Union Pacific’s proposed acquisition of Norfolk Southern could lead to serious service degradation and failures for shippers who rely on them, according to trade associations.

These concerns persist as Union Pacific has threatened shippers not to speak to the Surface Transportation Board (STB) or file comments opposing the deal, said Nancy O’Liddy, executive director of the National Industrial Transportation League (NITL), a trade group representing shippers who rely on freight rail in a variety of industries.

“During this process, there have been threats by [Union Pacific],” O’Liddy said. The railroad has said “if you don’t agree with the merger, we will remember who you are,” she added.

Retaliation is a serious issue – and protection from it is one of the reasons that many shipping companies join associations like the NITL, O’Liddy explained.

John Corey, president of the Freight Management Association of Canada (FMA), agreed that shippers are afraid of retaliation by carriers both in the US and Canada.

“If you’re trying to run a business and your service is already poor, and you complain to the rail carrier or to the STB about that, the end result is your service will become nonexistent, even if that is illegal,” Corey said.

Concern over similar allegations led John Primus, the former Chairman of the STB during the Biden administration, to issue a statement in January 2025 warning about acts and threats of retaliation by railroads against shippers who speak out or complain to the STB.

Anne Reinke, president and CEO of the Intermodal Association of North America (IANA), said she had not heard of any retaliation fears. IANA represents motor carriers, ocean carriers, third party logistics providers and railroads – including Union Pacific and Norfolk Southern.

“Railroads are really big companies, but typically the shippers, their customers, are also really big companies. They’re both sophisticated business partners who can negotiate terms,” Reinke said. “Retaliation to me means that there’s a power imbalance, and nine times out of 10 there is not.”

“We are going to fight really hard that there are consequences for service failures,” O’Liddy said.

“Our stance on this merger is that, unless it can be proven that this merger will enhance rail to rail competition, it should be rejected. And right now, we have not seen anything that would enhance rail to rail competition,” said Scott Jensen, director of issue communications at the American Chemistry Council (ACC).

First transcontinental rail carrier

The merger of two of the nation’s largest freight railroads, announced on 29 July, would create the first transcontinental rail carrier to connect the Pacific to the Atlantic. The deal falls under the regulatory jurisdiction of the STB, the agency that evaluates rail mergers to determine if they will “enhance competition.”

The Norfolk Southern/Union Pacific deal will be the first test of the STB’s “new rules” for major mergers (between two Class I railroads), which were adopted in 2001.

The STB found that Union Pacific and Norfolk Southern’s first merger application was incomplete on 16 January. The railroads have until 17 February to file a letter of intent describing plans to refile, and a new application must be submitted by 22 June. Union Pacific has guided to a close in early 2027.

Specifically, the STB found that Union Pacific and Norfolk Southern’s impact analyses did not contain adequate market share projections. “I think it’s going to take some time, because this time they are saying, we need real data,” O’Liddy said.

The Department of Justice (DOJ) also filed a notice of intent to participate in the STB review in November.

“I think they’re going to actually have a really hard time with the things that STB asked for,” O’Liddy said. There is a USD 2.5m breakup fee to walk away from the deal, according to the merger agreement.

Consolidation concerns

A wave of railroad consolidation in the 1980s and 1990s resulted in the current market of six carriers, but 90% of the traffic goes through the largest four, Jensen said.

“What we saw from 2000 on was the railroads really figuring out how use the regulatory landscape and their market power to increase rates, to [add] other charges, and in some cases, even change their operations through things like precision scheduled railroading, where they trim back service,” Jensen said.

The most recent merger, Canadian Pacific and Kansas City Southern, was finalized in April 2023, creating the railroad currently known as CPKC. That consolidation – between the sixth and seventh largest carriers at the time – created major problems, said Rob Benedict, VP of petrochemicals and midstream at trade group American Fuel & Petrochemical Manufacturers (AFPM).

By operating revenues, the Norfolk Southern/Union Pacific merger will be about seven times the size of the Kansas City Southern/Canadian Pacific deal, Benedict said.

