The $85 billion proposal to merge the country’s two biggest railroads has just been struck by a major union coalition, raising fresh doubts over safety, jobs and freight rates.
Union Support and Opposition
The Brotherhood of Locomotive Engineers and Trainmen and the Brotherhood of Maintenance of Way Employes Division, both linked to the Teamsters, are among the most prominent critics of the deal. They will officially announce their decision Wednesday, joining the American Chemistry Council, a mix of agricultural groups and BNSF in voicing worries that the merger would hurt competition.
In contrast, the nation’s largest rail union, which represents conductors and hundreds of individual shippers, backs the merger. President Donald Trump has also said the deal sounds good to him.
Union Pacific CEO Jim Vena argues that a coast-to-coast railroad would speed shipments and better compete against trucking. He has also said that “every employee with a union job at the time of the merger will continue to have one. We’ve formalized this jobs-for-life agreement with five unions.”
Vena acknowledges that the combined railroad’s employee count could still shrink through attrition if workers leave on their own.
Union Leaders’ Concerns
Mark Wallace, the national president of the Brotherhood of Locomotive Engineers and Trainmen, warned that the proposed monopoly would cost businesses more and those costs would be passed on to consumers. He added, “We believe this transcontinental railroad will make shipping by rail less attractive as the merged carrier passes off rail lines that serve small towns, factories and farms to short line railroads while running miles-long slow-moving trains on the main line. For rail customers it will be a choice between ‘Hell or the highway.’ “
The unions fear safety could deteriorate after the merger because Union Pacific has not made the same improvements Norfolk Southern has made in the two and a half years since the disastrous derailment in East Palestine, Ohio.
They also say there’s nothing to keep the companies from transferring jobs hundreds of miles away or from selling some Union Pacific lines to short-line railroads that pay less.
Regulatory Review
The U.S. Surface Transportation Board will weigh the opinions of all stakeholders before deciding whether the merger is in the public interest. The railroads are expected to file their formal application later this week.
The Board will review the deal under a tough new standard adopted in 2001 after a series of disastrous rail mergers in the 1990s that caused shipment delays of weeks or even months. These rules require any merger of the six largest railroads to be in the public interest and to demonstrate it will enhance competition.
When the Board approved the first major merger in more than two decades two years ago, it used a less stringent standard that allowed Canadian Pacific’s $31 billion acquisition of Kansas City Southern.
Transportation expert and DePaul University Professor Joe Schwieterman said many people have questioned the Union Pacific merger because of its scope and the likelihood that it could trigger another merger, resulting in only two American railroads. “Everyone will examine the merger application closely,” Schwieterman said.
Industry Reactions
BNSF’s Chief of Staff Zak Andersen, whose railroad is owned by Warren Buffett’s Berkshire Hathaway, said his company is convinced the merger would be bad for competition and lead to higher rates and fewer options for shippers. “No customer is asking for this. This is strictly a Wall Street play for shareholders,” Andersen said.
Earlier this fall, Buffett and CPKC’s CEO both said they weren’t interested in any kind of rail merger right now. Instead, they believe the railroads should continue to find ways to cooperate to deliver shipments more quickly, which can be done without all the complications of a merger.
Still, CSX decided to replace its CEO this fall with an executive who has a background leading companies through major mergers.
Currently, Norfolk Southern and CSX serve the eastern United States while Union Pacific and BNSF serve the west. The two major Canadian rails compete where they can with tracks crossing Canada and extending into the United States and Mexico.
A merged Union Pacific would likely control more than 40 % of the nation’s freight. Schwieterman called the merger “like nothing we’ve seen before. It’s creating a railroad of such enormous scope that it’s somewhat of a paradigm shift.”
Key Takeaways
- The Brotherhood of Locomotive Engineers and Trainmen and the Brotherhood of Maintenance of Way Employes Division have withdrawn support, citing safety, job security and freight rate concerns.
- Union Pacific CEO Jim Vena and Norfolk Southern CEO Mark George remain optimistic that the merger will be approved and benefit the country, customers and workers.
- The Surface Transportation Board will scrutinize the merger under a strict 2001 standard that demands public interest and competition benefits.
The proposed merger, if approved, would create the nation’s first transcontinental railroad, but it faces significant opposition from key unions and scrutiny from regulators and industry competitors.
