Why Shippers Want $85 Billion Rail Merger Blocked 🚂

It was 12:47 p.m. on May 10, 1869. A telegraph message traveled from Promontory Summit, Utah, to cities and towns across the country. It contained just one word: DONE.

But that four-letter word hardly captured the scale of what happened that day in the remote stretch of the American West.

Two locomotives stood facing each other. One belonged to the Union Pacific, which had been laying tracks westward from Omaha, Nebraska. 

The other belonged to the Central Pacific, which had been pushing east from Sacramento, California. After years of work across mountains, deserts, and difficult terrain, the two lines had finally met. The last rails were joined, and a golden spike, forged from California gold, was driven into the final railroad tie.

The event marked the completion of the First Transcontinental Railroad in the United States, connecting the country's eastern and western coasts by rail for the first time.

It had taken nearly six years to complete this extraordinary engineering feat. But it would take another 156 years before a single railroad company would propose connecting America's two coasts through one continuous freight network.

In July 2025, Union Pacific and Norfolk Southern announced an $85 billion merger agreement that, if approved, would create America's first coast-to-coast freight railroad under a single operator.

Since the announcement, the deal has sparked considerable debate across the logistics and supply chain industry.

At the center of the debate is a fairly simple question: will bringing two of America's largest rail networks under one operator make freight transportation more efficient, or will it give a single company too much control over the country's freight network?

To understand all of this better, we first need to look at the history of railroads and their role in freight movement in the United States. So, let's begin from there.

The 19th-century United States was a burgeoning economy. The country was expanding rapidly; new industries were taking shape, and agriculture was becoming increasingly commercialized. Cities were growing, trade was expanding, and businesses were looking beyond their immediate markets to reach customers across the country. But one major problem remained: America's transportation network struggled to keep pace with its economic growth.

Rivers and canals did much of the work of moving goods. They connected farms, towns, and trading centers, but geography limited their reach. Beyond these waterways, businesses had to depend on horses and wagons to move goods overland. That made transporting large quantities of freight over long distances slow, expensive, and often unreliable.

A mode of transportation was needed that could reach places rivers and canals could not, move goods more efficiently, and connect different parts of the country more cheaply. The need was clear, and as they say, necessity is the mother of invention. And thus came the railroads.

America's first commercial railroad began as a 13-mile stretch built by the Baltimore & Ohio Railroad in 1830. Interestingly, the railroad was born out of competition. Baltimore businessmen were worried that New York was pulling trade away from their city after the opening of the Erie Canal in 1825. The canal gave New York a direct water route to the Great Lakes and the growing markets of the Midwest, making it easier and cheaper for merchants to move goods. 

Baltimore needed a way to compete. The railroad was their answer: a direct connection from the city into the country's interior. 

Other cities soon began pursuing similar projects. In South Carolina, the Charleston & Hamburg Railroad connected the agricultural interior with the port of Charleston. Its 136-mile route, completed in 1833, was among the longest railways in the world at the time.

Soon, railroads began carrying the commodities powering the American economy. In the North, coal from Pennsylvania and other mining regions fuelled factories, steam engines and steel production, while iron and timber supplied the growing construction and manufacturing industries.

Across the Midwest, trains moved grain, livestock and other agricultural produce from farms to cities, ports and industrial markets. In the South, cotton was among the most important commodities, transported to ports such as Charleston, Savannah and New Orleans before being shipped to textile mills in Britain and the northeastern United States.

As demand for rail transportation grew, the network expanded rapidly across the country. According to the Association of American Railroads (AAR), in 1830, the United States had just 23 miles of railroad track. By 1850, that figure had climbed to more than 9,000 miles, and by 1860, it had crossed 30,000 miles.

By 1916, the network had reached about 254,000 miles, its peak in route mileage. That year, American railroads carried around 367 billion freight ton-miles, accounting for more than 77% of inland intercity freight transportation. 

The two World Wars demonstrated how dependent the United States had become on its rail network. During World War I, railroads moved military supplies, coal, food, and industrial materials across the country.

They played an even bigger role during World War II, moving raw materials to factories and finished weapons, aircraft, and vehicles to ports and military bases. In 1944, American railroads handled approximately 738 billion freight ton-miles, accounting for nearly 72% of intercity freight movement.

It is no understatement to say that the American railroad industry was at its apogee in the 1940s. But its fortunes were about to change. Less than a decade later, the first warning bells of its decline were already ringing, and they came in the form of federal investment in highways.

