Less complexity, less competition
What the Union Pacific-Norfolk Southern merger means for automotive logistics
Union Pacific and Norfolk Southern have confirmed a potential merger
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Union Pacific and Norfolk Southern have confirmed plans to merge to create a single trans-coastal railroad in the US.
The rail companies, two of the largest Class I railroads in
the US, confirmed that they are in “advanced discussions” regarding the potential
business combination.
In a statement, the companies cautioned: “There can be no
assurances as to whether an agreement for a transaction will be reached or as
to the terms of any such transaction.”
If successful, the merger would be one of the biggest in US
railroad history, combining Union Pacific’s (UP) roughly 32,000-mile western
network with Norfolk Southern’s (NS) estimated 19,500-mile eastern system to
create a roughly 52,000-mile transcontinental railroad.
UP and NS merger’s potential effect on automotive
logistics
The merger would create the first modern coast-to-coast
freight operator in the US, which would significantly reshape national rail
logistics for the automotive industry, reducing costly interchanges between the
Midwest and the two coasts.
It could also result in interchange delays that would occur
between carriers, and improve service so that deliveries are faster and more
reliable, with a reduction in complexity and handoffs.
Potential operational savings could be a benefit for carmakers
too. If the merged company can save money through reduced fuel use, reduced
labour and maintenance streamlining, the savings could translate into more
competitive pricing for automotive OEMs.
However, if agreed upon, the potential merger would have to
go through intense scrutiny from the Surface Transportation Board (STB), an
independent federal body with regulatory powers in key transport services in
the US.
The STB is likely to examine how the deal would affect
competitiveness within an already miniscule market. Currently, there are only
seven Class I railroads in the US, with a lack of options to choose from giving
the railroads more pricing power to set higher rates for automotive customers. With
the merger of Canadian
Pacific and Kansas City Southern (CPKC), for example, the STB is still
investigating the new company’s effect on competition within the market,
despite the deal being announced in 2021 and completed in 2023.
Martin Oberman, who served as chairman of the STB until last
year, spoke at Automotive Logistics & Supply Chain Global 2023 about the
lack of competition in the US railway market contributing to problems in
delivery times and bottlenecks in automotive logistics.
At the time, Oberman
suggested that many companies across the US were fearful that the limited
rail companies available in the US could retaliate to complaints from OEMs with
missed shipments or targeted embargoes – although no carmakers had officially
complained or confirmed the allegations. Oberman also admitted that they were
not possible to prove.
“Rail customers live in fear of the railroads, the railroads
deny it, but the largest rail customers like fear retaliation if they complain,”
Oberman said. “It’s very easy for the railroads to flip a switch and the plant
don’t get their cars delivered. It’s very difficult to litigate that.”
As for a potential timeline, the companies will need to file
a pre-notification before STB would start an extended, detailed review, which
would typically take 16 to 22 months, before a decision could be issued. Since
formal filing is pending, the earliest approval likely wouldn’t arrive until
late 2026, stretching into early to mid‑2027.
