Rail giants Union Pacific and Norfolk Southern on Friday filed a nearly 7,000-page application to the Surface Transportation Board seeking approval for a merger that would create the first coast-to-coast railroad company.
The filing was uploaded to the Surface Transportation Board's site late Friday afternoon. It argues that the merger will provide railroad customers with "faster, more reliable and more efficient service," by transforming "tens of thousands of interline lands into seamless single-line service."
"As time and technology continue to transform how freight is delivered, our industry must keep pace and move forward, reaching underserved markets with new rail solutions and strengthening the U.S. supply chain," Union Pacific CEO Jim Vena said in a press release. "Customers deserve stronger, more connected freight rail, and our merger will make that happen.”
In the filing, the two companies make the case that the merger will enhance competition, pointing specifically to advantages to competing with long-haul trucking, which they say "dominates the transportation marketplace." They note that the proposed "end-to-end" railroad line would "not eliminate parallel routes or diminish competitive alternatives."
The companies have also proposed a new "Committed Gateway Pricing" model. Katherine Novak, Union Pacific's general director of interline operations, wrote in a statement included in the filing that the new framework creates a system for calculating revenue requirements when serving customers shipping to or from facilities served by BNSF or CSX, two other major rail networks. She said BNSF and CSX will "be able to directly market a transcontinental service by quoting origin-to-destination rates without separately obtaining a revenue requirement from Union Pacific and Norfolk Southern.
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To explain this framework, she wrote that it would "allow BNSF and CSX to directly market transcontinental service, offering one-stop shopping to customers shipping traffic between facilities they solely serve and facilities served solely by UP/NS when they interchange traffic with UP/NS in Chicago, St. Louis, Memphis, and New Orleans, regardless of whether they are the originating or terminating carrier."
"Committed Gateway Pricing is purely additive: It will give eligible customers — that is, customers shipping eligible interline movements — an additional rate and service option without eliminating any existing rate or service option available to customers," Novak wrote.
The filing also includes comments from several customers supportive of the merger.
In one comment, KC Graner, the president and CEO of Central Farm Service, said that as a result of the merger, he expects to see "faster grain shipments, fewer delays, and better rail access."
"Farmers don’t have time or margin for delays," James Burgum, CEO of the Arthur Cos., said in another comment. "The sooner this merger is approved, the sooner we can all start seeing the benefits—fewer bottlenecks, better access, and lower costs across the supply chain. That’s good for agriculture and it’s good for the communities that depend on it.”
If the merger goes through, the new railroad's tracks will span approximately 50,000 miles and connect around 100 U.S. ports on the East, West and Gulf Coasts. In the release, Norfolk Southern President and CEO Mark George said it "will bring together Union Pacific’s expansive Western reach and Norfolk Southern’s unparalleled access to Eastern manufacturing and population centers in an end-to-end combination."
The Surface Transportation Board will now have 30 days to accept or reject the application. Potential acceptance would kick off a 45-day public comment period and a year-long evidentiary proceeding process. Following the close of the evidentiary period, the board will have 90 days to make a decision, according to an explanation of the merger review process on its website.
Earlier this week, STB Chairman Patrick Fuchs told House lawmakers in a letter that the board would "conduct a thorough and fair review of the evidence and argument and consider whether the transaction serves the public interest, consistent with applicable law."
Fuchs said the review would include a "rigorous examination of potential competitive effects, economic efficiencies, service effects," and environmental, safety and employee impacts.
The merger has drawn opposition from some shippers and other railroads. In a statement Friday, BNSF Railway CEO Katie Farmer said the transaction "poses a significant threat to the U.S. economy and the American consumer through its long-term competitive harms" and "would leave shippers with fewer options — driving higher rates and ultimately higher prices for consumers."
"This didn’t begin with customers asking for this merger, and the claimed public benefits appear to accrue primarily to shareholders," Farmer said. "Past mergers demonstrate the risk of serious service failures with destructive impacts to customers, the U.S. rail network and the American economy."
Chris Jahn, the president and CEO of the American Chemistry Council, said in a statement that the companies "are trying to fast-track an unnecessary, unwanted, and potentially crippling merger that would create a coast-to-coast rail monopoly — one that puts imports ahead of American-made goods."
"At a time when the top concern for Americans is the cost of living and inflation, policymakers must stand with consumers and reject any deal that fails to promote competition over monopolies and drives prices even higher," he said.
In a statement, Daren Coppock, the president and CEO of the Agricultural Retailers Association, urged the STB to closely weigh ramifications of the merger on farmers and ag retailers, noting that they "operate on razor-thin margins, so even a small artificial cost increase can have a big impact."
“When rail service is dominated by just a few players, they hold the power to set terms that work for them—not for the shippers and customers who depend on rail to move agricultural commodities, fertilizer, ag chemicals, fuel, and other essential supplies," Coppock said. "That imbalance drives up costs and threatens the reliability of our entire supply chain.”
