The potential $85 million merger of Union Pacific and Norfolk Southern joins 50,000 miles of railroad tracks and would create a company that for the first time in history would control coast-to coast rail shipments.
The proposed deal came as no surprise to Mike Steenhoek, executive director of the Soy Transportation Coalition. He says if approved the deal could change the shipping landscape with both winners and losers.
“It is going to be a seismic event within our supply chain within our whole transportation sector,” Steenhoek says.
Would the Railroad Merger Be Beneficial for Agriculture?
Union Pacific officials say the merger would speed up shipping and make supply chains more efficient and that is an argument proponents of the deal will lean on.
Less handoffs do cut costs admits Steenhoek, but he says combining the two railroads would also decrease competition and raise rail rates.
This is not normally favorable for farmers and it could result in lower grain prices.
“One of the things that history teaches us is that when there has been consolidation, when there have been mergers within the rail industry, that often results in a decreased competition for those agricultural shippers and can result in higher rail rates and a decrease in service.”
Plus, if there is less competition agriculture is often at the bottom of the food chain.
Steenhoek says while agriculture is a significant source of revenue for the railroads, there are other business lines that do have a more lucrative profit margin than agriculture and are willing to pay more for rail cars.
Railroad Merger Faces Regulatory Scrutiny
The deal between Union Pacific and Norfolk Southern still requires regulatory approval and in the past railroad mergers have been highly scrutinized.
Steenhoek says, “When it comes to our regulators, whether it’s the Surface Transportation Board and that’s the government agency that has jurisdiction over approving mergers and acquisitions, to the Department of Justice, to our elected officials, there’s gonna be a lot of scrutiny for this.”
Yet, Steenhoek says, there’s no coincidence in the timing of the merger.
“I think we can conclude and we can infer that the companies, in this case, Union Pacific and Norfolk Southern view the current political climate as more favorable than maybe other times in our recent history.”
Merger Could Set a Dangerous Precedent
He also warns this deal could set a precedent for future rail mergers.
According to Steenhoek, “There will be a strong, almost inexorable kind of tendency for the other two railroads, BNSF and CSX to follow suit, which would ultimately create two U.S.-based railroads that operate large class one railroads that operate from coast to coast.”
So, it’s being widely watched in agriculture.
Ag Industry Reacts
In a statement from the Agricultural Retailers Association (ARA) president and CEO Daren Coppock said, “As ARA reviews the merger, we are committed to ensuring that any outcome protects and enhances shippers’ rights while guaranteeing affordable, reliable, and safe rail service for America’s agricultural retailers, farmers, ranchers, and their rural communities.”
National Grain and Feed Association (NGFA) president and CEO Mike Seyfert, added, “About 3.2 million rail cars of grains, oilseeds and ag products move by rail annually. — We look forward to learning how the railroads believe the merger will create resilient and reliable efficiencies and incentives in timeliness of service and deliveries – along with fair and reasonable rates to better serve our members.”
The American Chemistry Council (ACC) came out with their opposition to the proposal.
“ACC and its member companies have serious concerns about the negative impacts on American manufacturing from further consolidation in the freight rail industry. We are closely watching the proposed terms of the deal and will actively oppose any merger that fails to significantly enhance competition between railroads.
The four largest freight railroads already control more than 90% of U.S. rail traffic, with two dominating in the eastern U.S. and two dominating in the west. The impact of a transcontinental merger between two of these railroads threatens to leave American manufacturers, farmers and energy producers with even fewer competitive options to ship by rail.
“Many rail customers are currently dealing with high rates and unreliable service. Further consolidation within the rail industry is likely to make these problems worse.”
Not a Done Deal
Yet, even if the merger between Union Pacific and Norfolk Southern was approved, Steenhoek says it could take up to three years for the merger to be fully completed.
