Agriculture economists and transportation analysts say a proposed $85 billion merger between Union Pacific and Norfolk Southern could lower shipping costs and ease long-standing bottlenecks for American farmers.
The Surface Transportation Board, which oversees railroad mergers, rejected the companies’ initial application as incomplete. The railroads plan to refile by the end of April.
Industry analysts say the merger would connect two rail systems that operate in different parts of the country rather than eliminate competition.
Paul Prentice, a former chief macro-economist for the United States Department of Agriculture, said the deal combines two complementary networks.
“This is not really a merger of competitors,” Prentice said. “It is a merger of cooperators – a merger between a western railroad and an eastern railroad.”
Prentice said the split between eastern and western rail networks has created delays and higher costs, especially for agricultural shipments.
Farm and food products make up about 20% of total rail tonnage, according to the USDA’s Agricultural Marketing Service. Roughly half of all U.S. grain moves by rail. About 80% of wheat bound for export is shipped by rail.
Shipments moving across the country often switch railroads at interchange points such as Chicago. Those transfers add days and increase costs. A combined system would allow single-line service from coast to coast, proponents say.
“Farmers will have better choices of what ports to take product to,” Prentice said. “They’ll have easy access to not just Baltimore and the East Coast, but the Gulf Coast, the Pacific Northwest, and the Great Lakes. It just brings more efficiencies and more choices.”
“The data is just very clear,” Prentice said. “What appeared to be a potentially dangerous concentration of power turned out not to be the case.”
Michael Gorman, the Niehaus Chair of Operations and Analytics at the University of Dayton, said the deal’s structure avoids the typical loss of competition because the railroads operate in different regions.
“There are very few shippers on both UP and Norfolk Southern, because they operate on opposite ends of the country,” Gorman said.
Gorman said eliminating interchange delays would help rail compete with trucking on long-distance shipments.
“Getting stuff off the roads and on the rail is good for all of us,” Gorman said. “Rail just wins on every single count – safety, congestion, pollution.”
Michael Toth, research director at the Civitas Institute at the University of Texas at Austin, said the merger could cut coast-to-coast shipping times by about two days.
Ashley Baker, executive director of the Committee for Justice, said regulators should focus on how the deal affects consumers and competition.
“How does this affect competition? How does it affect the consumer?” Baker said. “The benefits far outweigh the costs.”
The companies’ shareholders have already approved the deal.
When asked about the deal, President Donald Trump previously said it “sounds good.” Union Pacific and Norfolk Southern plan to refile their application by April 30.
