The proposed merger of Union Pacific and Norfolk Southern is the most earth-shaking news to hit our industry since President Carter signed the Staggers Rail Act, and discussions have escalated all the way up to the White House. If I were charged with stating a common theme among shippers, I would simply say, shippers have mixed feelings about the merger. There does appear to be some operational benefits as intermodal operations between UP and the eastern carriers will be more efficient, and trucks used for the “rubber-tire interchange” will no longer be needed, thereby relieving congestion on Chicago area streets, I-80 and I-294. However, BNSF and CSX recently announced coast-to-coast intermodal service, proving they did not need a merger to accomplish what can be done with inter-carrier marketing/service agreements. The obvious question is, why didn’t they do this before? It seems in this case, that the proposed merger has already increased competition.

An obvious concern is the potential impact on rail-to-rail competition. For example, will industries lose the current benefit of CSX and NS dual service to industries in the shared asset area in the northeastern U.S., which was created during the Conrail split to preserve competition? Some are concerned about the prominent level of market power to be acquired by the new combination, and the perception that the primary objective is to increase shareholder value at the expense of UP customers. If so, and if increased rates are part of the railroad’s growth objectives, then history has proved other railroads will follow UP’s lead by increasing rates and, subsequently, truck rates will also increase, resulting in higher transportation costs via all modes, and US manufacturers’ ability to compete globally.

Operationally? To be determined – this railroad will control at least 45% of all rail traffic in the United States. Therefore, it is safe to assume that any service failure or service disruption on a railroad of this size, will impact on the entire rail industry as there will be congestion in yards at interchange, cars and scheduled trains will be delayed, and locomotives and crews will be out of position. Think back to the service meltdown following UP’s takeover of Southern Pacific.

I have discussed some of these concerns with Union Pacific employees who are very enthused about the merger, and they told me it is UP’s goal to do it right this time! UP plans to file its merger application with the Surface Transportation Board in December. I do have a great deal of faith in Jim Vena and others on UP’s leadership team, so I am advising shippers to assume a wait and see position until we have the ability to review the UP/NS application, and to analyze the potential impact on their company’s supply chains. Be prepared, though, to wade through a 4,000-page application.

Call us if your company needs a competitive impact analysis. As a member of Chicago & Northwestern’s M&A team, I personally analyzed numerous potential and proposed mergers and acquisitions, and I founded Highroad after performing the competitive impact analysis of the UP/SP merger for Dr. Curtis Grimm’s testimony. Some may question whether it is worth the time and trouble, thinking this may simply be a runaway train that cannot be stopped. However, this merger will have a major impact on the transportation landscape that will have a legacy effect on future generations. So, yes, it is worth taking time to analyze the impact and to identify potential solutions that you can use to negotiate conditions needed to protect your company’s interests. Call Highroad Consulting Ltd. 219-838-3800.