US rail customers urge regulators to block Union Pacific-Norfolk Southern deal
Freight groups warn the $250bn megamerger could raise prices and cut services
US railroad customer groups have demanded regulators block or put onerous conditions on the proposed merger of Union Pacific and Norfolk Southern, as both sides prepare for a regulatory battle over the $250bn deal.
Seven associations of shippers — as freight railroads’ customers are known — have expressed concern that the planned deal announced on July 29 would significantly increase the power of the merged railroad to raise prices or reduce service standards.
Opponents of a deal are also concerned it could prompt a further merger between BNSF and CSX.
A merger between UP — the biggest US rail network — and NS — the fourth biggest — would create the first US railroad able to operate transcontinental services all the way from the Pacific to the Atlantic coasts.
Ann Warner, a lobbyist working on behalf of the Freight Rail Customer Alliance, the National Industrial Transportation League and the Private Railcar Food and Beverage Association, said shippers were “overwhelmingly” opposed to the proposed deal.
“Every shipper is expressing concern and all the shippers have a long-standing position against further consolidation in the railroad industry,” Warner said.
Another customer group, the Alliance for Chemical Distribution, called on regulator the Surface Transportation Board (STB) to block the deal.
Eric Byer, the group’s president, said approval of the deal would be contrary to the public interest.
“Approving a transcontinental megamerger will benefit the merging rail companies and Wall Street, at the expense of US chemical distribution companies who are critical contributors to the American economy,” Byer said.
The American Fuel and Petrochemical Manufacturers said its members had “great concerns” about further consolidation of the freight rail industry.
“We fear this latest announcement will only compound the service problems refining and petrochemical shippers already face,” it said.
The deal is contentious because the number of large — or Class I — railroads in the US and Canada has fallen from about 40 in 1980 to just six, including the two Canada-based operators Canadian National and Canadian Pacific Kansas City.
Among the four US Class Is, two — UP and BNSF — operate west of the Mississippi, while NS and CSX operate in the eastern US.
Shipper groups fear that a further reduction in competition would leave them with less choice about which network to use.
Some groups, including the Soy Transportation Coalition, have expressed concern that a UP-NS merger could prompt BNSF and CSX to merge, reducing choice even further.
Ancora Holdings, an activist group that last year targeted Norfolk Southern, has been building a stake in CSX, its chief executive has said.
UP and NS have argued that an approved merger would benefit shippers by eliminating interchanges between railroads in places such as Chicago and St Louis, which often become congested.
In response to the shippers’ concerns, UP said its combination with Norfolk Southern was “about improving outcomes for customers and enhancing the US supply chain”.
“We’ve already spoken with more than 100 customers who are excited about the prospect of faster, more accessible, sustainable and lower-cost rail options,” it said. “They recognise the value of having end-to-end visibility across a transcontinental network and competitive single-line pricing.”
The STB will consider the deal in a lengthy process expected to take about two years. The two parties have said it will be six months before they even submit their application to the board.
Henry Posner, a veteran railroad investor and chair of the Iowa Interstate Railroad, said he believed only a minority of shippers thought the advantages of having “slightly easier” journeys between the eastern and western US outweighed the disadvantages of reduced competition.
The American Chemistry Council has also expressed deep concerns about a potential transaction.
The Intermodal Association of North America (IANA), which represents groups moving shipping containers by rail, sounded more supportive, however. Hub Group, an intermodal logistics company, has also welcomed the planned merger.
Because they typically handle higher value, time-critical cargo, intermodal shippers are more concerned than others about hold-ups during changeovers between railroads.
In a statement, IANA said intermodal rail thrived when there were “strong efficiencies, a focus on growth and a commitment to customer service”. “As this merger moves forward, we will be looking for these core values to be reinforced,” it said.