Written by
Rick Paterson, Managing Director, Loop Capital Markets
Disruption at the Surface Transportation Board: One of the attributes of the freight transportation sector we’ve always liked has been its low politicization. People in and around the industry care about stuff getting from A to B on time and at a fair price, and there’s nothing political about that.
As we entered the second [POTUS 47] term, our assumption was that the freight railroads would continue to fly under the political radar. Despite being huge entities and one of the backbones of the goods economy, the big U.S. railroads are not household names, and 99% of the population probably couldn’t name all four. (Editor’s Note: It’s six. Though CPKC and CN are “technically” Canadian, each has a massive U.S. presence, which 99% of the population couldn’t name– William C. Vantuono) We also expected the Surface Transportation Board to be left alone to do its work, with a fifth member added in 2026.
Those assumptions went down in flames Aug. 27, when the White House emailed STB member Robert Primus, ostensibly terminating his position. We say ostensibly because Board members can only be terminated for cause, there wasn’t one, and the White House didn’t even bother trying to invent one. Mr. Primus has vowed to fight it, which we think is the right call, and we wish him success in this endeavor. He was a strong voice for shippers, in particular, which would be missed.
In our mind, there are two aspects to what just happened that matter: the direct impact of what has already been done, and the question of why it was done.
“We’ve been trying to come up with plausible scenarios that might explain the motivation of the Administration to terminate Mr. Primus, and all of them are somewhere between inappropriate and awful.”
The direct impact is very simple: the [POTUS 47] Administration just removed a likely “no” vote on the UP+NS merger. Mr. Primus was the only STB member to vote against the Canadian Pacific-Kansas City Southern merger, and the consensus, right or wrong, was that he would vote against UP+NS. Even if Mr. Primus is successful in his challenge, the courts move slowly, and he will likely miss the vote, regardless.
After a few days thinking about this, we’re also troubled by the “why.” If we know the “why,” it at least enables an educated guess as to what comes next. There’s no doubt a backstory here, which we may never know, but we’ve been trying to come up with plausible scenarios that might explain the motivation of the Administration to terminate Mr. Primus, and all of them are somewhere between inappropriate and awful. For example:
The [POTUS 47] Administration truly wants the UP+NS merger and is prepared to fire regulators to get it. This is how the situation appears at first glance, with the Administration putting its finger firmly on the scales in favor of the merger. It also sends a message to the other Board members that’s basically: Approve the deal or be fired as well. Even if that wasn’t the intention, this is the message that may have inadvertently been sent. Has the UP+NS merger just been made a fait accompli? If the Administration nominates an overtly merger-supportive Board member in the near term, it would give credence to this theory.
Will no one rid me of this turbulent priest? Another scenario that could explain the Administration’s motivation is that some person or group that badly wants this merger to go through called in a favor with the Administration to unlawfully remove a “no” vote. We’re not pointing the finger at UP or NS, just highlighting the scenario because it’s one of only a few that has any degree of rationality.
Scattershot firings. Another possible motivation is that the Administration is just working through these agencies, firing mostly Democrats randomly to generate news. While it sounds somewhat silly, it may turn out to be the most likely explanation. In short, last Wednesday was a [POTUS 47] Administration curveball we’re unable to rationalize. It may not be the last.
