On the Right of Way by Tony Hatch: Inside the amended UP-NS merger application

Editor’s note: On May 28, the Surface Transportation Board accepted the amended Union Pacific Railroad-Norfolk Southern Railway merger application. The STB also ordered UP-NS to submit certain supplemental information by July 27. 

Less than two weeks before the STB announced its decision, RailTrends® hosted an online discussion about the revised app led by independent transportation analyst Tony Hatch.

The other panelists during the May 15 event: Farrukh Bezar, operating partner, transportation logistics at Littlejohn & Co. and former senior vice president and chief strategy officer at CSX; Roger Nober, lecturer in law and affiliated scholar with the Regulatory Studies Center at George Washington University, a former STB chairman and former BNSF Railway chief legal officer; and David Woodruff, principal in WashingtonGPS and former CN assistant vice president and head of U.S. public and government affairs at CN.

What follows are Hatch’s key takeaways from the virtual event — the third in a continuing series.

• The four of us agreed that we were sort of surprised UP, upon reflection and a second chance, still chose a bareboned approach.
• One reason might be that, as a tactical matter, this could shift the burden of proof concerning “competitive harm” to the opponents, even though it’s a prerequisite for the applicants.
• Another worry some opponents have is the timing of the submission of data: If UP-NS responds to claims of “not enough detail etc.” with late-submitted data, the opponents will have little or no time to respond, some fear.
• There was discussion of whether the Canadian Pacific-Kansas City Southern merger was a good model. CPKC was more end to end, it was targeting an 80/20 split synergies/economies. This one is around two-thirds/one-third and the historical ones like the mid-1990s’ UP-Southern Pacific were 20/80.
• There was disagreement on whether the deal is, or could be, construed as anti-competitive: Farrukh thought not, whereas I thought, “well, it could be, at ~40% market share, but we shall see what the shippers say.”
• Question: Did this app come any closer to defining ‘’Enhanced Competition’’? Answer: No.
• There was no real sense that the new data was enough — certainly, CN, CSX and CPKC say no.
• Will national issues like affordability come into play? I think not — my “STB is Independent” thesis — but most felt it would.
• Peripheral stories are everywhere. For example: What does POTUS weighing in on rail safety mean for this, if anything? Etc.
• If this app is rejected, all hell breaks loose, and UP’s aura of invincibility and inevitability is broken.
• Roger opined that this app would be accepted (the consensus opinion), but with requests for more data.
• It comes down, it seems, to whose definitions hold true. Is competition rail to truck or rail to rail?
• And it all comes down to the shippers via the independent STB.