By Michael McBride
On July 30, 2025, at the Surface Transportation Board, Union Pacific and Norfolk Southern filed a notice of intent to file an Application for authority to merge. The earliest the Application may be filed is October 29. The STB will have 30 days (i.e., Nov.28) to determine whether it complies with the STB’s regulations.
The proceeding will be the first involving two Class I railroads that will be subject to the 2001 merger rules, because the merger of Canadian Pacific Railway and Kansas City Southern Railway was determined to be subject to the “KCS exemption” in the 2001 rules. So, that merger was only required to preserve existing competition, not enhance it, and CP and KCS were not required to consider “downstream impacts.” The STB made its views clear, during the battle between CP and CN for KCS, that it preferred CP over CN in large part due to concerns over “balance” in the railroad industry and the supposed fact that the CP-KCS merger presented few if any competitive concerns.
The STB’s rules will require UP and NS to demonstrate that their proposed merger would “enhance” competition, not just preserve it. They also require UP and NS to explain in their application what the “downstream impacts” will be, and how the merger will not negatively impact service. These are daunting requirements.
CPKC has made clear already that it is opposed to any more Class I mergers. Also, Berkshire Hathaway (which owns BNSF Railway) has made clear that it is not interested in acquiring CSX Transportation. So, it is not clear that a UP+NS merger would—or even could—lead to a balanced industry.
The opposition of other Class I railroads is a significant development. A large number of shipper associations have already announced their opposition. If that opposition persists or grows, it would undoubtedly have a significant impact on the STB’s consideration of the Application. It is true that Class I railroads have opposed other Class I mergers—BNSF initially opposed the UP-SP merger, only to withdraw its opposition when it entered into a consequential settlement agreement with UP that led directly to approval of that merger by the STB. The UP-BNSF Settlement Agreement, which became a condition of the merger and still applies, granted BNSF access to many shippers, resulted in 4,000 miles of trackage rights for BNSF and a formulaic rate agreement that allowed BNSF merely to request a rate from UP for its portion of joint movements that would allow BNSF to quote a shipper a rate on its system and compete on a commercial basis, among other aspects. The Board has heard and resolved many disputes between BNSF and UP that have allowed BNSF to be competitive with UP in many areas.
Also, CN filed a “responsive application” in the CP-KCS merger proceeding, seeking divestiture of a line in Illinois. We can expect responsive applications in the UP-NS proceeding that may allow the Board to rectify problematic aspects of the proposed merger so as to maintain balanced competition in regions where UP and NS lines are in close proximity.
The Board’s broad authority to condition a merger has preserved build-out rights to permit future competitive options for shippers to avoid captivity from mergers. If the Board approves the UP-NS merger, we can expect substantial conditions to satisfy the 2001 merger-rule requirements.
Moreover, the STB’s composition is uncertain. Not only did POTUS 47 terminate Robert Primus as an STB Board Member (although that termination may still be challenged in court), but also the terms of Board Members Hedlund and Schultz end soon (but they can serve during a “holdover year” if a successor has not been confirmed). Recently, Schultz has been re-nominated, and Richard Kloster nominated, for two Republican Board positions. If Hedlund is not renominated and confirmed by early 2027, and Schultz and Kloster are not confirmed by then, they will not be available to vote on the UP-NS merger. The STB is not subject to a requirement that there be a quorum (i.e., three) Board Members to vote in order to act on a matter. But would Chairman Fuchs vote to approve such a momentous merger if he is the only Board Member who could vote when the 15-month deadline following the acceptance date arrives? Former Chairman Nober attempted to avoid taking significant actions while he was the only Board Member.
These circumstances suggest that UP and NS would be wise to try to cut deals with likely parties, including not only railroads, shipper associations, and rail labor, but also the Departments of Justice, Transportation, and Agriculture. The Administration’s position on the merger is not clear; Commerce Secretary Lutnick said that it would leave the decision to the STB. The President apparently did not take a position on the UP-NS merger when he met with UP CEO Vena, but subsequent reports suggest that he thinks the merger would be acceptable. But the Board must base its decision on the evidence, and the law, if its decision is to be upheld in court. If it approves the merger, it is more likely to be upheld if it acknowledges the adverse impacts on competition, balance, and service the merger may present, and responds with appropriate conditions.
The Board will be under more pressure than usual to get this one right. It is, after all, the “end game” for the railroad industry.
Originally published on Railway Age.