Union Pacific, Norfolk Southern file revised merger application

“This merger is fundamentally about growth,” said Norfolk Southern (NYSE: NSC) President and CEO Mark George, in the release. “Shippers have been clear about what they value, and the data backs it up. When single-line rail service is available, they choose it. Our combined network will deliver seamless freight moves within and across the Mississippi watershed markets with one Class I railroad accountable from origin to destination.” 

An improving trucking market where rising rates historically lead shippers increasingly to use less expensive intermodal rail led the partners in the revised filing to bump up their projections for winning over highway freight from 2 million to 2.1 million truckloads annually. The shift will save shippers an estimated $3.5 billion a year, which the railroads say will flow through to consumer prices, making American goods more affordable.

Coast-to-coast route will cut transit times

The single-line route and accompanying reduction in freight handoffs, they say, means in-transit savings of 24-48 hours, although some industry executives expect even greater reductions. George in a recent presentation to a rail conference touted coast-to-coast service in just four days – the same as trucks. 

The amended application increases premium seven-day-a-week intermodal lanes from six to seven, including a new lane connecting northern California and the Southeast.

“The analysis also confirms the combined company will have sufficient equipment and infrastructure capacity available to support the projected growth,” the release stated.

The companies in the application also claim the merger will preserve customer access to competing railroads, “and will have no meaningful impact on geographic competition or on the availability of independent routes.”

Vena said projections show the combined railroad will move about the same number of ton-miles as BNSF (NYSE: BRK-B), its western competitor, currently handles. He said that emphasizes how the merger will enhance competition – a central requirement of the STB’s tougher requirements for mergers formulated in 2000 after a series of problematic rail takeovers.

A newly-consolidated carrier will require 1,200 net new union jobs by the third year of the merger to handle new business, up from 900 in the original application. That’s in addition to the “jobs-for-life” guarantee covering every union employee with a job at the time of the merger, even for members of unions such as the Teamsters, which oppose the deal.

The amended application includes more detailed market share projections that account for the growth the combined railroad expects to gain as shippers move traffic from trucks and other railroads.

It’s unclear whether a merger application has ever been rejected twice.

“The analysis confirms what we’ve been saying: Our merger will create strong growth by providing customers a superior service product, which in itself creates competition in the railroad industry,” George said. “The announcement of our merger alone has caused other railroads to respond with new offerings.” 

Under chairman Patrick Fuchs, who as a legislative aide to Sen. John Thune co-authored the most recent federal surface transportation funding legislation, the STB gathered more than 100 million separate pieces of data prior to the first application filing. Fuchs brought in specialists from the Massachusetts Institute of Technology to help crunch the numbers, to ensure nothing is overlooked.

In the updated application, UP and NS say they will sell off their shares of the Terminal Railroad Association of St. Louis. The carriers initially sought temporary controlling interest in TRRA, which handles interchange traffic among Class Is, in order to reduce their stakes over time.   

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Read more articles by Stuart Chirls here.

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