring omissions on competition or concessions.
CGP effectively does the job of enhancing competition by offering shippers more choices. Traditional gateway pricing has been limited to some lanes in the I-5 corridor and allows a captive shipper to gain access to a competing railroad at pre-determined prices. UP has moved to offer this to all captive shippers of CSX and BNSF across all applicable lanes, significantly expanding choice. A fixed pricing matrix significantly speeds up the transcon’s quoting speed. Additionally, UP has sworn off pricing in excess of rail inflation (plus fuel) on these CGP hauls while also committing to prevailing service standards. Our panelist believes this will measure favorably to the STB’s competition test.
The disclosed operating and pricing plan fully tracks with intent to convert significant truck freight to rail. Seven of 10 terminal expansions are in the watershed region, with our panelist emphasizing that very little capacity has been constructed on these lanes so far. His view aligns with our analysis on revenue synergy upside from watershed. He also expressed high confidence in the transcon piece, noting that 4 out of the disclosed 6 new intermodal lanes will drive significant competitive advantage for the transcon. The Port of LA to gain import competitiveness as a result, taking share from the Panama Canal. Lastly, our panelist noted that auto freight conversions to rail remain an underappreciated aspect of merger synergies.
STB intends to focus on shippers’ concerns, so some concessions might be required but likely will be established on a case-by-case basis. The STB will likely require that the transcon keep CGP in place through the long oversight period that will be mandated in a potential approval. Opposition from competing Class Is and unions are unlikely to factor much in the regulators’ review. Our panelist is not surprised that the combination sees only three 2- to-1 shippers and views this is as a very manageable issue for UP.
Competing Class I’s would necessarily have to take service-improving actions to adapt to this proposed transcon, including potentially combining. The suite of actions includes 1) additional capital spend to bolster service, 2) entering alliances among the remaining Class I’s, 3) eventually joining the CGP regime with the UP/NC transcon and 4) exploring potential combinations among each other. Our panelist sees little chance of favorable outcomes from the STB for Class I competitors and would thus not be surprised to eventually see competing rails propose a combination of their own.
