The Great Rail Shake-Up: Will the UP/NS Merger Rewrite the Map or Repeat the Past?

One Word: Shocking! Unless you have “gone off the grid,” you know the big news in the rail industry is the recent announcement of the merger between the Union Pacific and the Norfolk Southern. Creating the first-ever transcontinental railroad in the United States, many questions immediately pop to mind about what this means and if it will even be approved.

If the thought of Class I railroads merging sounds familiar, maybe that is because you read my article from June titled Is The Unthinkable Possible?, which asked directly about this potentiality.

A Look Back at Past Rail Mergers

As you can see from that article, there have been many rail mergers during the last 50 years of my rail career. How did those mergers go? Here is my quick snapshot of some personal memories of a few of those mergers.

ConRail: Born of necessity, this consolidated six carriers that were literally falling apart. Just about every aspect of those railroads was in or approaching shambles. Representative of that was when, as a clerk, I walked the tracks of the Penn Central Interchange with the Newburgh & South Shore in Cleveland, OH, and could see the track practically falling off the cross ties as the ties crumbled underneath. ConRail became a success story of a well-operated railroad with vision and tremendous improvement, until it was sold to CSXT and NS in 1999.

CSXT: Unlike most mergers as we think of them today, CSXT came together in many progressive stages over several years. It started as early as 1972 when Seaboard Coast Line Industries was formed to consolidate a few lines. In the rest of the 1970’s and ‘80’s, Chessie System and CSX consolidated other lines, but it wasn’t until 1986 that the name CSXT was adopted, and not until 1987 that all the lines were fully incorporated into CSXT. So that journey, you could say, took 15 years. The slower “trickle” meant less obvious major issues along the way.

BNSP: If you were around in the 1990’s, you might recall the merger attempt between the Burlington Northern and the Southern Pacific. In 1995 BN and SP announced a merger that would have created the largest railroad in North America. They were very serious and had their sales and marketing folks all with plans coming to our offices showing off how good this would be for shippers. However, due to competitive concerns, the Interstate Commerce Commission (predecessor to the Surface Transportation Board) rejected the merger, leaving the SP in dire straits and in need of immediate help.

BNSF: Having been spurned once, BN didn’t quit and immediately turned to the Atchison Topeka & Santa Fe. That merger was more palatable to the ICC and to shippers and was ultimately approved.

UPSP: Union Pacific couldn’t sit by and let BN have all the fun, or all the business, so they had no choice but to jump into the merger market and go after SP. In this case, their lines of business were aligned differently than BN and SP, and now that BN had merged with ATSF, the ICC had to seriously consider allowing UP to merge with SP. Plus, without any merger, SP was likely to be unable to continue. Unfortunately, this became the merger that startled everyone and created such a ripple in the economy that no serious consideration was given to any major merger until Canadian Pacific and Kansas City Southern in 2023, almost 30 years later. (Note: The ConRail sale to CSXT & NS was not a merger.)

Ripple Effects

I still remember vividly how it started with a backlog or congestion in Houston after the

UP/SP merger. Whether it was a failure to properly merge operations, systems, or something else, the end result was a total breakdown resulting in the bottleneck of bottlenecks like no

one had ever seen. It may have started there, but the ripple effects began to spread literally all over North America, once again showing how we have one seamless rail network. It took months to unravel the problem and restore a flow of business. Multi-billions of dollars were lost.

UP had promised improved service of all areas, better car supply, improved turn times, better first-mile/last-mile service, all the same promises and hopes we still hear today. Initially, it was a complete catastrophe. Over time, they recovered and proved to be able to manage the business.

But how did this help the shipper? Did it only help the shareholders? I am only asking questions, not offering answers or passing judgment.

The Question Today

So, the question remains: Can the hopes and desires a UP/NS merger could produce truly outweigh the potential initial disaster and the lack of verifiable results seen in every merger over the past 50 years?

The STB will look at whether this can improve competition, a new higher bar than has ever been set before. And, as noted in my June article, will this just push BNSF to marry CSXT? Sounds all too familiar to the 1990’s when BN merged with ATSF, so UP merged with SP. Will there be a repeat?

You can share your thoughts by calling me at 440.552.7091 or emailing me at dennis@ihlogistics.com.