For months, Union Pacific’s (UP) CEO Jim Vena has been on the offensive, touting possible benefits of the proposed merger between UP and Norfolk Southern (NS). He has spoken with POTUS 47, given speeches, and written op-eds to sway public opinion. In his arguments, there are familiar promises of increased transit times, reduced congestion, and the ability to ship longer distances on a streamlined, single network. It may look promising on the surface, but the reality would tell a very different story.
Just a few years ago, Canadian Pacific (CP) and Kansas City Southern merged, reducing the number of Class I railroads from seven to six. In their arguments for the merger, CP insisted there would be minimal overlap, more efficiencies, and a broader reach by the railroad, claiming it would improve service. Sound familiar?
Despite these promises, after the merger was approved, customers of freight rail experienced a myriad of service issues with Canadian Pacific Kansas City (CPKC), including higher dwell times, missed switches, issues integrating with its information technology systems, and more. Even Vena voiced his own complaints at the time, stating, “We ran trains for a long time with no major headaches until you get the combination of CP and Kansas City.”
Moreover, if we look at the last time UP was involved in a rail merger, back in 1996 with Southern Pacific, it was far from smooth. The Surface Transportation Board (STB) was forced to issue multiple orders throughout the 2000s because the new railroad failed to fulfill the service commitments and track maintenance obligations it had made as part of the merger, along with issues of unacceptable congestion and service levels.
It would be naïve to think that another rail merger, echoing the same promises, would yield different results. This merger would create yet another bloated Class I rail carrier, controlling 45% of total U.S. tonnage, about nine times more control than what was given to CPKC after their merger. This new rail line would have no incentive to provide adequate—or better—service, especially to small captive shippers, and would cause prices to soar even higher for American businesses that rely on freight rail shipping. This is at a time when the costs of shipping via rail have already risen 20% compared to pre-pandemic levels, and in an environment where the railroads already operate essentially unilaterally. Just last week, NS alerted Alliance for Chemical Distribution members of an increase in demurrage surcharges of $3,000 per car per day for Toxic Inhalation Hazard cars, even when shippers have little, if any, control over getting their railcars of product and are ready, willing and able to unload the product when it arrives.
And don’t just take the shippers’ word for the fact that this merger will increase costs, decrease competition and negatively impact the U.S. economy. Several Class I carriers have also opposed this merger. In a position paper, BNSF Railway argues, “At the expense of smaller customers, communities, and shortlines, UP will double down on its historic practice of leveraging its now enhanced market power to drive higher rates on captive customers and favoring high-density lanes while closing low-volume lanes.”
While UP and NS may promise increased efficiencies and improved service, history tells us a different story. If this merger proceeds, it will only exacerbate the problems already plaguing the rail industry. This is exactly why the STB should oppose this merger.
Eric R. Byer is the President and CEO of the Alliance for Chemical Distribution.