Road transportation was not new to the American freight industry. Long before railroads came along, goods had been moving across the country on roads, carried by horses, wagons, and, eventually, motor trucks. Even as railroads expanded, road transportation continued to serve an important role, particularly for shorter distances and local deliveries.

The mode of road transport gathered momentum after World War II, when the federal government began investing heavily in the country's highway infrastructure. The Federal-Aid Highway Act of 1956 authorized the construction of the Interstate Highway System, creating a nationwide network that connected major cities, industrial centers, and commercial hubs. The expansion of highways made it easier for trucks to travel longer distances, reduced dependence on local road networks, and opened up new routes for freight transportation.

For trucking companies, this was a significant opportunity. A growing highway network meant they could serve more markets, cover longer distances, and compete for shipments that had traditionally moved by rail. The advantage was not just the ability to move freight from one city to another. Trucks could pick up goods at the point of production and deliver them directly to their destination, reducing the need for additional handling and transfers between transportation modes.

The competitive pressure on railroads was further compounded by regulation. Since the Interstate Commerce Act of 1887, railroads had been subject to federal oversight through the Interstate Commerce Commission (ICC), which regulated freight rates and routes. This limited railroads' ability to adjust prices to operating costs and market demand, making it harder to compete with trucks and barges.

Through the 1950s and 1960s, competition from both trucks and barges intensified, and railroads gradually began losing their dominance. The numbers tell the story. By 1978, railroads accounted for just 35% of America's intercity freight movement, down from approximately 75% in the 1920s, according to the Association of American Railroads (AAR).

By this point, several major railroad companies had gone bankrupt. For instance, the number of Class I line-hauling railroads fell from around 40 in 1980 to 23 by 1985 and just 14 by 1990.  

In 1980, Congress passed the Staggers Rail Act, allowing railroads greater flexibility to set freight rates, negotiate contracts with shippers, and make decisions about their networks. But the industry had already been through years of financial distress. What followed was a wave of consolidation that left the United States with far fewer major freight railroad operators.

And two of the railroad companies that emerged from this decades-long wave of consolidation are now at the center of another proposed merger.

The story of Union Pacific is, in many ways, the story of how America's western railroad network came together. Over the years, the company grew through a series of acquisitions, bringing Missouri Pacific and Western Pacific into its fold in 1982, followed by Chicago & North Western in 1995 and Southern Pacific in 1996. Each acquisition pushed its network further west and east, connecting the Pacific and Gulf coasts with the agricultural heartlands of the Midwest. 

Today, its trains carry grain from farming regions, coal and chemicals from industrial centers, and automobiles and shipping containers across a network spanning 23 states, with connections into Mexico and Canada.

Norfolk Southern's story unfolded on the other side of the country. Formed in 1982 through the combination of Norfolk and Western Railway and Southern Railway, it expanded further in 1999 by acquiring much of Conrail. That deal strengthened its reach into the industrial Northeast and Midwest, while deepening its connections to the manufacturing and agricultural markets of the Southeast. Its network now stretches across 22 states, moving freight between major industrial centers, inland markets, and Atlantic ports.

In many ways, Union Pacific and Norfolk Southern are opposites. One runs the West, the other the East. But they say opposites attract, and in 2025, the two railroads announced they wanted to become one.

After months of discussions, Union Pacific and Norfolk Southern announced an $85 billion merger agreement on July 29, 2025. The deal would combine Union Pacific's extensive western network with Norfolk Southern's reach across the East, creating America's first transcontinental freight railroad under a single operator.

The new railroad would span more than 50,000 route miles across 43 states, connect approximately 100 ports, and link major freight markets from the Pacific Coast to the Atlantic. The combined company would have an enterprise value exceeding $250 billion.

The combined entity would be a much bigger player, the largest freight railroad in the country, connecting the East and West coasts through a single network. But why is this merger happening now? And what are the forces driving the two companies towards this combination? Let's break it down.

The first reason comes down to a problem that has existed in the American rail network for decades: the cost of handing freight from one railroad to another.

Every time a shipment moves from one network to the other, it has to be handed over, with both companies coordinating the movement, equipment, and schedules. That might seem like a routine part of railroad operations, but it comes at a cost.

Interestingly, Union Pacific and Norfolk Southern are already each other's largest interchange partners, exchanging approximately one million shipments every year.

