BNSF Railway has publicly rebuked the proposed $85 billion merger
between Union Pacific and Norfolk Southern, calling on customers to air
any grievances they may have with the deal to the Surface
Transportation Board (STB).
On Sept. 26, the
STB invited public commentary on its impending review of the
acquisition, which would create the first U.S. transcontinental
railroad. The deadline for comments is Oct. 16.
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“No
customer is asking for a UP-NS merger to happen. It’s driven by Wall
Street on the promise of a big shareholder payout,” the company said in a
position paper posted on its website. “BNSF does not believe a merger
is necessary at this time, when we can deliver immediate benefits to our
customers while preserving competition.”
In
the paper, BNSF highlighted that a merger of Union Pacific and Norfolk
Southern would control 45 percent of existing freight, citing STB
metrics that also indicated that the combined company would move 46 percent of containers
and have 43 percent market share of total carload volumes. The combined
companies would cover more than 50 percent of market share across
categories including chemicals, metals and lumber.
Carload
and agricultural products customers will be most impacted, the Fort
Worth, Texas-based railroad said, claiming that they will lose
optionality in shipping to the eastern U.S. or “face significantly
higher rates on traffic” that currently interchanges with Norfolk
Southern.
“Post-merger, some lucky customers will still have two rail options—a single-line UP service and a BNSF-CSX option,”
the railroad said, highlighting the Warren Buffett-owned railroad’s
recent partnership. “For many shippers and for many origination and
destination pairs, however, there will be no BNSF-CSX option because
they are served only by UP or NS at origin or destination who have no
incentive or obligation to facilitate alternative routes, creating a new
generation of captive shippers.”
Union Pacific CEO Jim Vena has defended the deal,
citing that companies like CSX and Canadian National Railway have
already had their own tie-ups in an attempt to match the efficiency of a
potential single-system railroad.
Despite an
activist investor’s prodding of CSX to examine a merger with BNSF as a
counter to the Union Pacific-Norfolk Southern transaction, the Berkshire
Hathaway subsidiary has been intent that it does not want to explore such a deal.
According to the STB’s data, a BNSF-CSX merger would put the combined
firm on roughly equal footing when it came to share of carloads and
containers.
BNSF
went after Union Pacific’s claims that the merger would be paid for
through 10 percent volume growth within three years of the deal’s
closing, calling the target unachievable. The Class I railroad said that
UP’s last mega-merger with Southern Pacific Transportation in 1996
resulted in a reduction in volumes, along with an increase in their
revenue per unit and record profits.
“Less
competition means fewer alternatives and higher rates, as well as
reduced capital investments across the rail industry,” BNSF stated.
In
a separate letter to BNSF customers on Monday, executive vice president
and chief marketing officer Tom Williams highlighted concerns about
possible service disruptions.
“Integration
challenges have historically caused ripple effects across the national
network, even for customers not directly served by the merging
railroads,” said Williams. “When UP was challenged during the supply
chain crisis, they issued over 1,000 embargoes causing competitive and
financial harm to many customers and invited STB intervention.”
And
if a merger is approved, BNSF claims 300 intermodal lanes across the
U.S. will be eliminated, based on the assumption that all current UP-CSX
and BNSF-NS lanes will be shuttered.
Union
Pacific has denied those claims, calling them “absolutely false,” and
saying that more than 100 shippers have written letters in support of
the merger.
The STB has traditionally not considered approving railroad mergers of this magnitude. But the Trump administration’s public support of a Union Pacific-Norfolk Southern acquisition, and September’s STB shakeup including the firing of an STB board member and a new nominee, could suggest a more favorable opinion from the regulatory body.
For
the next steps in the merger process, Union Pacific and Norfolk
Southern will file their merger application to the STB between Oct. 29
and Jan. 29.
Any initial concerns about the
completeness of the UP/NS application should be filed quickly, BNSF told
customers, “ideally within one to two weeks after the application is
filed.”
The STB will either approve or reject
the proposal within 30 days of its submission. If approved, the board
would begin conducting its review. This would evaluate how the pending
Class I transaction, which would create the first single U.S.
transcontinental railroad, would enhance competition.
#NSUPMERGER, #NORFOLKSOUTHERNUNIONPACIFICMERGER, #RAILROADMERGEROPPOSITION
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