Union Pacific-Norfolk Southern Merger Filing Rejected by STB

Federal regulators have sent Union Pacific and Norfolk Southern back to the drawing board, rejecting the railroads’ initial merger application and forcing a second filing. On Friday, the Surface Transportation Board (STB) unanimously declared the Class I railroads’ 7,000-page filing incomplete, saying it does not contain sufficient information required by its regulations. According to the board, the filing didn’t include a projection of the combined company’s anticipated market share that was consistent with claims the new entity would grow by diverting from trucks and other rail carriers. Instead, the agency said the firms estimated that metric by combining their estimated market shares for 2023. This “full system” impact analyses should comprise actual and projected market shares of certain revenues and traffic volumes demonstrating the impacts of the transaction on competition, the board said. “The application is replete with claims that the merger will grow Applicants’ traffic, in one estimate by between 15 and 26 percent of current rail traffic levels,” the STB said in its 15-page decision. “Yet, when providing applicants’ projected market shares of revenue and traffic volumes for their competitive-impact analyses, applicants…stop, at best, at the moment of consummation and make no attempt to account for any merger-related growth, diversions, or, indeed, any other future changes to market conditions at all.” In the filing, Union Pacific and Norfolk Southern said the merger would divert 442,000 carloads from other railroads and convert more than 2 million truckloads of traffic to rail annually. Rival Class I railroads including BNSF Railway, Canadian National Railway (CN), Canadian Pacific Kansas City (CPKC) and CSX had all objected to the filing in December as being incomplete, with CN and BNSF both arguing that the merging companies did not provide the necessary market share data. The STB also said the application lacks certain documents related to the merger agreement itself. Among the board’s requirements include a description of conditions that would give Union Pacific the right to walk away from the merger, according to the agency. The decision does not mean a dismissal of the merger altogether, but it delays the $85 billion proposal’s already lengthy review process, which wasn’t expected to conclude until early 2027. The STB asked the companies to file a revised application. The agency directed them to file a letter by Feb. 17 indicating whether they expect to complete a revised application. Union Pacific said it will provide the additional information requested to the STB. Under STB rules, Union Pacific needs to show that the merger would not just preserve competition but enhance it and produce public benefits that can’t be achieved any other way. Combining the two railroads would create the first modern transcontinental railroad in the U.S., with Union Pacific and Norfolk Southern arguing that new direct single-line services would reduce strain at interchange points in areas like Chicago, Memphis and New Orleans. This could cut transit times on impacted routes by one-to-two days, the companies say. Detractors have long been concerned that the deal would effectively consolidate too much freight under one railroad, and force the shuttering of hundreds of intermodal lanes—the latter a claim Union Pacific CEO Jin Vena fervently denied. According to data from the STB’s Rail Service Metrics, 43 percent of carload volumes and 46 percent of intermodal container volumes shipped on a Class I U.S. railroad in 2024 rode on a Union Pacific or Norfolk Southern railroad car. The STB’s rejection did not address the concerns about rail consolidation, or potential changes in pricing that have been highlighted by rivals in their submissions. Beyond the chief concerns, the STB also said the applicants listed their related application to control the Terminal Railroad Association of St. Louis (TRRA) as a “minor” transaction, when it should have been submitted as a “significant” one. TRAA is a local carrier that interchanges cars between railroads, with Union Pacific and Norfolk Southern maintaining that no changes to operations are expected. CSX had argued that TRRA is one of two terminal railroads operating in the St. Louis gateway, and that Union Pacific wholly owns and controls the other, the Alton & Southern Railway Company. “[CSX] contends that the transaction, if approved, would not only result in common control of those two direct competitors, but also ‘give UP complete control of the St. Louis gateway on which…all other Class I railroads rely to compete,’” the board’s decision wrote. There’s precedent for the STB’s denial. In 2021, the board rejected CSX’s initial application to acquire New England regional railroad Pan Am Railways. Two months later, the STB accepted CSX’s refiling. Later that year, the board accepted the first filing of Canadian Pacific and Kansas City Southern to merge into CPKC, despite four rivals’ petitions to reject the application.