Proposed Railroad Merger Could Decrease Service For Ag Shippers

Reuters' Sabrina Valle, Shivansh Tiwary and David French reported that "Union Pacific said on Tuesday it would buy smaller rival Norfolk Southern in an $85 billion deal to create the first U.S. coast-to-coast freight rail operator and reshape the movement of goods from grains to autos across the country."

"If approved, the deal would be the largest ever buyout in the sector and combine Union Pacific's stronghold in the western two-thirds of the United States with Norfolk's 19,500-mile network that primarily spans 22 eastern states," Valle, Tiwary and French reported. "The two railroads are expected to have a combined enterprise value of $250 billion and would unlock about $2.75 billion in annualized synergies, the companies said."

"The deal will face lengthy regulatory scrutiny amid union concerns over potential rate increases, service disruptions and job losses. The 1996 merger of Union Pacific and Southern Pacific had temporarily led to severe congestion and delays across the Southwest," Valle, Tiwary and French reported. "The deal reflects a shift in antitrust enforcement under U.S. President Donald Trump's administration. Executive orders aimed at removing barriers to consolidation have opened the door to mergers that were previously considered unlikely."

"The (Surface Transportation Board) review process takes 16 months, per its statute, and the companies have said they are targeting a filing with the STB within six months, people familiar with the matter said," Valle, Tiwary and French reported. "The companies said in the statement they expect the deal to close in early 2027."

Progressive Farmer's Mary Kennedy reported that "the National Grain and Feed Association (NGFA) said in a news release that it will undertake an extensive evaluation of the proposed merger to better understand its implications for our industry."

"'NGFA looks forward to hearing from the Union Pacific and Norfolk Southern railroads and learning how they believe the merger will create resilient and reliable efficiencies and incentives in timeliness of service and deliveries -- along with fair and reasonable rates to better serve our members," (said NGFA President and CEO Mike) Seyfert," Kennedy reported. "'NGFA will also undertake extensive analysis and discussions with our members to determine the impact on cost and competitiveness for American agriculture.'"

How Could Ag Shipping Change?

AgWeb's Michelle Rook reported that "the proposed deal came as no surprise to Mike Steenhoek, executive director of the Soy Transportation Coalition. He says if approved the deal could change the shipping landscape with both winners and losers."

"Union Pacific officials say the merger would speed up shipping and make supply chains more efficient and that is an argument proponents of the deal will lean on," Rook reported. "Less handoffs do cut costs admits Steenhoek, but he says combining the two railroads would also decrease competition and raise rail rates. This is not normally favorable for farmers and it could result in lower grain prices."

"'One of the things that history teaches us is that when there has been consolidation, when there have been mergers within the rail industry, that often results in a decreased competition for those agricultural shippers and can result in higher rail rates and a decrease in service,'" Steenhoek said, according to Rook's reporting. "Plus, if there is less competition agriculture is often at the bottom of the food chain."

"Steenhoek says while agriculture is a significant source of revenue for the railroads, there are other business lines that do have a more lucrative profit margin than agriculture and are willing to pay more for rail cars," Rook reported.

How Much Grain do the Companies Move?

World-Grain's John Reidy reported that "(Union Pacific) transports about 1.3 billion bushels of grain annually, with exports accounting for 30% to 40% of those shipments, according to the company. The railroad serves most of the US major grain markets, connecting the Midwest and Western production areas to export terminals in the Pacific Northwest and Gulf Coast, as well as Mexico. It also serves significant domestic markets, including grain processors, animal feeders and ethanol producers in the Midwest and West."

"In its second-quarter earnings report on July 24, UP said grain products volume was up for the three months ended June 30 compared to a year ago and continues to be driven by new soybean crush production in Nebraska and Kansas," Reidy reported.

"Norfolk Southern moved 18,107 carloads of grain and grain mill products in 2024, according to its weekly performance reports," Reidy reported. "Agriculture products shipped include soybeans, wheat, corn, feed, flour and ethanol."

Source: Ryan Hanrahan, University of Illinois' FarmDoc project