STB Seeks More Info on Rail Merger
The Surface Transportation Board (STB) has taken a significant step forward in the proposed merger between Union Pacific (UP) and Norfolk Southern (NS), accepting the applicants’ revised merger application for consideration. However, the STB suspended the proceedings and required supplemental information by July 27. The outcome of the proceedings could affect freight rail competition, service levels and shipping costs across the country.
Background
UP and NS filed their original merger application in December, seeking STB approval for UP’s parent company to acquire control of NS, creating the first true transcontinental Class I railroad in the United States, spanning approximately 52,000 combined route miles across 45 states. The STB rejected the original application as incomplete, citing deficiencies in market share projections and missing merger agreement documents. A revised application was submitted on April 30.
Last month, the STB found the revised application technically sufficient but characterized several aspects as “unclear or underdeveloped.” As a result, the board required supplementation on key issues before the proceeding moves forward.
Anti-Competitive Issues
The Board’s decision identifies nine specific areas requiring supplemental information, each with significant implications for rail shippers.
The applicants’ sole proposed competitive remedy — a “committed gateway pricing” program — has drawn substantial skepticism from companies and trade organizations, including ILMA. The STB noted that the pricing plan appears to cover less than 1% of rail traffic, excludes intermodal, unit train and automotive shipments, and terminates at the end of the Board’s oversight period. The Board directed applicants to quantify the consumer impact of each exclusion and justify the program’s scope and duration.
The Board seeks a comprehensive list of every shipper facility that would experience a reduction in the number of Class I carriers serving it and to detail how competitive options will be preserved for each.
The applicants project that the merger would divert 2.1 million truckloads annually from highway to rail, generating approximately $3.5 billion in annual shipper savings. The STB expressed skepticism about whether these projections adequately account for competitive responses from other carriers or modes, noting that the most recent Class I merger (Canadian Pacific & Kansas City Southern) has yet to achieve its truck-to-rail conversion targets after three years.
The Board is concerned about whether approval of a UP–NS merger would trigger a second wave of Class I consolidation — potentially a BNSF–CSX combination — and has directed applicants to address how conditions imposed in this proceeding would hold up in that scenario.
Environmental Review Pending
The STB determined that the transaction warrants a full environmental impact statement (EIS), given the potential for significant environmental effects on communities across the country due to projected increases in rail traffic and facility activity. The study process will include robust public participation opportunities.
Notably, the Board said it intends to streamline its review process, incorporating public comments from the notice of intent phase directly into the final EIS.
ILMA Advocacy
Lubricant manufacturers and their suppliers depend on reliable, competitively priced freight rail service for the movement of base oils, chemical additives and finished products. A transcontinental UP–NS combination would consolidate an unprecedented share of railroad capacity under a single operator, raising serious concerns about long-term service reliability, pricing leverage over captive shippers and inflationary pressure on supply chains. ILMA is engaged on this proceeding as part of a broader federal coalition calling for rigorous competitive analysis and meaningful transparency in the STB’s review process. The next key milestone is the applicants’ supplemental submission, due July 27.
“The Board’s own decision signals that the current proposal falls well short of what the law requires. ILMA will continue to advocate for conditions that protect the freight rail access that our members depend on,” stated ILMA CEO Holly Alfano.
