This is the third in a five-part series about railroad growth coming from truck conversions. Given the Union Pacific’s proposed acquisition of Norfolk Southern, UP’s Dec 19, 2025 merger application sent to the Surface Transportation Board predicts there will be more than two million trucks converted to rail from this new network within three years.
Per the chart below from the U.S. Bureau of Transportation Statistics, Intermodal underwent two “growth” periods over the past 25 years, the first in 2001 to 2007 due to International Intermodal growth of almost 5% per year. After the housing crisis and resulting recession, Domestic Intermodal growth began in 2011 through 2018 with a little more than 3% growth per year. Note that overall Intermodal volume has been flat since 2018—zero growth Why? Service has been better since PSR (Precision Scheduled Railroading) was implemented, but with no growth. Is there something else at play?
That the merger applicants believe there are about two million potential convertible trucks to rail from this acquisition seems viable. The data sets can be bought to replicate the analysis. The question is, how much is realistically convertible in three years? Let’s focus on the 1.17 million trucks to convert to Domestic Intermodal. Looking at Intermodal maps of the UP and NS networks, what are the new Domestic Intermodal lanes being added? One in the application is the EP-AL (El Paso, Tex., to Birmingham, Ala.)—not a huge truck lane in terms of demand, but let’s use it as an example.
Once the transaction completes, rates and service need to be put in place. UP’s Santa Theresa Intermodal Terminal in New Mexico is a relatively new facility. Let’s assume it has lift, parking and gate capacity. I’m not as familiar with Birmingham, but let’s assume it also has lift, parking and gate capacity for the conversions. We need 53-foot containers and chassis at both locations. The IMCs (intermodal marketing companies) that own containers on UP (e.g. Hub Group, Schneider and Knight-Swift) and the rail container programs (let’s focus on EMP and ignore the UMAX/CSX question for now) should have some capacity—maybe 6-8% available, not 26%. New containers will need to be acquired.
Will there be adequate chassis in time for the new business? Like the containers, I have concerns. I don’t see an excess of 6% capacity on 53-foot chassis currently. UP sold off much of its chassis fleet to DCLI (Direct ChassisLink Leasing), so it will depend on how much additional capacity DCLI and/or the IMCs can get their hands on, if they’re willing to invest and buy new chassis. Chassis take time to build and are more expensive than containers. And recall, this is a UP+NS transaction; CSX and BNSF haven’t said they’re going to “get married” and therefore won’t be committing container, chassis or car capacity to UP+NS growth.
Are there enough well cars in the fleet? Between TTX and BNSF, the largest domestic well car providers, there may be 5-7% available capacity. Cars will need to be acquired and built, and this takes a willingness to invest and time to build. Will BNSF buy cars so UP+NS can grow? Will TTX buy cars for UP+NS? BNSF’s and CSX’s ownership in TTX will have a say. A key element of PSR is maximizing utilization of resources, which is great in flat or down markets. But as history shows us, a lack of resources historically retards rail growth in bull markets. Will UP+NS and their IMCs bet on the future and have additional capacity to capture this growth on day 1? We should be skeptical based upon past experiences.
Having access to capacity when these new lanes are put in place is one element of the equation. An additional element is the sales process. More than 90% of domestic intermodal moves are wholesale moves where the railroad provides rail service to an IMC. That IMC provides the retail price and the door-to-door service, including the container, dray service, rail service and customer service to the shipper. The railroads are largely insulated from the freight payor and the overall door-to-door experience by the intermediary.
Why does this matter? The wholesale model puts a lot of price on the first- and last-mile execution, with which the railroads aren’t involved. There isn’t the same amount of “ownership” for service performance by the railroads as with truck, since there are multiple parties involved and priorities at terminals or handoff points aren’t always aligned. Think of ramp dwell. In addition, much of the truck conversion in the application like the EP-AL lane is short-haul freight that is “messier”: multiple stops, time sensitive, not balanced. It is difficult for customers who truck their freight today to convert to intermodal. It often means that they get a reduced-service product that is more complicated than “just trucking” it. This makes intermodal harder for the railroads to sell. Again, more complicated and not necessarily cheaper.
