Largest rail union, SMART-TD, signals its support for proposed Union Pacific-Norfolk Southern merger

The prospects of the proposed Class I rail carrier merger between Union Pacific and Norfolk Southern appear to be closer to coming to fruition are picking up steam.

Should this $85 billion merger be completed, the railroad carriers said it would create the nation’s first transcontinental railroad—which will connect more than 50,000 route miles across 43 states from the East Coast to the West Coast and connect around 100 ports as well.

One reason for that is President Trump recently stating that he supports the deal, saying, the proposed merger “sounds good to me,” after meeting in the White House with Union Pacific CEO Jim Vena, noted a Reuters report.

Another reason is that the deal has garnered support from The International Association of Sheet Metal, Air, Rail, and Transportation Workers—Transportation Division (SMART-TD), the largest rail union in North America, representing more than 100,00 workers.

On September 22, SMART-TD called the proposed merger a groundbreaking agreement that guarantees SMART-TD workers in train and yardmaster service job protection for the length of their careers, adding that Union Pacific has committed that these employees will not face involuntary furloughs as a result of the merger, calling it “an unprecedented guarantee in the history of railroading.”

SMART-TD President Jeremy R. Ferguson said that for generations, railroads have worried about what mergers might mean for their jobs and whether or not they would be given the opportunity to reach retirement on the rail.

“Today, we can say with confidence that the biggest railroad and the biggest rail union in America are breaking new ground,” said Ferguson. “We are protecting jobs, protecting families, and protecting the future of the U.S. supply chain. I want to thank [Union Pacific CEO] Jim Vena, [Norfolk Southern CEO] Mark George and their teams for thinking outside the box and putting their employees at ease in unprecedented times. This is a bold agreement, and I’m proud of the mutually beneficial work done here and what Union Pacific, Norfolk Southern, and SMART-TD were able to accomplish. This is more than a contract—it’s a commitment. It’s proof that when workers and management sit down in good faith, we can build an industry that serves everyone: employees, companies, and the American people who depend on the railroads every day.” 

UP’s Vena said that he is confident that this merger will unlock new sources of growth for the country and the railroad industry, as well as take more trucks off taxpayer-funded highways, serve new markets and keep more railroad jobs in the U.S. And NS’s George said this merger will create growth opportunities, both for the company’s businesses and people, which is why every union employee at the combined company would have a job.

On the other end, there has been a fair amount of pushback from rail shipper groups in regards to this proposed merger.

Last week, a letter sent by the Rail Customer Coalition (RCC), a concern comprised of trade associations representing the manufacturing, energy, and agricultural industries reliant on railroads, to the leadership at the Surface Transportation Board (STB), an independent adjudicatory and economic-regulatory agency charged by Congress with resolving railroad rate and service disputes and reviewing proposed railroad mergers, laid out various concerns and reservations that RCC has in regards to the proposed merger.

While the letter stated that a strong, competitive transportation network is critical in various ways, including strengthening American manufacturing, unleashing energy production, and preserving U.S. leadership in global trade, it explained that rail mergers do not represent a path to that type of needed network.

“Past rail mergers have shown what happens when consolidation goes unchecked: service suffers, costs increase, and jobs disappear,” the letter noted. “Today, just four U.S. Class I railroads control over 90% of all freight traffic. A transcontinental merger could spark a new wave of consolidation, leaving captive shippers with even fewer Class I rail companies and competitive joint line options to choose from. This is in direct contrast to the President’s executive orders aimed at promoting American prosperity, curbing anti-competitive practices, and preventing monopolistic behavior. Rather than fostering economic growth, it would invite supply chain disruptions and make American products less competitive in the global marketplace.”

With reduced competition, should the merger come to fruition, the RCC said that it strongly believes that more, not less, competition in the rail industry is essential for the White House’s economic agenda. And it added that enhanced freight rail competition is essential for producing more goods in America, growing rail volumes and maintaining U.S. leadership in global trade.

That sentiment was similar to comments made by Chris Jahn, president and CEO at the American Chemistry Council (ACC).

“History has shown that mergers slash service and shift costs onto customers—and the UP–NS merger risks more of the same,” said Jahn. “President Trump has made real progress rebuilding American manufacturing. Let’s not let a monopoly undo it. We need a better deal—one that enhances competition between railroads, lowers costs, grows jobs, and strengthens America.”

In a recent interview with LM, Jahn explained that ACC wants to urge regulators, the STB (Surface Transportation Board), to reject this deal unless it clearly enhances freight rail competition and improves service, which, is the standard they're required to meet under the “new merger rules” that have never been tested based on the last rounds of massive consolidation 20-to-25, years ago.

“That's a very steep hill to climb, given that basically every merger we've seen over the last 40 years, going from 23 railroads down to six, with four of them controlling 90% of the traffic,” he said. “Every single time there's a merger, there's a degradation of service. And now we're to the point where, again, in which you have the four Class I railroads comprising 90% of traffic that now, as we lose railroads, three-quarters of our members’ facilities are captive. And the rates in non-competitive situations for our members over the last 15 years have gone up 240%, with the other 25% that are not captive, that are competitive, their rates have gone up 24%.

Why is that? It is because they don't have to compete for the business. It's literally 10 times as much, well past the rate of inflation. So that's why we're so concerned about this. Number one, every time we get a merger, service gets worse. Number two, we're going to make a situation where we have less competition going forward, which has been such a terrible detriment to our members. We're [the chemicals sector] at the beginning of the manufacturing supply chain. The President wants to make more in this country. Literally, everything that's manufactured starts with our industry, from the clothes you're wearing, the chair you're sitting in, the computer, our phone, everything starts with our industry. And that flows through the entire manufacturing economy. We're responsible in supporting 25% of U.S. GDP. So, if you screw up our service and cause it to cost more, that will ripple through the entire manufacturing economy and ultimately to the consumer.”