Freight Rail Consumer Alliance states its opposition to Union Pacific-Norfolk Southern deal

Following the recent announcement that Class I railroad carrier Union Pacific will acquire its Class I counterpart Norfolk Southern, with the companies coming to terms on an $85 billion deal, which, upon completion of the deal, will 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—various shipper groups expressed their disdain regarding the deal.

The most recent organization to come out against the deal is the Freight Rail Customer Alliance (FRCA), a group comprised of large trade associations representing more than 3,500 electric utility, agriculture, chemical, and alternative fuel companies, and their consumers. FRCA President Emily Regis said that the organization has long been opposed to continued consolidation in the rail industry based on past experiences resulting in increased rates, higher fees and unreliable service.

And it added that at the time of the Staggers Rail Act of 1980, there were 40 railroads, whereas now there are only six, four of which are responsible for moving 90% of our nation's rail freight.  

“This demonstrated market power is a continuing concern as the railroads have lost market share to trucks over the past 20-plus years due to their dismal service and high rates, but the railroads keep increasing their profits and reducing their operating ratios,” said FRCA’s spokesperson Ann Warner. “This growth in and exploitation of railroad market power has also included forcing shippers into contracts that not only fall outside the Surface Transportation Board’s (STB) regulatory jurisdiction but also lack protection from poor service and increased fees.  Any efficiencies achieved under so-called Precision Scheduled Railroading (PSR) have NOT been passed through to shippers—only retained by the railroads and their shareholders to Wall Street's applause.”

Under the new STB merger rules set in 2001, which have never been applied, a Class I merger must be in the public interest and demonstrate enhanced competition to be approved.  For most shippers, this means enhanced railroad-to-railroad competition, not just enhanced competition to truck, particularly as trucking is not a viable option for most carload shippers.  Regis stated that “particularly important to FRCA members is that a transcontinental merger provide enhanced competition for those who ship via unit train, typically point-to-point, and can utilize only a single rail carrier.”

“In the end, shippers, particularly captive shippers, need guaranteed competitive solutions that are workable, effective, and enforced by the STB.  Even if this imperative can be achieved in a transcontinental merger, there are concerns about how long it would take for the improvements to be successfully implemented and whether the integration problems and service meltdowns of past mergers can be avoided,” Regis said.

And Warner noted that FRCA looks forward to participating in the review and comment period once a formal merger application(s) has been filed.