American businesses and families can’t afford a freight rail Goliath
by James Uthmeier, Florida Attorney General · The Washington TimesOPINION:
Union Pacific and Norfolk Southern — already two of the largest railroads in the country — are trying to merge. Wall Street values the deal, first announced last summer, at $85 billion. Together, Union Pacific and Norfolk Southern would control half of all Class I freight rail in the United States. American businesses and consumers should be nervous.
If approved, this deal would create a behemoth spanning more than 50,000 route miles across 43 states, concentrating pricing power, raising shipping costs and creating a single point of failure for the American supply chain at a time when American manufacturing is back on the rise under President Donald Trump’s leadership. When freight costs rise, so do the prices of everyday goods, electricity, housing and cars. Even though many Americans may not realize it, railroads haul the coal that fuels power plants, the lumber used to frame houses and the steel and parts used to build automobiles, among thousands of other commodities and finished goods. Freight rail is a vital component of American manufacturing and supply chains and allowing this industry to concentrate to the point where a single firm controls half of all rail traffic would be a dire and permanent mistake.
The Surface Transportation Board (STB) is the federal agency tasked with reviewing the deal. It rejected Union Pacific’s initial application, filed last December, as insufficient. Union Pacific filed an amended application April 30. In its amended application, Union Pacific claims that the transaction will result in 2.1 million truckloads of cargo shifting from trucks to rail, with annual savings for shippers totaling $3.5 billion.
These claims sound too good to be true because they probably are. Union Pacific says this shift will occur because a single large railroad can efficiently interchange cars in the Midwest and improve customer service. But the large railroads operating today already run highly efficient trains between the East and West Coasts, with coordinated pricing and customer service. The merger offers nothing new. And despite now claiming ” shipper savings” for the first time since announcing the merger ten months ago, Union Pacific and Norfolk Southern have consistently avoided committing to lowering their pricing. Moreover, Union Pacific claims it plans to increase rail volumes by 12% over the three years following the deal. But the company’s track record calls this into question: its volumes have consistently declined over the past two decades, while its rates and stock price have consistently risen. It will be STB’s job to sort through the details of Union Pacific’s forecasts and estimates, but common sense suggests these projections are unrealistic.
Other critical questions remain unanswered. Today, large railroads co-own terminals where cars are exchanged and operate joint ventures that facilitate the sharing of rail assets, such as box cars and flat cars used to transport intermodal containers. This merger would give Union Pacific control over several of these critical assets. Union Pacific says it “intends” to take steps to ensure these industry collaborations remain neutral and accessible to all railroads on equal terms, but it provides no details on how it will accomplish that. What will be sold, to whom, and at what price, to keep these long-established joint ventures running smoothly and fairly? Neither the STB nor the industry should have to guess. We would be nave to ignore that, post-merger, Union Pacific will have significant incentive to ensure whatever happens to these collaborations benefits itself and harms its rivals to the detriment of consumers.
STB’s rules require that major rail mergers benefit the public interest and include actions that will not only preserve but also enhance competition. Despite the scope and scale of their merger, Union Pacific and Norfolk Southern offer almost nothing on this front. They call their enhanced competition proposal “Committed Gateway Pricing,” or CGP. Despite the grandiose label, the fine print of the proposal means that it applies to less than 1% of all freight traffic, and those that do qualify will likely get a higher rate than they are paying today. An analysis published in the magazine Railway Age concluded bluntly that “CGP does not in any way enhance competition.”
As conservatives, we believe in free enterprise, not near-monopolies protected by paperwork and consultants. Competition is a promise to everyday Americans that markets will serve them, not the other way around. When a deal threatens to distort markets and undermine President Trump’s America First policies, we have a duty to voice our concerns.
On the law and on the facts, this merger fails the STB’s competition standard, fails the transparency test, and fails the commonsense check that says bigger isn’t better when it wipes out competition and leaves consumers footing the bill. Absent real commitments and full candor from the merging parties, the STB should block this deal. As Florida’s Attorney General, I stand with my colleagues across the country to defend competition, protect Florida’s interests, and keep our economy moving forward.
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• James Uthmeier is Florida’s 39th Attorney General.