Trade associations representing chemical manufacturers — whose supply chains are dependent on railroads — have been among the most outspoken critics of the proposed Union Pacific-Norfolk Southern merger.
But this week the largest producer of polyvinyl chloride in the U.S. told federal regulators that it supports the transcontinental merger.
“As a solely served customer, Union Pacific (NYSE: UNP) transports 100% of our rail traffic from each of our three production locations,” Shintech President Yasuhikoh Saitoh wrote in a letter to the Surface Transportation Board. “We rely on them to transport our products safely, reliably, and efficiently and we also depend on them to provide competitive pricing that allows us to win business both domestically and globally so that we can continue to grow.”
Saitoh praised UP for investing in its Gulf Coast carload network, including expanded storage-in-transit yards near its plants in Louisiana and Texas, and said the merged railroad’s ability to provide single-line service to eastern destinations would be an advantage.
“The proposed Union Pacific and Norfolk Southern ( NYSE: NSC) merger is very important to us. The eastern U.S. is one of our largest destination markets and we are enthusiastic about the synergies to be gained through reaching those markets on a single railroad,” Saitoh wrote. “A single line railroad will increase speed, reduce costs, enhance competition and improve the United States supply chain. Union Pacific has a history of consistently providing transportation solutions that enhance our competitiveness and support continued investment in our business.”
The Houston-based company is the U.S. arm of Japanese chemical producer Shin-Etsu. It has plants in Plaquemine and Addis, La., and Freeport, Texas. The PVC the company produces is used in a range of products, including pipes, flooring, medical devices, and packaging.
Concerns for short lines
Separately, a longtime railroad executive told the STB that the combined UP-NS system would have a negative impact on the short line railroads that have been driving growth in carload traffic.
The merger “poses serious harm for short lines and their rail customers” because an expanded UP would possess too much market power, George Avery Grimes told the board in a 23-page filing.
He urged the board to eliminate “artificial market barriers,” including paper barriers and handling agreements that limit short line interchange options, and to adopt a reasonable service standard.
“UP’s filings in this docket suggest increased density and capacity constraints, and its asymmetry of power extends to the competition for capacity between high-priority PSR operations and lower-priority local services. A reasonable service standard designed by the Board would help anchor the definition of Enhanced Competition, balance shipper needs with the realities of railroad operations, and ensure that banished artificial market levers cannot return in the form of service penalties for shippers served by short lines interchanging with an integrated post-merger UP,” Grimes wrote.
Grimes, who worked at Missouri Pacific, Union Pacific, and Kansas City Southern and held positions at short line holding companies OmniTRAX and Patriot Rail, holds a doctorate in railroad engineering, economics, and finance.
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