And this is where the second reason comes in: single-line service makes rail more attractive to shippers.

Union Pacific and Norfolk Southern argue that rail's market share on single-line routes is two to three times higher than on routes requiring an interchange between two railroads. The reason is fairly straightforward. When one railroad handles the entire journey, shippers have one company to deal with, one price to negotiate, and one party accountable for delivering the freight. There are fewer handoffs and fewer operational complications. It makes rail a more competitive proposition against trucking, particularly for long-distance shipments.

But the opportunity the two companies see goes beyond the freight already moving between their networks. There is another part of the American freight market that they believe railroads have struggled to reach.

Union Pacific refers to the central region around the Ohio and Mississippi River valleys as the watershed. This is where the western and eastern railroad networks meet, and where a number of freight movements are currently handled by trucks. Consider routes such as Houston to Charlotte or Dallas to Columbus. These shipments may not travel far enough to make it commercially attractive for two separate railroads to divide the business between them. Trucking, with its ability to move freight directly from origin to destination, often becomes the more practical choice.

A combined Union Pacific and Norfolk Southern network could change that equation. With one operator controlling the entire journey, the companies believe they could compete for shipments that neither railroad could serve as effectively on its own. It is not just about moving existing rail freight more efficiently; it is about bringing new freight onto the network.

Finally, there’s also a bigger concern behind the proposed combination.

Railroads have spent decades trying to defend their share of America's freight market against trucks. Improvements in individual networks, faster trains, and more efficient terminals can only go so far when the underlying network still requires freight to pass between different operators. Union Pacific and Norfolk Southern believe that the next stage of growth requires changing the way the network itself is organized.

But why now? The timing is interesting, particularly given the circumstances surrounding both companies.

Norfolk Southern had been through a difficult period following the February 2023 derailment in East Palestine, Ohio, which brought intense scrutiny of its safety and operations and affected its financial performance. 

According to Norfolk Southern's 2023 Annual Report, the company recorded approximately $1.1 billion in expenses related to the East Palestine derailment. Its railway operating income fell 41% to $2.9 billion, while diluted earnings per share declined 42% to $8.02. Excluding the derailment-related charges, operating income still fell 18% year over year.

The company subsequently underwent a leadership change in 2024. 

Meanwhile, Union Pacific CEO Jim Vena has advocated a coast-to-coast railroad combination since he started heading the organization in 2023.

Interestingly, a changing regulatory environment also came into play. In 2023, the Surface Transportation Board approved Canadian Pacific's acquisition of Kansas City Southern, the first major U.S. railroad merger approved in more than two decades. 

On the surface, the merger appears to make perfect sense for both companies. Union Pacific and Norfolk Southern shareholders have unanimously approved the deal. But the merger still needs clearance from the Surface Transportation Board (STB), the federal regulator overseeing the country's railroads. That's where the second part of the story unfolds. 

Union Pacific and Norfolk Southern submitted their original merger application to the Surface Transportation Board (STB) on December 19, 2025. The nearly 7,000-page filing laid out how the companies intended to combine their networks and argued that the deal would improve service, attract freight from trucks, and create a more competitive rail network.

But on January 16, 2026, the STB unanimously returned the application, declaring it incomplete. The regulator identified several gaps in the filing. The companies had not provided the required market-share projections for the combined railroad, despite claiming that the merger would generate growth by shifting freight from trucks to rail.

They had also failed to submit the complete merger agreement, including a contractual schedule that could give Union Pacific the right to walk away if the regulator imposed certain conditions. The STB also said the companies had incorrectly classified their proposed acquisition of control over the Terminal Railroad Association of St. Louis as a minor transaction rather than a significant one.

The two companies went back to the drawing board and submitted a revised application on April 30, 2026. This time, the STB accepted it for consideration on May 28. 

But getting the application accepted did not mean the merger was out of trouble. It had also drawn a growing list of objections from rival carriers, shippers, and industry groups.

The most direct opposition has come from Union Pacific and Norfolk Southern's competitors: BNSF Railway, Canadian Pacific Kansas City (CPKC) and CSX Transportation.

BNSF argues that the merger would eliminate the independence of two major competitors and give the combined railroad greater leverage over customers. Today, a shipper in the West may have access to both Union Pacific and BNSF, while a shipper in the East may have a choice between Norfolk Southern and CSX. The concern is that combining UP and NS could change those competitive relationships, particularly on routes where customers currently rely on interchange arrangements to access competing railroads.

