STB Board Member Calls Major Railroad Merger Plan “Shallow”

North American rail traffic saw a bounce back in Week 37, with carload and intermodal volumes showing positive year-over-year growth. However, the week closed with significant news regarding the Surface Transportation Board’s review of a major railroad merger application. A new board member issued a surprising concurring opinion, criticizing the application as “shallow” and lacking in detail, raising questions about the merger’s path forward.

The Surface Transportation Board declined Friday to dismiss the Union Pacific-Norfolk Southern merger application at the request of BNSF, CSX, and a coalition of shipper groups — but a pointed concurring opinion from board member Richard Kloster revealed significant reservations about the application as it currently stands. Kloster, a Trump administration appointee, wrote that the merger application is shallow, lacks detail on how UP will address competition concerns, and fails to offer meaningful concessions.

The board’s rejection of the dismissal request was expected. BNSF, CSX, and shipper groups had argued the application failed to meet the heavier burden required under the STB’s 2001 merger review rules, which are being applied for the first time in the UP-NS proceeding. Kloster voted with the full board to keep the review moving forward — but his written remarks drew the industry’s attention.

“He said the merger application is shallow, lacks detail about how UP will address concerns about competition and doesn’t offer meaningful concessions,” said Bill Stephens, describing Kloster’s concurring opinion.

Kloster was careful to note he was not prejudging the merits, saying he looked forward to development of the record and was only reporting initial observations. Still, his comments complicate a narrative that had taken hold in some corners of the industry and on Wall Street: that the Trump administration might pressure the STB to approve the deal. Union Pacific CEO Jim Vena appeared with President Trump in the Oval Office in September, and Trump subsequently called the merger a good idea. Kloster’s skepticism, coming from a Trump appointee, undercuts that theory, according to Stephens.

Adding another wrinkle, a coalition of shipper groups met with the White House Chief of Staff in recent days to register opposition to the merger. Markets appeared to react positively to the board’s decision not to dismiss the case, and showed little movement in response to Kloster’s opinion — possibly because it was released after Friday’s market close.

Separately, North American rail traffic rebounded sharply in week 37 after an anomalous dip the prior week. According to Association of American Railroads data, total North American rail volume was up 4.6% year-over-year, with carloads up 3.1% and intermodal up 6%. In the U.S. alone, carloads rose 2.4% and intermodal jumped 6.9%, for an overall U.S. gain of 4.9%. Stripping out coal and grain, U.S. carloads were up 6.3% — a notably strong figure. Coal, the largest carload commodity, fell 3.1%, while grain, the third-largest, was down roughly 8%.

On the intermodal front, J.B. Hunt flagged at an investor conference that high diesel and energy prices are pressuring its business, compounded by difficulty finding drayage drivers for first- and last-mile container moves. Stephens noted that intermodal currently offers roughly a 34% discount to truckload rates, meaning higher fuel costs widen intermodal’s long-term price advantage — but only if drayage capacity can keep pace. Tightening regulatory compliance requirements for non-domiciled CDL drivers has further squeezed the dray labor pool, creating a structural constraint that carriers and shippers will be watching closely.

• STB member Richard Kloster, a Trump appointee, called the UP-NS merger application ‘shallow’ and lacking meaningful concessions, even as the full board unanimously rejected calls to dismiss it outright.
• North American rail traffic rose 4.6% in week 37 per AAR data, with U.S. intermodal up 6.9% and ex-coal, ex-grain U.S. carloads up 6.3% year-over-year.
• J.B. Hunt cited high fuel costs and a drayage driver shortage as near-term headwinds for intermodal, with regulatory pressure on non-domiciled CDL drivers tightening the labor pool.

This Summary is generated thanks to a transcription of the interview, for the full interview please enjoy the video above.