BNSF Warns Rail Megamerger Risks Higher Prices

(Luke Sharrett/Bloomberg)

The leader of BNSF Railway Co. warned that the proposed deal to combine two of its rivals risks pushing up costs for customers, a sign of industry opposition to the largest tie-up in US railroad history. 

Katie Farmer, BNSF’s CEO, said Jan. 14 the industry should question whether it’s an “accurate premise” that Union Pacific Corp.’s proposed $72 billion takeover of Norfolk Southern Corp. will lead eventually to double-digit growth in shipping volume for the combined company. 

She suggested the combined company would increase prices if that growth fails to materialize as expected, pointing to Union Pacific’s higher revenue per carload over the last decade as its freight volumes declined. 

The comments from the leader of the Berkshire Hathaway-owned railroad highlight emerging unease over the proposed tie-up. If allowed to proceed, the deal would create the country’s first continuous transcontinental railroad by connecting Union Pacific’s network in Western U.S. states with Norfolk Southern’s tracks along the East Coast. The deal is valued at $85 billion on an enterprise basis.

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Farmer 

“We knew our competitors would oppose the merger, and we understand why,” Jim Vena, Union Pacific’s CEO, said in a statement. “This is a transformational merger that will inject more competition into the railroad industry and force them to enhance their service, reduce their price, or do both.”

“While our opponents appear to be stuck in the past, we are taking a bold step that will reinvigorate the rail industry and make the entire U.S. supply chain stronger,” Vena said. “We are not content to compete for share of a shrinking railroad industry. America needs strong, innovative railroads to shoulder the weight of a growing US economy, and we are going to deliver.”

Speaking at at a Midwest Association of Rail Shippers conference outside Chicago, Farmer cited a coalition of shippers that utilize rail that have warned about the risks of further consolidation in the industry.

The plan has drawn bipartisan scrutiny from U.S. lawmakers. Eighteen Republican and Democratic senators urged the U.S. Surface Transportation Board, the regulator responsible for approving any potential rail deal, to examine the potential long-term effects on competition. 

The board, which typically has five members, currently has just three after Robert Primus, a Democrat, was fired last year by President Donald Trump.