The American chemicals industry, the third largest customer of the
Class I railroads, has come out hard against the proposed merger between
Union Pacific and Norfolk Southern.
Chemicals industry lobbyists told FreightWaves in an interview that
the burden of proof is on Union Pacific and Norfolk Southern to show how
the merger would not only not degrade, but positively enhance
competitiveness. Chemicals shippers are concerned that increases in
transportation costs due to monopolistic consolidation in the railroad
industry will harm their ability to compete in a global marketplace,
potentially suppressing American chemicals exports.
The industry, represented by leaders from the American Chemistry
Council (ACC), has articulated their concerns in a direct appeal to the
Trump Administration, emphasizing the detrimental impact such a merger
would have on U.S. manufacturing competitiveness and the broader
economy.
Among the notable companies whose executives signed the letter are
heavyweights such as Cabot Corporation, Huntsman Corporation, and The
Lubrizol Corporation, alongside CEOs from over thirty other leading
firms in the chemical industry. The coalition argues that past rail
mergers have historically led to negative outcomes, including increased
service disruptions, higher rates, and weakened supply chains.
The letter raises concerns about the current state of the U.S.
freight rail system, which is dominated by seven Class I freight
railroads controlling a vast majority of rail traffic. The chemical
industry executives warn that consolidating UP and NS could exacerbate
existing issues, further reducing competition and choices for rail
customers.
Looking at a network map of Union Pacific and Norfolk Southern,
there’s a region of significant overlap in the Midwest, a triangular
nexus between Kansas City, Chicago, and St. Louis. Chemical shippers in
that region with a choice between the two railroads would lose their
choice and be ‘captive’ to a single railroad, which could then wield
monopolistic pricing power while allowing service to degrade.
But as officials from the ACC explained, it’s not just the shippers
in that specific region of network overlap that would lose their
competitive choices in the market—any transcontinental shipper moving
freight on the Union Pacific would have additional transportation
options once their shipments reach the Mississippi River. Presumably,
they could choose either the Norfolk Southern or CSX. Merging the Union
Pacific and Norfolk Southern would remove that choice, the ACC argued,
giving the combined entity a monopoly over a much greater geographic
area.
Chris Jahn, President and CEO of the American Chemistry Council,
echoed these concerns, stating, “We need more rail competition, not
less. Every single merger in the past has been anywhere from a mini
disaster to a major disaster.” Jeff Sloan, Senior Director of Regulatory
Affairs at the ACC, highlighted the importance of keeping competitive
options open, noting how past mergers like CPKC led to a meltdown in
service and increased costs for businesses reliant on timely rail
deliveries.
Previous mergers, such as the one between Canadian Pacific and Kansas
City Southern, have demonstrated tangible setbacks. Despite regulatory
safeguards, integration troubles led to significant delays and
additional costs for chemical companies, which had to resort to
expensive emergency trucking to fulfill customer orders.
The proposed UP-NS merger threatens to centralize control further in
the rail industry. With Union Pacific already issuing embargoes at ten
times the rate of its peers post-COVID-19, the merger could likely lead
to fewer competitive routes and higher costs for shippers. Jahn warned
that losing routing options, particularly for firms located near current
UP lines, could severely impact the competitive landscape and escalate
national freight costs.
Concerns from the ACC are not without precedent. Past mergers in the
1990s, particularly involving Union Pacific and Southern Pacific,
resulted in severe service meltdowns which reverberated through
industries reliant on freight rail. In response, the Surface
Transportation Board (STB) implemented stricter guidelines requiring
mergers to enhance competition, not merely preserve it.
Jahn said that chemical shippers like the interline intermodal
service agreement that BNSF and CSX is working on, and argued that it
was a better model for seamless coast-to-coast transportation from the
customers’ perspective.
In their letter, the chemical executives urged President Trump and
the STB to maintain a high bar for merger approval, insisting that any
deal should unequivocally demonstrate enhancements in service, safety,
and competition before being greenlighted.
“The burden of proof is on UP and NS to prove that this merger will
enhance competition, improve service, and be in the public interest,”
stated Scott Jensen, Director of Issue Communications at the ACC.
While formal paperwork for the UP – NS merger has not yet been
presented to the Surface Transportation Board, the chemicals industry is
already working on a set of demands that the merger must meet. One of
them is an ambitious expansion of ‘reciprocal switching’. Under current
rules, if a shipper terminal is captive to a single railroad provider,
but another railroad provider has road a short distance away, the
shipper’s only railroad provider is required to transfer the freight to
the competing railroad shipper’s network on request.
The ACC would like to see this concept extended across the
network—not just near terminals, but at any point in a shipment’s
lifecycle. The concept is relatively simple: the combined entity of
Union Pacific and Norfolk Southern must transfer their customers’
freight to nearby competing rail networks upon request. That’s one
example of the kind of concession the chemicals industry expects the STB
to impose on any deal, but they expect to play a significant role in
the conversation around the merger once official DOT regulatory
processes move into action.
As the proposed merger moves forward, all eyes will be on the STB to
uphold stringent reviews, ensuring that Class I railroads empower rather
than strangle American industrial capacity.
