A potential railway megamerger raises monopoly questions

Two giant corporations are in talks for a merger that could change rail transportation in the U.S. and create an unprecedented stranglehold on the industry. Freight rail corporations Union Pacific and Norfolk Southern are in negotiations to combine into one company. If the deal comes to fruition, it will produce one of the largest brands in the country, but industry leaders are worried this could also come with drawbacks.

What would the deal mean?

Neither side provided explicit details, and only offered that they are "engaged in advanced discussions regarding a potential business combination," Union Pacific said in a press release. But if the deal does close, it could have massive implications. It would "create a sprawling rail network that spans the continent from coast to coast — something no single railroad operator's network currently does," said The Wall Street Journal. Both companies would also combine for significant value: Union Pacific is worth $138.2 billion, while Norfolk Southern is valued at $63 billion, according to London Stock Exchange data.

The singular transcontinental railroad would have nearly 90,000 miles of track. It "would provide major benefits, including eliminating the need for redundant interchanges of cross-country freight and enhancing efficiency," said Stephanie Moore, an analyst at investment bank Jefferies, to Bloomberg. Merging the companies could "recapture market share from trucking and potentially reinvigorate a subsector that has faced stagnant or declining volumes the past two decades."

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What are the monopoly issues?

Some are concerned about the potential for a merged rail conglomerate, as it "would also reduce competition in an already concentrated industry," said The New York Times. Railway customers, primarily those in the coal, chemicals, manufacturing, and shipping container industries, like to "play railroads against one another to get better rates." But if the merger "cuts the number of major freight railroads in the United States to five from six, that bargaining might become harder."

This could open the floodgates for other rail deals, too, as the talks have "prompted competitors BNSF, owned by Berkshire Hathaway, and CSX to explore merger options," said Reuters. But any deal "would face serious scrutiny from a series of regulators, as well as the Justice Department, investors, Amtrak and labor unions," said the Journal, noting that the last major railway merger "took around two years to secure regulatory approval."

Mergers in the rail industry have been "difficult to consummate given the inhospitable regulatory environment" and concern over a monopoly, said Bloomberg. But the Trump administration could take things in a different direction, and President Donald Trump himself is "seen as a proponent of industry consolidation" and deregulation. Others are against the consolidation because they say the rail companies do "not need to merge to improve connections between eastern and western networks," said the Times.

The companies should "expand your network through actual investment, rather than by trying to expand your network by taking out another one," said Erik Peinert, an assistant professor of political science at Boston University, to the Times. But if the companies do decide to merge, there is a high bar they must clear, as "any major rail merger must show it will enhance competition and serve the public interest" under regulatory rules set up in 2001, said The Associated Press. With all of this in mind, there is still "widespread debate over whether such a merger would be approved."