In letter to President Trump, chemical industry leaders warn UP-NS rail merger threatens U.S. manufacturing competitiveness

In expressing their collective concern regarding the proposed Class I freight railroad carrier merger between Union Pacific and Norfolk Southern, a letter sent to President Trump from the American Chemistry Council (ACC), on behalf of 40 member-company chemical manufacturing CEOs, explained that should this deal come to fruition, it could have negative effects on United States manufacturing in various ways.

The CEOs told President Trump that fewer railroads mean fewer transportation options, adding that past railroad mergers make it clear that this merger threatens to make chemical companies’ manufacturing sites less competitive with the rest of the world, adding that they support a thorough review by the Surface Transportation Board (STB) in order to protect not only American producers and consumers but also railroads.

“Today, the U.S. freight rail system is less competitive than ever,” the letter said. “Just four railroads control more than 90% of U.S. rail traffic and most U.S. chemical production facilities are served by only one major railroad. Past mergers have led to severe service disruptions, rising rates, weakened supply chains and a less competitive U.S. industrial base. We have no doubt that combining UP and NS into the nation’s largest railroad will make these problems worse, leaving domestic manufacturers, farmers, and energy producers with fewer choices, higher costs, and less reliable service. And, if approved, this deal will likely spur additional mergers culminating in a nationwide railroad duopoly.” 

In regards to the STB, the chemical CEOs observed that the STB has the exclusive authority to review rail mergers and will determine if the UP/NS proposal is “consistent with the public interest.” And they added that the STB must be allowed to do its job and hold firm to a broad view of its mandate, while also setting a high bar for merger approvals.

“The STB should reject any deal that fails to clearly demonstrate how it would effectively improve service, increase safety, and enhance rail-to-rail competition,” the CEOs said. “You have committed to restoring American manufacturing, strengthening domestic supply chains, and outcompeting global rivals and we, the undersigned, fully support those goals.  To achieve them, we require a rail system that delivers for U.S. manufacturers and consumers. That means we need more rail-to-rail competition, not less. We respectfully urge you to continue challenging anticompetitive regulations and support a strong STB that can help build a rail network that supports the needs of American manufacturers and consumers.”  

In a recent interview with LM, ACC President & CEO Chris Jahn said the ACC is calling on the STB to reject this deal unless it clearly enhances freight rail competition and improves service, which, he said is the standard it is required to meet under the, “new merger rules” that he noted 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,” said Jahn. “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.”

While the ACC and its member companies have made their position against this merger clear, there are signs that it could be on a track to completion.

That was made clear last month, when the deal 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.