The CEOs of Union Pacific (NYSE: UNP) and Norfolk Southern (NYSE: NSC) insisted that recent additions to their merger application strengthen the competitive case for the deal, according to remarks at the FreightWaves TrainsPro Future of Rail Symposium in Chattanooga.
“If the STB is concerned about the customer,” UP CEO Jim Vena said Tuesday, “if you limit faster service end to end, if you think that it’s not good to have an end-to-end move across the country that is normally less expensive … and you rule that other railroads should be kept whole, you’re actually increasing the price to consumers.” He added, “That’s why this is going to go through. … Let [the other railroads] go compete. They can drop their price. They can provide a higher level of service to compete against us,” according to FreightWaves.
Latest Filing Expands Competitive Features
The latest features came in a 412-page supplemental filing on Monday, the second of two this month addressing questions the Surface Transportation Board (STB) raised when it accepted the railroads’ revised merger application in May, as reported by FreightWaves. One significant addition is an expansion of the Committed Gateway Pricing concept, which now doubles the number of eligible shippers and includes bulk unit train moves — moves not part of the original concept.
| Feature | Original Application | Supplemental Filing (July 27) |
|---|---|---|
| Eligible shippers | Baseline | Doubled |
| Bulk unit train moves | Excluded | Included |
Vena said the change reflected customer discussions. “They truly thought it was going to be helpful in their negotiations with the other railroads, to be able to get their products moving in a manner that was better than what we had offered up with just the products that were included,” he said.
CN Deal Adds New Competitive Dynamics
NS CEO Mark George noted that the expanded gateway pricing “really is a significant increase to the enhanced competition arguments of this deal.” He said, “We’ve gone beyond what any Class I merger in the past has done in terms of offering up new competition. I think when you couple that with what we did with CN and having that agreement with CN, we’re really in uncharted waters here in terms of changing the competitive landscape for the better.”
The deal with CN (NYSE: CNI), announced last week, includes CN access to Kansas City, Mo., and the UP gateway to Mexico at Eagle Pass, Texas, while UP will be able to move some trains around Chicago via CN’s former Elgin, Joliet & Eastern (EJ&E) route. Some aspects are not contingent on merger approval; others require STB approval, per FreightWaves.
“It resolves Kansas City for us,” George said, referring to the merger giving UP parallel routes across Missouri. “It also gives CN access to Kansas City, so now you’ve created more competition in that market. … I think the enhanced competition features dealing with St. Louis and Kansas City are a big plus.”
BNSF Critique and Vena’s Response
While BNSF (NYSE: BRK-B) argued this week that the UP-CN deal shows a merger is not necessary to offer improved service, Vena, without naming BNSF, said it would not have come about without the merger. When asked what the reaction would have been absent a merger if he had gone to CN headquarters about using the EJ&E, Vena said: “I think I wouldn’t have gotten through the turnstiles at the front. They would have kicked me out of the building. They would have said hi first because a lot of people remember me there.”
Implications for Shippers and Operators
Shippers should expect potential service improvements and new competitive options if the merger is approved. The expanded Committed Gateway Pricing and CN access to key gateways could provide more routing choices and leverage in rate negotiations. Rail-dependent logistics managers should monitor STB proceedings and prepare for possible service changes on the Union Pacific and Norfolk Southern networks. The deal also signals increased intermodal competition, which may influence truck-rail rate parity on key transcontinental lanes.
Watch List
- STB decision on the merger application and supplemental filings.
- Implementation timing of CN access to Kansas City and Eagle Pass.
- BNSF and other railroads’ responses to the competitive landscape shift.
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