Rivals call Norfolk Southern merger ‘anti-competitive’

The Surface Transportation Board has until later this month to rule on whether the roughly 7,000-page application is “complete.”

Once that happens, the three-member board will assess the crux of the proposed deal, which would cost Atlanta a Fortune 500 headquarters and more than a thousand jobs by centralizing operations in Nebraska.

Regulators’ decision could easily stretch into 2027.

“We’re entering the weigh-in to the main event right now … they take their blood, they weigh them in, they see, can we proceed with the fight?” said independent railroad industry analyst Tony Hatch.

The board will ultimately assess whether the creation of the massive company would “enhance competition” in an already consolidated American rail marketplace.

In comments filed late last month, the companies’ competitors — all of the other four Class I railroad companies operating in the U.S. — already started poking holes in the argument and alleging key information is missing.

Fighting the merger is a “very high priority for us,” said Zak Andersen, vice president of communications for BNSF Railway.

“We think it destabilizes the industry,” he said of the proposed merger, which BNSF estimates would consolidate nearly half of all U.S. rail freight under one corporation.

“We view this as an unnecessary, anti-competitive hit on what is a well-functioning U.S. supply chain,” Andersen said.

Opposition, he notes, has been growing. Now that the application is out, “I think you’re going to start to see more folks come out, raising their hand saying, ‘Well, wait a second. I don’t think this is a good thing for me.’”

Union Pacific and Norfolk Southern have argued the merger will allow rail to better compete with truck. Their application estimates more than 2 million truckloads of annual long-haul traffic will move onto railroads.

But opponents to the deal push back forcefully at the notion that consolidation will equal increased competition.

“Applicants’ primary claim of competitive enhancement is that the transaction is an end-to-end combination that will improve service through efficiencies such as cost savings, interchange reductions, and single-line rates, and divert traffic from truck to rail,” CSX wrote in its comments.

“Enhanced efficiency and enhanced competition, however, are not synonyms,” Norfolk Southern’s East Coast competitor said.

The merging companies pushed back forcefully against their competitors in a rebuttal filing, calling the comments “a number of baseless claims.”

The two companies said they stand by their application and analyses as complete.

Credit: Union Pacific/Norfolk Southern

Credit: Union Pacific/Norfolk Southern

‘Downstream effects’

The railroad industry is no stranger to consolidation.

In 1980 there were 33 Class 1 American railroads; today there are six including two Canadian railroads that operate in the U.S.

The last major mergers prompted such massive service disruption in the 1990s that the Surface Transportation Board changed its own rules to make further consolidation even harder, Hatch said.

Companies now have to prove a merger would “enhance” competition, and those new rules haven’t yet been tested at full scale, until now.

“I would say it’s a jump ball under this,” Hatch said of the decision.

Many industry observers assume if Union Pacific and Norfolk Southern get a merger approved, the other two remaining competitors will have little choice but to follow suit, prompting questions about BNSF and CSX.

But Andersen said BNSF — a Western railroad — remains fully against the idea of acquiring Norfolk Southern’s Eastern competitor, CSX.

“We’re owned by Berkshire Hathaway, and our ownership has made clear that they have zero interest in acquiring another railroad,” Andersen said of Warren Buffett’s comments on CNBC last summer rejecting the concept.

“No one believes my no,” Andersen acknowledged.

Indeed, Hatch said, “If this merger goes through unscathed … then I see no choice but for CSX and BNSF to get together.”

The question of what one merger might trigger is part of what the Surface Transportation Board is tasked with assessing, known as “downstream effects.”

The companies’ competitors all argue in various ways that Union Pacific and Norfolk Southern haven’t provided the data in their application needed to truly answer those questions.

“UP and NS’s discussion of downstream industry structure amounts to little more than a shrug and suggestion to ask BNSF and CSX,” BNSF’s comments read.

The two companies have said they proactively approached all shippers who would lose access to one rail carrier, and quote some who attest their support in their application.

But Andersen said they haven’t provided a thorough analysis of how a merger would affect specific businesses’ abilities to compete in a more consolidated marketplace.

The notion that further consolidation would enhance competition “doesn’t pass the straight-face test in our view,” he said.

Union Pacific and Norfolk Southern rejected most of their competitors’ protest points. The board’s rules, they say, just require them to initiate a “commentary” on the likelihood of future mergers.

Regarding downstream effects, they insist their application “thoroughly analyzed that issue and found no realistic prospect of competitive harm.”