NEW YORK —The biggest U.S. railroads have a good thing going, why mess it all up with a disruptive mega-merger unlikely to benefit shippers or carriers?
That’s the view of BNSF Railway, western rival to Union Pacific which has agreed to acquire Norfolk Southern in an historic deal that if approved would create the first freight-only transcontinental railroad.
UP (NYSE: UNP) has pitched the consolidation as way to speed up the movement of freight without the delays or expense of hand-offs between railroads through congested hubs such as Chicago or New Orleans. The Omaha-based carrier claims that a streamlined coast-to-coast railroad will grow the business as shippers leverage reduced costs and improved productivity.
The merger would likely lead to a reshaping of the North American rail network, a prospect that doesn’t sit well with the other Class I railroads in an industry where a daily reality of doing business means sharing freight with your fiercest competitors.
“We would see our customers, especially on the carload side, lose competitive options as a result of the merger today,” said Tom Williams, executive vice president and chief marketing officer for BNSF, in an interview at the recent RailTrends conference. “There’s more practical transcontinental railroads today [through collaboration]. If you take two of those out of the mix, you’re eliminating half of the options, and all of the lanes associated with them, and that would be a concern if I was a customer in terms of what are my options in the future.
“I’m negotiating with the scale of an entity in our industry that’s unprecedented.”
But it’s much more than an existential threat to BNSF, owned by Berkshire Hathaway (NYSE: BRK-B), and eastern road CSX (NASDAQ: CSX). Analysts have estimated that a combined UP-NS (NYSE: NSC) railroad would control almost half of all U.S. freight moving by rail. This would include 45% of container traffic, 47% of automotive and equipment shipments and 56% of metals transported by rail.
“Our customers are not advocating for this,” Williams said, “and so if you take our approach of ‘listen to the customer,’ this is not something our customers are pushing our industry to do or BNSF to do.”
Until details are known when UP-NS files its merger application with the Surface Transportation Board the first week of December, BNSF’s customer-centric argument is a high-percentage approach.
“How we respond, ultimately, is really going to depend on, you know, the devil’s going to be in the details of the filing,” William said. “It’s premature at this point to speculate on what that might be, we can assume a lot of things, but until we see the filing, it’s going to be hard to decide what path we’ll have to take.”
Williams did say that BNSF will advocate for merger elements that enhance competition for its customers, such as access to gateways where railroads meet.
“Gateway competitiveness is an important thing. We have customers today that like using the BNSF-Norfolk Southern ‘transcontinental’ railroad. So, if those customers are squeezed in a way that that becomes not viable, that would be a big concern for us.
“How do we preserve that access to that effective transcon on the railroad that exists today? I would say that’ll be one thing that would be top mind.”
BNSF and NS currently have connections in Chicago, Blue Island, Burnham and McCook, Ill., Gibson and Indiana Harbor, Ind. and New Orleans. BNSF reaches the East Coast via NS and CSX; NS earlier this year upgraded service with BNSF on inland point intermodal (IPI) traffic originating from the ports of Seattle and Tacoma, Washington, destined for or connecting through Chicago.
Williams emphasized that American railroads have made recent progress on a freestanding basis.
“This industry has innovated. We’ve done well for multiple stakeholders, and so this will be a disruption.”
BNSF and predecessor Santa Fe wrestled with not one but two recent failed mergers — with Southern Pacific in 1983 and later as part of a joint holding company with Canadian National (NYSE: CNI) in 1999.
The STB in the early 2000s adopted tougher criteria that specify a merger must actively “enhance” competition, not merely preserve it, and also serve the public interest.
Williams reiterated statements by Warren Buffet of Berkshire Hathaway that BNSF won’t pursue their own merger with CSX or a Canadian railroad if the UP-NS deal is approved.
“It seems like a really tall hill to climb that those [STB] merger standards could be met. I’d go back to my comments on, well, what’s a common sense approach to enhanced competition? Something different and more than maintaining competition. We’ve long said that if the industry and customers are financially healthy, this is not something that they want. There’s not a path to future mergers and so it’s a bit of a disruption that neither of those conditions are met today.”
Similarly, Williams said Berkshire’s vast capital resources don’t weigh on merger thinking.
“UP doesn’t have access to a private owner, but they have access to the resources to pursue that transaction. And so somehow saying that we’re part of Berkshire Hathaway as being any sort of factor on the motivation to do something or not is really irrelevant.”
Railroads have “been on a good progression,” said Williams. “We’re proud to lead the industry, especially in the safety of the cargo in terms of rail equipment incidents. We continue to innovate on new services, our Quantum service [with J.B. Hunt] is something that’s now bringing a new part of the consumer goods supply chain to intermodal. If we keep doing all those things, we’re going to provide value for our customers, and it’s going to be good for all of the industry stakeholders.”
Subscribe to FreightWaves’ Rail e-newsletter and get the latest insights on rail freight right in your inbox.
Find more articles by Stuart Chirls here.
Related coverage:
Union Pacific CEO: America needs coast-to-coast railroad, now
Rail merger no guarantee of growth: Analysts
Weekly rail freight lower but still ahead of 2024 for year
Rail merger could raise prices, hurt US ability to compete, say GOP legislators
The post BNSF on UP-NS merger: Don’t ruin a good thing appeared first on FreightWaves.
