Union Pacific–Norfolk Southern merger filing with the STB is delayed delayed until mid-December

While a December 1 date for the merger application to be sent to the Surface Transportation Board (STB), regarding the historic proposed $85 billion merger between Class I railroads Union Pacific (UP) and Norfolk Southern (NS), had been widely anticipated, UP CEO Jim Vena said at the UBS Global Industrials and Transportation Conference this week that the merger’s submission will be delayed for about two weeks.

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.

“We’re moving forward with the merger…I was hoping [for it] at the end of the week, in fact, it looked really good,” said Vena. “And then we had one contractor that needed to do some rework on some product. We want to make sure the final product is at the level that is exceptional, so that when we give it to the STB that they are comfortable that we’ve answered the questions and are giving them the information that they want. We want to do it right. So, expect us to have the merger in and close to the end of the two weeks from now that we will hand it to the STB and we will start that clock process.”

In comments about the merger, Vena said that UP has found a partner in NS that will allow UP to have more customers be able to move traffic and move their business across the country seamlessly and remove touch points, and, in turn, speed up their traffic and business.

As for pushback UP has received from competing railroads, regarding the merger, Vena explained that the reason for that is they see the advantages the merger brings, in terms of the removal of touch points, as well as what the combined railroad is going to be able to offer, leaving competitors questioning how they will be able to compete against it.

That was made clear earlier this week, when BNSF Railway filed a petition with the STB, which requested an immediate review and enforcement of conditions that were imposed during the UP and Southern Pacific merger, which was completed in September 1996. BNSF said the objective of this petition, “seeks to address UP’S longstanding pattern of obstructive conduct, which has eroded competition and harmed customers.

The key components of BNSF’s petition include:

• Reviewing the implementation of UP/SP merger conditions;
• Enforcing the rights granted to BNSF to maintain competitive access for shippers; and
• Modifying conditions as necessary to prevent further harm and uphold the public interest

BNSF also requested that the STB enter a procedural schedule for all parties to fully develop the record for the STB’s review.

“With UP now proposing another unprecedented merger, this time with Norfolk Southern, the stakes for shippers nationwide could not be higher,” said BNSF Executive Vice President and Chief Legal Officer Jill Mulligan. “Before considering any new consolidation, we ask the board to ensure the commitments made during the UP/SP merger are honored, and that competition is, at a minimum, preserved as required under the prior merger standards.”

What’s more, at last month’s RailTrends conference in New York, which was hoisted by Progressive Railroading and independent railroad analyst Tony Hatch.

As for how other railroads approach and view the merger, Hatch said that they are playing things smartly, in that they can watch the merger process, and get benefits without any risk, citing getting access, for example, without having to give anything up.

“If this merger is approved and creates a superpower that will hurt them [other Class I railroads], other railroads will merge and they will know how to do it, because right now UP is sailing in the dark on its own,” he said.  “I don’t think this is a slam dunk. The benefits are clear, even if undefined and unquantified. I have the highest faith in the Chairman of the STB and its other members that are going to be looking at this. This is the most important decision in the 200-year history of the industry because it will have follow-on effects.”

Tom Williams, EVP and CMO, at BNSF, observed at RailTrends that the merger will undoubtedly change the industry landscape in some way, if it is approved, adding that the merger’s application will be the first one under the STB’s new merger rules, established in 2001, which state a Class I merger must be in the public interest and demonstrate enhanced competition to be approved, adding that the industry is about to go into what he called unchartered territory.

“This new standard of enhancing competition hasn’t been tested,” said Williams. “We will learn more about what this will mean, but it is a higher standard than had existed before. And if you were around in 2001 the one thing you put a commonsense test to this is that this clause wasn't put out there to protect the interest of non-rail customers. When we think about enhancing competition versus the highway [trucking], I think that does not pass the commonsense test. It is also kind of gaslighting the 10,800 closed stations between up and NS. I hear things no conditions, no concessions, and it's hard for me to get my head around how that even translates to maintaining competition, let alone enhancing competition.

For all practical purposes, there are four transcontinental railroads: UP-NS, UP-CSX, BNSF-NS, BNSF-CSX. And if this transaction is approved, two of those four transcontinental railroads are immediately eliminated. And when you eliminate those two railroads, you effectively eliminate all of the lanes that are associated with those two railroads.”

On Monday, the National Association of Waterfront Employees (NAWE) sent a letter to the STB, highlighting its concerns regarding the merger and called for the STB to move forward with what it called a rigorous evaluation of the merger’s potential impact on intermodal shipping networks that sustain the nation’s supply chain and regional economies.

NAWE President Carl Bentzel wrote in the letter that the waterfront sector, comprised of privately-owned stevedores, marine terminal operators, and other waterfront-related employees, serves as a regional economic engine, driving activity around the port complex as retailers and distributors create demand for warehousing, trucking, and logistical services.

“Marine terminals need an intermodal rail service to handle increasing volumes of trade in order to provide streamlined imports and exports from increasingly strained port complexes,” he wrote. “We need intermodal railroad services that expand the reach and capacity of medium-sized ports so they grow, but more fundamentally, we need to build a stronger business partnership with the railroads. Many NAWE member companies have established good working relationships with their railroad partners, and have seen business expansion, however, other port areas of the nation continue to struggle for commitment of service and greater level of investment to help spur growth. Intermodal rail expansion is and will be critical to support port and terminal development on a regional basis and will impact a huge percentage of the businesses operating through the marine terminal system. We are greatly concerned as to whether a reduction of two of the four major remaining competitors offering intermodal rail service will serve to benefit our industry.”