Evaluating the proposed merger between Union Pacific and Norfolk Southern requires a balanced approach, considering both potential benefits and historical context. The American Chemistry Council, along with other major shippers, has requested that the Surface Transportation Board reject the merger, citing concerns that it may lead to higher rates, poorer service, and reduced competition. While these concerns warrant attention, it is essential to recognize that the merger’s impact may differ from past consolidation efforts, given the complementary nature of the two railroads’ networks. Union Pacific primarily operates in the western United States, whereas Norfolk Southern serves the eastern United States, resulting in minimal overlap between their networks.
Past railroad mergers may not provide a direct comparison, as consolidation can occur in various forms. When two competing railroads merge, they may eliminate a competitive alternative, potentially leading to higher prices or reduced service quality. However, the Union Pacific-Norfolk Southern merger presents a distinct scenario, as their networks are largely complementary. This difference is key, as combining complementary networks can create efficiencies that may not be achievable in a merger between direct competitors.
Currently, freight transported between the eastern and western United States often requires transfer between railroads, resulting in transaction costs and potential delays. Union Pacific and Norfolk Southern argue that their merger would enable them to coordinate shipments over the entire route, eliminating the need for interchanges and reducing transit times by up to 24 hours.
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Empirical evidence demonstrates that with end-to-end mergers, eliminating costly interchanges reduces costs significantly with only a modest increase in markups. Prices fall because the increases in markups are less than the cost reductions. The Surface Transportation Board’s own merger policy acknowledges that the railroad industry operates within a broader transportation infrastructure, including highways and waterways, and that railroads face “vigorous intermodal competition” from other carriers. This competition can constrain prices and service, even in the presence of consolidation.
The merger’s potential impact on competition is a critical consideration. While some shippers may face reduced competition, others may benefit from improved service and increased efficiency. The Government Accountability Office has raised concerns about “captive” shippers that rely heavily on rail transportation and have limited alternative options. Changes in routing practices or gateways could also disadvantage competing railroads or customers. However, the Surface Transportation Board’s merger rules allow for targeted conditions to mitigate these risks and preserve competition. Union Pacific and Norfolk Southern have already proposed some steps to address competitive and other risks the STB is concerned about. In their July supplemental filing, they added commitments intended to protect customers and address concerns raised during the STB’s initial review.
Final Determination
The proposed Union Pacific-Norfolk Southern merger presents a complex regulatory challenge for the Surface Transportation Board. The Board must determine whether substantial and demonstrable public benefits—such as improved service, enhanced competition, and reduced costs—outweigh anticompetitive effects, potential service disruptions, and other harms. To make this determination, the Board should consider where competition may be reduced, where network efficiencies may arise, and whether targeted remedies can address these concerns. As Union Pacific and Norfolk Southern argue, eliminating interchange handoffs on thousands of routes could produce faster and more reliable service, with interchange handoffs currently adding about 24 hours to some shipments. A single railroad could coordinate shipments over the entire route, rather than relying on arrangements between separate companies.