America’s 1st Transcontinental Freight Railroad Just Got Closer to Reality

Let’s take a break from tariffs for a moment and talk about the railroads that move not only domestically sourced goods across the country but also cargo to and from the ports for export or after import.

A planned merger between Union Pacific and Norfolk Southern would create America’s first transcontinental freight railroad if it can get past U.S. antitrust regulators. A move from the Trump Administration may have just removed the biggest regulator (yes regulator, not regulatory) hurdle for the merger by firing Robert E. Primus from the Surface Transportation Board of the United States.

Many believe Primus would be against the Union Pacific-Norfolk Southern merger because he previously opposed the Canadian Pacific and Kansas City Southern railroad merger with concerns about industry consolidation.

Rail Consolidation Concern

Concern over rail industry consolidation is certainly legitimate. If Union Pacific buys Norfolk Southern in the proposed $85 Billion deal, America’s other two main railroads may end up consolidating too in order to compete. Chris Isidore presented the argument they would consolidate in an article published by CNN Business last month when the news about the merger first dropped:

Union Pacific (UNP) serves the western United States, while Norfolk Southern (NS) serves the eastern parts of the country. The coast-to-coast combination could force the other two major freight railroads, Burlington Northen Sante Fe, a unit of Berkshire Hathaway, and CSX Corp., to also merge to stay competitive, leaving the nation with two major freight railroads moving goods east-to-west.

“We believe BNSF and CSX will have to come together or else they’ll be handcuffed in terms of competition,” Jason Seidl, managing director at TD Cowen, told CNN Tuesday after the UP-Norfolk deal was announced.

I tend to like seeing more competition in markets and industries rather than less. For years, I’ve warned of the dangers of shrinking competition in the ocean freight industry, including carrier alliances. I’ve gone so far as to urge regulatory bodies to reconsider approval of such vessel sharing agreements. I can’t say the thought of America’s four major railroads consolidating to two doesn’t make me leery. Even four going to three makes me feel that way.

On the other hand, there are arguments to be made in favor of the merger. It would allow cargo to move across the country without the disruption of switching railroads. Thus, it could create smoother, faster service, even potentially reduced costs shippers. However, less competition doesn’t usually mean lower prices.

Is Firing to Make Merger Happen?

Some believe the firing of Primus, whom President Trump appointed during his first term and President Biden renominated during his, is to clear the way for the merger to happen. Primus is among several board and regulatory members President Trump and his administration has or is removing and/or replacing. Thus, the merger may not have anything to do with the firing. However, the timing and Primus’s previous opposition to a major rail consolidation gives reason to think it’s at least related.

With Primus, the Surface Transportation Board was made up of two Democrats and two Republicans. There was space for one more member to be appointed to the board. If the Trump Administration wanted the board to vote in favor of allowing the merger, it may have been able to do it with an appointment for that last spot. Of course, removing Primus and appointing one or two new members would obviously be even more effective, assuming the administration correctly predicted opposition and support for the merger. Just removing Primus from the board changes its current political balance to two Republicans and one Democrat.

It should be noted that by law there can only be three members of the same party in the board’s five possible seats, according to a Journal of Commerce (JOC) article by Ari Ashe. Some speculate the removal of Primus is the first move in politically stacking the board in favor of the merger, as Ashe quotes one such opinion:

“We believe the move comes in an effort to clear the path for the potential transcontinental merger,” Jason Seidl, a transportation analyst with TD Securities, wrote in an investor’s note Thursday. “We believe a Republican appointment could still be forthcoming as channel checks indicated four candidates in contention, potentially leaving the [STB] with a 3-1 Republican majority by the time a decision has to be made.”

Primus Fighting the Firing

If firing Primus is the plan for letting the merger go through, it may not be so easy for the Trump Administration. Primus is fighting his removal. He called his termination from the position “legally invalid” and wrote on LinkedIn, “I plan to continue to discharge my duties as a member of the Board and, if I’m prevented from doing so, I will explore my legal options.”

Here’s his full post:

Earlier this evening, I received an email from the White House purporting to terminate my position at the Surface Transportation Board. This is deeply troubling and legally invalid. Ironically, this comes at a time when the Board is considering significant pressing matters of critical importance to both our national freight rail network and supply chain that would directly affect large swaths of our manufacturing, agricultural, industrial and energy sectors.

As someone who was nominated by President Trump during his first term and unanimously confirmed by a Republican-led Senate, then renominated by President Biden and unanimously confirmed by a Democrat-led Senate, I have worked tirelessly to build bipartisan trust and have demonstrated myself to be truly an independent Board member that has consistently rendered fair and impartial decisions. My record during my four and a half years at the Board reflects this and I strongly believe the actions of the White House would weaken the Board and adversely affect the freight rail network in a way that may ultimately hurt consumers and the economy.

With all of this in mind, I plan to continue to discharge my duties as a member of the Board and, if I’m prevented from doing so, I will explore my legal options.

Conclusion

There’s a strong chance Union Pacific will buy Norfolk Southern, connecting America’s railroads from coast to coast. The Trump Administration’s firing of Primus at least gives the appearance that it’s for the merger happening. Whether the merger will be a good or bad thing for cargo movement in the U.S. is hard to say.

The shrinking of competition in the railways is concerning. The merger would not result in a full monopoly of the railroads, but higher price points are certainly possible going from four major railways to three, and then quite possibly two.

Still, there are also service improvement possibilities that should be acknowledged. Goods may move faster and smoother across the country by rail as a result. Only time will tell. And only if the merger becomes a reality.