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. Union Pacific is working with Norfolk Southern 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? A merger 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. The 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."
What are the monopoly issues? A merged rail conglomerate 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." With a merger, that bargaining "might become harder."
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 is seen as a "proponent of industry consolidation" and deregulation. Others say the rail companies "do not need to merge to improve connections between eastern and western networks," said the Times.
If the companies do decide to come together, 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. Given this, there's "widespread debate over whether such a merger would be approved." |