Converting truck freight to Intermodal isn’t easy. Of all the railroad growth methods, new conversions are the hardest. From experience, it’s far easier to grow with an existing Intermodal shipper who is growing (think Amazon) or “stealing” someone else’s Intermodal business with a better price or leverage in a large buy contract. For the large IMCs vs. smaller niche IMCs, size and scale often wins. Look at J.B. Hunt or Hub Group as examples.
In the existing intermodal network, there isn’t much freight left to grab outside of arbitrage opportunities if fuel prices surge or truck capacity unexpectedly tightens, as it did back in 2013. The main Intermodal lanes like Los Angles to Chicago are largely penetrated by rail in the 60%-70% range. Why not 100%? There are many reasons: Using rail often requires a regular steady volume pairing inbound with outbound to get the right economics. Irregular loads, rush loads, back haul pricing, triangulation, leverage from large truck carriers, diversification of modal portfolios are numerous reasons some portion of convertible freight never converts.
In addition, not all Intermodal lanes offer the same savings. The rail-competitive Intermodal lanes (Los Angeles-Chicago, Los Angeles-Dallas, Chicago-New York/New Jersey, Chicago-Atlanta) are largely penetrated because there is rail-to-rail competition. In Los Angeles-Chicago, BNSF and UP go head-to-head. Pricing and service in this lane are competitive. Shippers can save 20%-30% using rail vs. truck with good service. In Chicago-New York/New Jersey, a similar dynamic exists for CSX and NS. In single-served rail lanes like Laredo, Tex.-Chicago, where there is no BNSF rail competition to UP, the rail rates are 15%-50% higher than the equivalent rates in competitive lanes, making the resulting savings lower or even nonexistent vs. truck.
A desire for rail-to-rail competition is why ocean carriers pushed BNSF to open International Intermodal service from Los Angeles/Long Beach to Salt Lake City, historically a lane where UP only competed against trucks. BNSF entering this market is a great win for shippers in the Salt Lake City area. Rates will come down and service will improve. Container volume currently trucked from Los Angeles/Long Beach to Salt Lake City will convert to rail with service and rail rate competition—better rates, better service and less risk for the shipper than a sole-source provider. Competition will bring growth. More on this in Part 4.
The new proposed UP-NS lane from El Paso to Birmingham may have some freight to convert. How much will convert will be a function of service, rates and available capacity. If the asset capacity investments are made, will a single rail solution lead to 60%-70% conversion? Based on history, I say no. A 25%-35% conversion of the 1.17 million truckloads to Doestic Intermodal, 300,000 to 400,000 loads over five years, is more achievable. Again, this will ultimately depend on service, rates, asset capacity, and balance vs. the truck alternative.
We’ve had three years of stagnant truck rates while rail rates increased at above-inflation levels. The North American rail industry has not grown since 2017 and has consistently lost share to truck and other modes since 2018. Rail is a precious commodity, and the benefits of rail transportation cost savings, access to capacity, environmental benefits and better jobs) are without dispute. Generating new rail-to-rail competition is critical for this transaction to be beneficial. Join us in a few weeks for Part 4 as we peel back the veil on the benefits to shippers and the railroads to competition. Adding competition through reciprocal switching among the Class I’s, like in Canada with interswitching, could make this transaction a win-win for all parties.
Rob Russell, Managing Partner, Russell-Kroese Partners (RKP), is a seasoned transportation executive who operates fluidly from the boardroom to the shop floor. A certified six sigma black belt and a LEAN champion, Rob is a proven business leader who has a track record of strategy development, financial planning, business development, operations and performance management to accomplish an organization’s desired goals. RKP partners with railroads, ports, shippers and land developers on growth strategy, market development, competitive positioning and operational execution. They help clients translate complex transportation dynamics into clear, execution-ready business decisions. You can learn more about RKP at www.russellkroese.com.
