Deal Would Create Largest North American Railroad
Union Pacific and Norfolk Southern are in active merger discussions to form a coast-to-coast freight rail giant. If finalized, the deal would create the largest railroad in North America, spanning the U.S. from East to West. Talks began in the first quarter of the year, according to a source close to the matter who was not authorized to speak publicly.
The proposed merger would unite the largest and smallest of the six major U.S. freight railroads. Both companies have so far declined to comment on the discussions. Norfolk Southern’s stock surged 3.7% on Thursday and climbed another 4.7% in after-hours trading following news of the talks.
Regulatory Hurdles and Industry History
The potential merger would be subject to review by the Surface Transportation Board (STB), which has historically been cautious about approving major rail deals. While the board approved the 2023 Canadian Pacific-Kansas City Southern merger that created CPKC, that deal involved the two smallest railroads and was exempt from stricter 2001 merger rules.
Those rules, introduced after the problematic Union Pacific–Southern Pacific merger in 1996 and the 1999 Conrail split, require any new rail consolidation to clearly enhance competition and benefit the public. The STB currently has four active members, split evenly between Republicans and Democrats, with one seat vacant, which could complicate any vote.
Operational Efficiencies vs Competition Concerns
Union Pacific CEO Jim Vena has previously argued that a merger could eliminate handoff delays between rail networks and improve shipping reliability. The combined entity would streamline coast-to-coast deliveries and simplify logistics for companies dependent on rail transport.
However, some shippers are wary of further consolidation. Concerns center on reduced shipping options and increased market power of the remaining rail giants. Critics argue that fewer choices could lead to higher rates and reduced service for some regions and industries.
Analyst Reactions and Market Impact
Citi Research analyst Ariel Rosa cautioned that a transcontinental rail merger would likely face years of delays, regulatory scrutiny, and opposition from unions, customers, and lawmakers. Rosa also noted that the management distraction could be costly for both companies.
Union Pacific, headquartered in Omaha, Nebraska, generated $24.3 billion in revenue last year and employs over 30,000 workers. Norfolk Southern, based in Atlanta, earned $12.1 billion and has approximately 20,000 employees. The potential deal marks a significant moment for an industry that hasn’t seen a major merger under current rules.
