Union Pacific-Norfolk Southern merger application is filed with the Surface Transportation Board

The highly-anticipated and long-awaited application, regarding the proposed $85 billion historic merger between Class I railroads Union Pacific (UP) and Norfolk Southern (NS) was filed with the Surface Transportation Board (STB) today. This follows a merger agreement that UP and NS entered into in late July.

When the merger agreement was initially announced, the rail 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.

Key benefits of the merger cited by UP and NS include:

• connecting the U.S. from coast to coast, transforming 10,000 existing lanes from interline service into faster, more efficient single-line service—eliminating time-consuming handoffs between railroads;
• move freight more efficiently, eliminating an estimated 2,400 rail car and container handlings and 60,000 car-miles each day;
• retaining competitive shipping alternatives for the three customer locations out of more than 20,000 that are served by Union Pacific and Norfolk Southern but no other carrier;
• competing more effectively with long-haul trucking, converting an estimated 2 million truckloads of freight from road to rail annually;
• protecting all union jobs, stating that every employee with a union job at the time of the merger will continue to have one, and growth of the combined company is expected to create about 900 net new union jobs by the third year following the merger;
• further enhance competition by voluntarily creating Committed Gateway Pricing, streamlining interline pricing moves for thousands of customer locations that otherwise may not directly benefit from the merger;
• investing an estimated $2.1 billion of incremental capital to support revenue and cost synergies, and expect $133 million in annual capital synergies

“This marks a critical milestone in connecting America with its first transcontinental railroad,” said Union Pacific CEO Jim Vena on a December 19 analyst call. “This combination will create strong value for all our stakeholders. The application provides clear evidence that this significant transaction exceeds the STBs merger requirements. The merger is more than just a business deal. It’s a pivotal opportunity to strengthen America’s competitiveness, deliver exceptional service for our customers, enhance the safety of freight transportation and safeguard jobs for America. Our transcontinental railroad will accelerate freight movement, reach underserved markets with new rail solutions and strengthen the U.S. supply chain.”

To that end, Vena explained that the merged entity will remove more than 2 million truckloads off the highways, improving safety, reducing emissions, and easing road congestion for customers. And he added that the combined network will provide single-line service across the country, with customers benefiting from faster, more reliable service, improved asset utilization, and a streamlined customer experience, noting status quo is not an option.

What’s more, Vena observed that the U.S. remains one of the only developed nations without a true transcontinental railroad, noting that the lack of seamless connectivity creates fragmentation and inefficiencies that put American shippers and ports at a disadvantage.

NS CEO Mark George said on the call that in addition to enhancing rail competition, the merged transcontinental railroad will compete more effectively with trucks on the highway, providing more options for shippers, while creating growth opportunities for the rail industry.  

“Trucks demonstrate just how efficient it can be if there is an option for coast-to-coast, unimpeded movement of freight, they operate on seamless roadways built, maintained and paid for by American taxpayers,” said George. “Moving more freight to rail won't just make our economy more efficient, it will benefit the average American citizen. Railroads privately invest billions to maintain our own infrastructure while advancing safety. This contrasts with trucks, who congest highways, inflict wear and tear on roads, and have the poorest safety record of any mode of freight transportation. Yet the highway has been growing share of freight consistently for decades at the expense of Rails who have experienced meaningful share loss.”

Touting the benefits of single-line service, George said that it is more reliable and streamlined for customers than partnerships are, explaining the benefits extend beyond the mainline freight rail network to short-line operators, who often serve the last mile of track.

“A faster single-line network helps short lines deliver superior service for a greater number of customers and improves access to more markets,” he said. “This opportunity to grow is one that leads to investment and job creation in the communities that short lines serve. Ultimately, that is what this merger is all about, providing shippers greater geographic reach on a much more efficient and seamless network. With that we will unlock and supercharge the reindustrialization of America.”

Prior to the merger application being submitted to the STB, Tony Hatch, principal of New York-based ABH Consulting, said that there are three clear reasons for this merger to occur: interline issues; reduced SG&A; and the watershed opportunity (in the Mississippi River basin region, where rail service has historically been less efficient due to the need for interchanges between Eastern and Western railroads), which he said is hard to quantify.

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. 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.”

Looking ahead, UP and NS said that they expect the transaction to be completed by early 2027. But that is contingent on the STB finding the application is complete and can enter into a full review, and the STB can take up to 30 days (from December 19) to decide if the merger filing is acceptable.