A Landmark Deal Just Reshaped the Future of US Rail

Newsweek

3 days ago

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Two major rail companies have come together to unveil a plan to create America's first transcontinental railroad.
Union Pacific and Norfolk Southern announced on Tuesday that they would be connecting over 50,000 route miles across 43 states from the East Coast to the West Cost, linking around 100 ports.
The plan comes as part of a merger where Union Pacific will be acquiring Norfolk Southern, and together they'll form a company worth of over $250 billion.
A spokesperson for Union Pacific told Newsweek that "rail moves almost everything ordinary Americans use—you name it, and at some point, the railroad hauled it."
"As rail becomes a faster, more efficient, more reliable and more accessible way to ship goods, we expect prices to fall for businesses and consumers nationwide," they added.
"The combination will create a more accessible, sustainable and lower-cost supply chain for customers and consumers by making rail a more efficient option for more shippers," the spokesperson said.
They added: "By creating new routes, the transcontinental railroad will unlock rail options for shippers in regions where railroad connections are less efficient today—like in the Ohio Valley and on both sides of the Mississippi River."
When approached for comment, Norfolk Southern pointed Newsweek to the merger information on its website.
Why It Matters
If the plan goes ahead, it would mean America would have its first transcontinental railroad. However, in order to get to that stage, the plan has get approval from the Surface Transportation Board (STB), an independent federal agency that oversees various aspects of the rail industry, which could prove difficult.
When the agency approved a merger between Kansas City Southern Railway Company and Canadian Pacific Railway Limited, it took a seven-day hearing and a seven-year oversight period, as well as many additional conditions, Reuters reported.
There have also been reports that labor unions are looking to fight the merger over concerns about regulatory and legal pushback.
A photo of Norfolk Southern and Union Pacific locomotives.
A photo of Norfolk Southern and Union Pacific locomotives.
Union Pacific
What To Know
Based on Union Pacific's stock price on July 16, the deal will value each Norfolk Southern share at $320, which is 25 percent higher than what Norfolk Southern's average share price has been over the past 30 trading days. This means the merger will be offering investors a sizable premium.
The companies are also aiming to create the safest railroad in North America, while also competing with Canadian railroads to "win back U.S. freight volume and American jobs," the company press release added.
As the railroad will also connect 10 international interchanges and around 100 ports, the companies' say it will also "unlock strong international trade routes and offer greater access to U.S.-made goods."
"I believe the merger will create efficiencies in transcontinental train operation that has the potential for reducing costs of moving goods and thus be of benefit to ordinary Americans," Allan M Zarembski, director of Railroad Engineering and Safety Program at the University of Delaware, told Newsweek.
He said that "efficient railroad operations is a key to any industrial society in terms of the movement of goods."
P. S. Sriraj, director of the Urban Transportation Center and director of METSI and Research Programs at the University of Illinois at Chicago, also told Newsweek the proposed merger will result in "the ability to move goods from coast to coast in a seamless manner."
"The system integration between two railroads is likely to take time but if approved and operationalized, could have the ability to decrease prices and have them be shipped in a more efficient and faster manner," he said.
However, Zarembski said that there are always "risks in the initial integration stage of a merger between two major entities like Union Pacific and Norfolk Southern."
"This includes initial operating inefficiencies and more important potential safety related issues in the integration of two large rails systems with different standards, traditions, and safety and maintenance practices," he said.
However, he added that this could be addressed through "careful planning and integration activities."
Large scale mergers can also be associated with fears of "monopoly that could in turn have a negative impact on shippers and consumers," Sriraj said.
"However, in this particular instance, there are other class I railroads that are competing with the rail industry as well as the presence of over the road trucking industry that act as competition," he said.
There is also risk that some jobs may be eliminated in these sorts of mergers, he added.
Overall, Sriraj said the plan "could be a potential step forward for U.S. rail as it tries to ward off the competition in the freight sector from other surface transportation modes such as the trucking industry and the aviation industry."
What People Are Saying
A spokesperson for Union Pacific also told Newsweek: "By decreasing highway congestion, the combination will reduce wear-and-tear on taxpayer-funded roads. Notably, railroads maintain their own infrastructure. There are also benefits for Americans in local communities across the rail network. Expected growth in rail volumes as a result of the combination will drive additional employment opportunities in communities across the combined rail network, because every rail transportation job supports 3.9 additional jobs across the U.S. economy. Union Pacific and Norfolk Southern invested $300 million in philanthropic giving from 2020 to 2025, supporting workforce development, safety initiatives and vibrant spaces where people want to live and work. The combined network includes 24,970 bridges, over 50,000 route miles of track and a multitude of public-private projects focused on community safety, security and well-being."
Jim Vena, Union Pacific Chief Executive Officer, said: "Railroads have been an integral part of building America since the Industrial Revolution, and this transaction is the next step in advancing the industry. Imagine seamlessly hauling steel from
Pittsburgh, Pennsylvania to Colton, California and moving tomato paste from Huron,
California to Fremont, Ohio. Lumber from the Pacific Northwest, plastics from the Gulf
Coast, copper from Arizona and Utah, and soda ash from Wyoming. Right now, tens of thousands of railroaders are moving almost everything we use. You name it, and at
some point, the railroad hauled it."
Hualiang (Harry) Teng, director of the USDOT Railroad University Transportation Center, commissioner of the Nevada High Speed Rail Authority and director of the Railroad, High Speed Rail and Transit Initiative, at the University of Nevada, Las Vegas, told Newsweek: "The shipping cost will be reduced which will translate into lower selling prices for most of the commodities that ordinary Americans use everyday. No negative impact as far as I can see. Some facilities such as classification yards would be eliminated which will cause laying off employees. The reduction of employees could be significant."
He added: "This merger will immediately trigger the merging between BNSF and CSX, making it another transcontinental railroad, competing with the UP/NS company. The outstanding UP/NS merge may be out of balance in the railroad economy, which would be dangerous to the U.S. economy. These two pairs of merged companies, UP/NS and BNSF/CSX would be stabilized for a long while in the future in the U.S."
What Happens Next
The plan for completion is currently set for 2027, the spokesperson for Union Pacific told Newsweek.
"The announcement was just the first step in the process of bringing Union Pacific and Norfolk Southern together," they said.
Although, they added that "integration cannot begin until after regulatory approval and closing."
"Until closing, Union Pacific and Norfolk Southern will continue to operate separately," the spokesperson said.
The next steps in the process include that shareholders will vote to approve the transaction.
Within the next six months, the two companies will then file their application with the STB, where they will describe how "the combined rail network will provide safer, faster and more reliable service and increased competition to a broad range of stakeholders," the spokesperson said. The STB will then review.
If the plan goes through, Zarembski said he suspected a merger between the two other major rail companies BNSF and CSX could follow, "with the result of having two major US transcontinental railroads."
"This may be a good thing in the long run as both mergers could experience significant efficiencies and synergies," he said.