Panelists at our recent Railroad Roundtable projected weak demand for 2026. Tightening truckload capacity is encouraging but not impacting rates enough yet to gain confidence in rail pricing cycle. The Union Pacific/Norfolk Southern merger application is expected to pass Surface Transportation Board (STB) review, but our panel acknowledged the application is lacking in some details, especially on Committed Gateway Pricing (CGP). Reciprocal switching could enhance competition, but its final form and timing remain uncertain at this time.
Our panelists unanimously expect weak core demand trends in 2026. A panelist from the largest Class II/III parent company sees tariff clarity and easier rates as necessary for underlying volume trends. Two shippers—chemical and building materials—attested to a weak demand environment, with the building materials shipper still cautiously optimistic for a better 2H26 vs. 1H26, but the chemical shipper has hopes pinned on 2027. The intermodal outlook was relatively subdued as well. Indeed, volume expectations appear to be anchored fairly low to start the year. On low throughput expectations, the panelists believe rail service should hold up well.
The UNP/NSC merger application is expected to pass STB review per our panelists, though delays in approval would not be surprising. Even panelists that expressed concerns believe the application will ultimately pass. Our Class II/III panelist thinks additional detail is necessary for him to get confidence on competitive impacts, especially as it relates to the proposed Committed Gateway Pricing (CGP). Similar pricing schemes on the I-5 corridor have had very little uptake from shippers (also discussed in our conversation with a former Class I CEO). As such, delays in the STB review process would not be surprising, though we note that this panelist did not explicitly speak to the application being returned in entirety to the prospective merger partners. Both shippers concurred that more detail on CGP is necessary, as both ship by carload/manifest and maintain that the benefits to them are not as obvious as those for their motor vehicle and intermodal counterparts.
Reciprocal switching could prove beneficial for competition but difficult to judge only from the STB proposal. Our panelists acknowledged that proposals typically face material logistical and legal complexities (especially this rulemaking). The housing shipper was not hopeful that a genuinely competition enhancing rule would materialize from this process. We believe the proposal is likely unrelated to the ongoing merger review, given this is a long-standing issue on the STB docket, but it could theoretically offset the competitive impacts of consolidation if the final rule is adequately designed. We also note that the rulemaking timeline has historically varied widely, and it is far from certain that a rule would be in place during the STB’s merger review. Indeed, we believe it will be a minimum of 6-8 months before we have any final decisions in this matter.
Truckload capacity attrition is palpable per our panelists, but rates have not moved enough to support rail or intermodal pricing near-term. The panelists believe more freight demand would be necessary to see supply tightness start to benefit rail pricing. Our Class II/III panelist noted that his conversations with truckload executives reveal hope for a tighter pricing environment in 2H26. We remind investors that Spring seasonality will likely be the first litmus test for the rate outlook. Shipper panelists acknowledged that dry van tightness could eventually spread to other modes within a 3- to 6-month timeframe, signaling a more sustained tightening, but this is not under way yet.
Widely anticipated tech-related regulatory easing is coming to pass under the new FRA Administrator. This was evident in recent waiver grants for autonomous track geometry inspection, which we have highlighted in the past. Our Class II/III panelist also stated that other autonomous technologies have been green lit for testing, and permitting timelines for advancement investments are being expedited—a positive sign for the industry. One shipper acknowledged that car inspections have started to yield more comprehensive flags. We believe modernization has a long runway ahead for the rail industry.
