Chief executives Jim Vena of Union Pacific and Mark George of Norfolk Southern say the interline partnerships that BNSF, CSX, and Canadian National have announced recently are proof that the proposed UP-NS merger will boost railroad competition.
“Just the mere idea of having a transcontinental railroad has already enhanced competition … And I think that’s a very, very important point. Our argument is being made for us,” George told an investor conference Wednesday.
The Surface Transportation Board’s 2001 merger review rules encourage alliances that can provide merger-like benefits without integration-related service problems. The rules also require a major merger to enhance, rather than merely preserve, competition.
“We’ve got lots of competition coming at us … I love it. And I think it helps us with the STB,” Vena said in a separate appearance at the conference.
Last month BNSF and CSX (NASDAQ: CSX) announced an intermodal partnership that will offer seamless domestic coast-to-coast service, plus new international service linking BNSF’s Kansas City terminal with CSX-served ports on the East Coast.
And on Monday CSX and Canadian National unveiled plans to develop a new interline intermodal service linking Nashville, Tenn., with Vancouver and Prince Rupert, British Columbia, via interchange at Memphis.
BNSF, CSX, CN (NYSE: CNI), and Canadian Pacific Kansas City (NYSE: CP) executives have all said that Class I mergers are not necessary and that they will focus on interline partnerships that can offer shippers more options today.
Vena says there’s no doubt alliances will make the other railroads more competitive. But he also insisted that mergers are far more effective because they’re permanent and place decision-making under one railroad’s control.
“Bottom line is this: A cooperation agreement is completely different than a consolidation,” Vena said. “There are way more benefits on a consolidation, on a merger, than there ever is on an agreement where you’re going to work together.”
A railroad will abandon a run-through power agreement, for example, when it’s short of locomotives.
“If you’re short locomotives or tight for people, you have to set the priority, and you’re going to look inward,” Vena said. “So that’s why they always break down.”
Vena also downplayed the potential impact of the CN-CSX agreement, noting the UP-NS route from West Coast U.S. ports to Nashville is 700 miles shorter than CN from Vancouver to Memphis and CSX from Memphis to Nashville.
UP (NYSE: UNP) and NS (NYSE: NSC) have said that one of the key selling points for their merger is its potential to boost the U.S. economy, make American companies more competitive in global markets, and support an American industrial renaissance.
Vena said he met with senior Trump administration officials in Washington on Tuesday. “They get it,” he said. “They understand the value of what we’re proposing, and they think it’s an absolute win for the country.”
George compared the merger to President Dwight Eisenhower’s creation of the Interstate Highway System in 1956.
“This will be as transformative as what Eisenhower did in the ’50s … when it comes to freight transportation,” George said. “Ever since then, when that highway system was built, freight has started to navigate toward the highway, and it’s been hard for rail to recapture share. This is our opportunity to redefine rail’s role in freight transportation.”
Shipper associations, some rail labor leaders, and some elected officials have criticized the UP-NS merger, saying it will leave shippers with fewer options and lead to service problems.
But George said feedback from shippers, labor unions, and elected officials has generally been positive. “There’s just a lot of optimism and positivity toward what we’re doing, and we’re really excited by that,” he said.
Vena says a fragmented rail network — with two Class I railroads in the East, two in the West, and two in Canada that extend into the U.S. — cannot effectively deliver for customers. “Does anybody want to go back to 40 Class I railroads? Absolutely not. Does anybody want to go back to the days of the railroad having so much power? That’s not where we are. Where we are is trucks are our biggest competition,” he said.
UP and NS teams are working on the more than 4,000-page merger application that will be submitted to the STB sometime after Oct. 29. “It’s a monster,” George said.
The spirit of cooperation between UP and NS employees mirrors the initial merger talks between the CEOs, George added.
“I’m really proud of the collaboration between the NS team and the UP team. We are working extremely well and extremely close, and it speaks to why I think the combination of UP and NS makes the most sense,” George said. “There’s a cultural fit.”
The UP-NS deal also requires shareholder approval. NS aims to hold its shareholder vote on the merger by the end of the year, George said.
The executives spoke at the Morgan Stanley Laguna Conference.
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