A merger between shipping giants Union Pacific and Norfolk Southern could soon create the nation’s first transcontinental railroad company, with tracks spanning more than 50,000 miles across 43 states.
But first, federal regulators need to sign off on the plan.
Executives of the two companies on Tuesday signed an agreement solidifying the stock and cash merger, which is expected to create a combined enterprise of $250 million, according to a press release. The Union Pacific Transcontinental Railroad would connect around 100 U.S. ports on the East, West and Gulf coasts.
"The impact of this agreement cannot be overstated,” Union Pacific CEO Jim Vena wrote in a letter to employees on Tuesday. "A single coast-to-coast network will deliver faster, more competitive service by eliminating car touches and interchange delays, opening new routes, expanding intermodal services, and ensuring faster transit times on key rail corridors. We will take even more trucks off highways, decreasing congestion, and reducing wear and tear on taxpayer-funded roads.”
Moving forward with the new company, however, will require the blessing of the Surface Transportation Board, which regulates the nation’s rail networks. Vena said the companies would submit a formal merger application to the board “in the coming months.” In the meantime, they will continue to operate as separate companies while adhering to antitrust rules.
Union Pacific and Norfolk Southern are looking to close the transaction by early 2027. Vena would serve as CEO of the combined company.
Nicholas Little, who recently retired from his role as head of Michigan State University’s Center for Railway Research and Education, said the Surface Transportation Board will consider one major question as it considers the deal: “Does this merger reduce the number of options that customers have?”
Nicholas Little (LinkedIn photo)That means there will need to be a lot of cost-benefit analysis undertaken to see whether the deal would work, Little said. The companies will need to persuade STB that the merger will not reduce service or customer options, while also considering the many short-line railways they connect with.
“I personally think that there is opportunity for an improvement in service with the merger of Union Pacific and Norfolk Southern in as much as there’ll be one less organization to deal with from the customer’s perspective,” Little said, emphasizing that his views did not reflect those of Michigan State.
The STB approval process would not only open the companies’ books to scrutiny but also fuel private negotiations with wary stakeholders and other carriers likely to demand some concessions, said Anthony Hatch, an independent analyst and consultant for major railroad companies. It’s likely that some stakeholders will choose to fight it, he added.
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“First of all, it has to get approved,” Hatch said of the merger. "And then the question is, what do you have to give away to get it approved?”
Little said mergers like this are a “lengthy process” and he expects current STB Chair Patrick Fuchs to scrutinize the deal. Hatch said the current board members are likely to “take this very seriously under the rules and precedents that have been set in the past,” though he added that the fact that both Union Pacific and Norfolk Southern are “very sophisticated players with very good lawyers” means they likely have already found a way to satisfy the legal conditions of such a deal.
“I don’t think Patrick Fuchs is going to bend his knee to anybody,” Hatch said. “I think this board is going to take a look."
Mike Steenhoek (Soy Transportation Coalition photo)The merger’s fate has other implications as well, namely potential exploration of a partnership between the nation’s two other major railroad lines: BNSF and CSX Transportation, Hatch said. Those rail lines may eventually seek their own merger and if they do, watching the scrutiny over the UP-NS deal could inform their application.
Mike Steenhoek, the director of the Soy Transportation Coalition, said he believes U.S. regulators "are going to view this as a package deal where to allow one [merger] to proceed will inevitably result in, ultimately, another one proceeding.”
As a result, he said several members of the ag industry are likely to be skeptical about losing transportation choices as a result of the mergers and may fear higher rail rates and decreased service.
“The best scenario for agriculture and others is to have lots of different transportation providers competing for our business and aggressively pursuing it,” Steenhoek said. “When you start to limit the number of competitors for our business, that can change the negotiating position between the two of them.”
Still, Steenhoek said other agricultural shippers may voice support due to the potential for greater access to markets on coasts of the U.S. opposite to where they are based.
“You’re going to hear a variety of perspectives that are going to be voiced,” Steenhoek said.
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