The next in the opposite list are the customers. 

The American Chemistry Council, American Fuel & Petrochemical Manufacturers, Alliance for Chemical Distribution, National Industrial Transportation League, and The Fertilizer Institute have emerged as some of the most vocal opponents. 

Their biggest concern is the possibility of higher freight rates and reduced bargaining power. For chemical manufacturers, fertilizer producers, and agricultural businesses, the concern is that further consolidation could make this situation worse. If fewer railroads compete for their freight, they could face higher transportation costs, which may eventually feed into the prices of industrial chemicals, fuel, fertilizer, and food.

The opposition has also translated into formal regulatory action. On August 6, 2026, five major shipper associations jointly asked the Surface Transportation Board to reject the revised merger application. They argued that Union Pacific and Norfolk Southern had not provided sufficient evidence to show that the deal would enhance competition or meet the public-interest requirements for a major railroad merger.

All of this is happening at a rather interesting time for the American freight industry, when the U.S. shippers and retailers are falling in love with rail again! 

After several years in which trucking captured a larger share of long-distance freight, the economics are beginning to shift.

According to the Association of American Railroads (AAR), U.S. railroads moved nearly 295,000 intermodal containers and trailers per week in September 2026. The third quarter became the highest-volume quarter ever recorded for U.S. intermodal traffic. In the week ending October 10, railroads handled another 302,252 intermodal units, up 10.4% from the same week a year earlier. For the first 40 weeks of 2026, cumulative intermodal volume was up 4.4% year over year, at nearly 11.4 million units.

The first reason behind this revival is something that has been putting considerable pressure on trucking companies: diesel prices. In September, the national average price of diesel reached $6.53 per gallon, according to AAA, setting a new record. That was more than 70% higher than the price a year earlier. For trucking companies, where fuel is one of the largest operating expenses, such an increase can quickly change the economics of moving freight over long distances.

Interestingly, trains are not immune to higher diesel prices; locomotives also run on diesel, and railroads have faced higher fuel bills of their own. But over long distances, the fuel efficiency of rail can make it a more economical option for shippers, particularly when trucking rates begin to rise.

The second factor is the tightening supply of truck capacity. The American trucking industry has been through a prolonged freight downturn, during which lower freight rates and rising operating costs pushed smaller carriers out of the market. 

More recently, stricter enforcement of driver qualification rules has added to the pressure.  These measures have also contributed to a reduction in the pool of drivers available to trucking companies. 

For shippers, this means that finding trucks at the right price and at the right time has become more difficult. And when truckload capacity tightens, rail becomes a more attractive alternative for freight that does not need to arrive the next day.

These changes are now starting to appear in the financial results of the country's largest freight railroads. 

When Union Pacific, Norfolk Southern and CSX reported their third-quarter 2026 earnings in October, all three pointed to stronger demand for rail transportation and increased business from truck-to-rail conversions.

Union Pacific reported a 13% year-over-year increase in domestic intermodal volume during the quarter. Its overall volume grew 6%. Freight revenue excluding fuel surcharges increased 6%, indicating that the growth was not simply the result of higher fuel-related charges.

Norfolk Southern reported a 3% increase in overall volume and record quarterly revenue of $3.5 billion, up 14% year over year.

The fate of the proposed merger now rests with the Surface Transportation Board. The regulator has laid out a lengthy review process. Interested parties have until November 18, 2026, to submit their objections, evidence, and requests for conditions. Union Pacific and Norfolk Southern will then have until February 16, 2027, to respond. Final briefs are due by May 28, 2027, after which the Board will hold a public hearing and eventually issue its decision. 

That means the outcome could extend well into the second half of 2027.

If approved, the merger would create the first coast-to-coast freight railroad under a single operator. In an industry already dominated by a small number of Class I railroads, the creation of such a large operator could reshape competition, freight pricing, and the way goods move across the country.

There is also a substantial financial consequence if the deal falls apart. Under the merger agreement, Union Pacific could be required to pay Norfolk Southern a $2.5 billion termination fee if the transaction fails to secure regulatory approvals under specified circumstances. 

Whether the merger will become a turning point for American freight transportation or a cautionary tale of railroad consolidation is something only time will tell.

This newsletter was written by Shyam Gowtham