“When they were implementing their operations together, AFPM Member companies noted the merged railroad was frequently missing shipments and delivering the wrong products.  And when they reached out to the railroad, their calls went unanswered.  This led to some members having to curtail production and left others on the brink of shutting down operations,” Benedict said.

The merged Norfolk Southern -Union Pacific will capture around 43% of all rail traffic, said Jeffrey Sloan, senior director for regulatory affairs at the ACC. In the chemical industry, it will capture over 50%, he said. And around 40% of fuels and refined petrochemical products would rely on the merged carrier, according to Benedict.

While rail is a small percentage of the overall US freight market – around 5% is rail car traffic – industrial products like coal, grain, and sand as well as high risk chemicals tend to rely heavily on rail, said Reinke. Rail is generally safer to transport chemicals than trucks and is more efficient for bulk cargo, she said.

Many shippers represented by AFPM, NITL and ACC are known as “captive” – meaning they are served by one single railroad as it is.

Around three-quarters of ACC members are captive, Sloan said.  “Even though [a] facility may already be served by a single railroad, lengthening that network and concentrating that market power can still have negative competitive harms,” he said. For example, a captive shipper for part of the route may still have routing options later on – but a transcontinental rail carrier “will have every incentive to try to keep their traffic for as long of the haul as they can,” he said.

Some AFMP shippers that used to be served five days a week have already seen service reduced to two or three days a week, leaving little margin for error, said Benedict.

“When we order a certain type of tank car for a certain type of shipment, we need that shipment. And what we’ve seen more and more with the reduced competition, is those shipments aren’t on time or correct when they do arrive. The inability to move certain materials in and out of our facilities, due to this poor service, will eventually overwhelm on-site storage capacity, leading to bottlenecks and eventual reduce utilization rates or in some cases forced production cuts,” Benedict said.

Reciprocal switching

Reciprocal switching is one way to introduce some competition into a situation where there may be none, according to O’Liddy.

Where a shipper is captive to one rail carrier, reciprocal switching would provide a mechanism whereby that carrier would pick up the cargo and then “switch” it to a second carrier at a nearby interchange point, allowing the second carrier to offer a more competitive price. Reciprocal switching helps to put downward pressure on rates by giving shippers more options and more leverage.

“If they would allow some reciprocal switching at the end, then I think there would be a chance for shippers to be able to move their freight,” O’Liddy said.

However, Union Pacific CEO Jim Vena has been “very clear” that the company does not want to “deal with” reciprocal switching, O’Liddy said. There were no provisions in Union Pacific and Norfolk Southern’s application that addressed it, confirmed Sloan.

Under the current statutes – which came into effect when the railroads were deregulated in the 1980s – shippers must first file a complaint to the STB, and the onus is on them to prove that the rail carrier has exhibited anticompetitive behavior.

“The STB’s rules set such a high bar, it’s almost like you have to prove an antitrust case,” said Sloan. “It has never once been granted to a shipper.”

Earlier this month the STB introduced a Notice of Proposed Rulemaking (NPRM) that would streamline the process to request reciprocal switching, eliminating the need for shippers to prove anticompetitive conduct by the rail carrier.

Reciprocal switching has been a hot topic of attempted rulemaking at the STB since at least 2016. In 2024 the agency adopted a final rule that would have created a pathway for carriers to apply for it, but it was overturned by an appeals court last year.

The railroads have been opposed. “Railroads pay for their own infrastructure. If they are letting another railroad onto their infrastructure and not actually making money off of that move, and letting them take over a customer, they’re at an economic disadvantage,” Reinke explained.

Other remedies that could ease the potential harm of the Norfolk Southern/Union Pacific deal include regulations to preserve access to competitive gateways (locations where cargo can be rerouted between carriers), trackage rights agreements, and commitments related to service performance, O’Liddy said. These agreements would have to be permanent to be effective, she said.

The STB oversight period is usually five years, said Sloan. However, merger conditions can and do extend beyond that period – for example, conditions associated with Union Pacific’s 1996 takeover of Southern Pacific are still in effect, he said.

A representative for STB declined to comment. Representatives for Union Pacific and Norfolk Southern did not respond to requests for comment.