UP CEO Vena cites benefits of proposed $85 billion Norfolk Southern merger

In a speech at last week’s RailTrends conference in New York, Union Pacific Railroad CEO Jim Vena made the case for Union Pacific’s historic proposed $85 billion merger with Norfolk Southern, in advance of the company submitting its merger application to the Surface Transportation Board, which is widely expected to be on or around December 1. RailTrends was hosted by Progressive Railroading magazine and independent railroad analyst Tony Hatch.

“The challenge is, if you build a good foundation, what you need to look at next is what do we do?” said Vena. “And ask yourself, is there any logical reason, if you're thinking it through, that the United States of America would not have a railroad that can open up opportunity across the country for customers? Why is it that we want to add 15%, 20%, 25% on a lot of traffic delayed because you're handing off from one railroad to the other? Why would you not want to optimize what's available for our customers? Our customers compete, not just in America. They compete against customers from the world.”

What’s more, he explained that, post-merger, with a focus on taking trucks off the road, coupled with having an operating plan up and running, with the trucks running today to go from UP to NS by truck, or another railroad through Chicago, will come off and subsequently move via rail the entire way.

As for the customer benefits of a merger, Vena used an example of shipping copper from Arizona to the east coast as being slow and complicated when cargo must be transferred between different railroads, involving many “touch points.” In contrast, a single-line haul—where one railroad handles the shipment end-to-end—is faster and simpler because the cargo stays on the same train.

“If you’re building something for Norfolk Southern today…we don’t care whether it is going to Pittsburgh or somewhere else on their system,” he said. “And they do the same thing to us. It’s like that for every railroad. It is huge for our customers.”

Regarding customer feedback, Vena said the number of letters showing support for the deal is pretty close to 2,000, with the consensus being they think the deal is good.

“You're always going to get some that stay on the sideline, and you're going to have some that say they don't like it because they're looking for something that they can't get normally in the marketplace,” he noted. “We're going to take the best of the two companies and we're going to remove touch points on cars. As soon as you remove touch points on cars, actually, it's a safer railroad. You don't have to pump them as often; you don't have to switch them as often. You don't have to do some of the steps.”

Addressing labor, Vena said UP came out purposely and guaranteed a job for every unionized person at both UP and NS the day the merger closes, noting they are guaranteed a job for life.

He said there are various opportunities to grow the business through the merger, noting how the watershed area in Mississippi for customers today that truck lumber from the southeast has basically trucked all of it into southern Texas tomorrow because they have to hand off and touch something else tomorrow. And he added that a customer is going to be able to ask UP for a boxcar or a center beam—and UP will be able to move it seamlessly.

“There's no way that the United States of America should be the one country in North America that does not have a railroad that goes from one end to the other seamlessly,” said Vena. “Every time you have to go from the eastern part of the U.S. to the western part, you have to change planes somewhere. It works, but sometimes it doesn’t because that touch point in Chicago just doesn’t work. That's what we're talking about, and it's better for America also, because we are competing today against companies and truckers that are taking the next step in automation.”

With autonomous trucks expected to be more widely tested in the coming years, Vena explained it puts an increased onus on railroads to either move ahead or get left behind.

When asked about pushback to the merger from competing railroads, Vena used an example, saying if the CEO of another railroad thought it could take advantage and grow its business more quickly than UP because UP was making a big mistake, the railroad would come out publicly and say the merger is a great idea.

“It's as simple as that,” he said. “What they see in this, the others [railroads], and they have decisions to make, they can play in the game by using price. They could drop price, and the customers will reap that benefit. If they say, ‘we want to compete and make sure that that you have more options in places,’ you can do that, or you can have higher level of service and deliver that service and win that way. I would never complain if I saw Burlington, Northern Santa Fe doing something really stupid. I'd be quiet and then let them do it—and then I would figure out a way to win in that marketplace, to get more business or better price. They see the benefit of what a combined merged railroad can do in the marketplace.

We could deliver better service. We can deliver actually better price, because customers are not going to have to carry as much inventory, as many assets to be able to move their product across the United States of America, let alone us having to compete also when we have to on price they're going to see a benefit. Whether it's a tank car coming out of Texas to go to the east and we take 15% or 20% off of that timeline X amount less tank cars, X amount less inventory, X amount of winning in the marketplace. So that's why they're doing it, and they don't like to hear it, but go ahead and tell them.”

Going forward, Vena told LM in a press briefing at RailTrends that the “next hurdle” is to get the STB to the right place so that they see this deal enhances competition while adding it is good for public interest and for UP employees.

“I am pretty comfortable that we will get it done,” he said. “Enhanced means a better product and better movement. For us, the [objective] is to give more options to our customers, to drive more competition, which it has.”