Two months after the U.S. Surface Transportation Board tentatively accepted Union Pacific’s application to acquire Norfolk Southern, the Class I railroad has filed an “enhanced” application that it hopes will convince federal regulators to greenlight the largest railroad merger ever.
In May, the STB unanimously voted to accept UP’s application to acquire NS, although it said it still needed more information before it could fully consider the proposal. It gave the Class I until July 27 to provide that additional information. On July 7, the railroad filed the first part of that revised application, including a plan to partially divest from two key terminal railroads, Terminal Railroad Association of St. Louis and Kansas City Terminal Railway. That filing turned out to be a precursor to a deal with Canadian National announced on July 23, which would see the Canadian road take NS’s shares of the two terminal railroads if the UP-NS merger is approved. In return for dropping its opposition to the merger, CN is also getting overhead and trackage rights that will allow it to reach new markets.
On July 27, UP and NS filed a 407-page update to their previous application from earlier this year. In it, the railroads promised to expand their Committed Gateway Pricing promise that would guarantee a set rate for certain shipments; the combined railroad would preserve Class I rail options for 3-to-2 shippers as well as 2-to-1 shippers, where they can “legally grant access to another railroad;” in the event of a service meltdown during the merger, customers would be able to obtain temporary access to alternative rail routes; and if the benefits of the merger are not realized in a timely manner, customers would be able to gain access to a new rate relief process.
“We are more confident than ever that creating America’s first transcontinental railroad is good for America. The merger will provide our customers faster, more reliable and efficient coast-to-coast service from day one and create cost savings that will flow through to consumers,” said Union Pacific CEO Jim Vena. “We talk to our customers every day, and as we listened to them and reviewed the STB’s comments, we saw opportunities to provide additional assurances through an unprecedented set of voluntary commitments to our customers.”
While Vena has been talking about the advantages of his proposed merger, rival Class Is remained unconvinced. Not long after the enhanced application was submitted, the Stop the Rail Merger Coalition — a group spearheaded by BNSF Railway and CPKC — began to rail against it.
“Union Pacific and Norfolk Southern have had multiple opportunities to show that this merger serves the public interest and enhances competition. They have failed every time,” said the Stop the Rail Merger Coalition. “You cannot paper over a bad deal that fuels monopoly power by giving one company control over nearly half of the rail traffic in the U.S., raises costs on farmers and manufacturers, and puts thousands of rail jobs at risk.”
—Justin Franz