BNSF challenges $3.5bn UP-NS merger savings claim

BNSF Railway has challenged the UP-NS merger savings claim from Union Pacific and Norfolk Southern. This is reported by the railway transport news portal Railway Supply.

The companies say their proposed merger would produce $3.5 billion in shipper savings. In a customer letter, BNSF called the figure “manufactured.” It said the number reflects pricing already available today, not a benefit created by the transaction.

The letter, written by Chief Marketing Officer Tom Williams and posted on Thursday, May 14, says BNSF’s review of the revised merger application “only reinforces our serious concerns: this merger would very substantially harm competition and the competitive balance that now exists in U.S. freight rail.”

Williams says the $3.5 billion figure in the application “takes 2.1 million truckloads, assumes they all switch to rail, and calls the total price difference a ‘benefit.’ Worse, most of these ‘switches’ are in lanes where rail is actually slower or more expensive than truck, so shippers won’t switch and no ‘savings’ would occur. The application is very careful not to say that rail rates will go down after the transaction.”

BNSF Railway letter questions savings figure

BNSF’s letter also challenges several other points in the UP-NS filing.

Williams says UP’s forecast of a 13% volume increase follows a decade of declining volumes. He also describes UP’s per-unit pricing as the highest in the industry. “History shows these projections fall short — as with CPKC, which missed similar projections in [its] merger by roughly 70%.”

In addition, the letter says the UP-NS “Committed Gateway Pricing” proposal remains unchanged from the initial application. According to BNSF, the plan would cover less than 1% of traffic. It would be limited to four gateways. It would also exclude traffic such as intermodal, autos, and unit trains.

Separately, Williams points to potential service risks from integrating the two rail systems. “Even after integration,” Williams says, “the mammoth size of the new railroad and the destruction of optionality will ensure that future service challenges will be national problems.”

Surface Transportation Board review continues

After BNSF and others filed comments with the Surface Transportation Board on the revised application, Union Pacific and Norfolk Southern cited the $3.5 billion shipper-savings claim as one of the “tangible benefits to American consumers” in a statement.

“The Union Pacific and Norfolk Southern combination enhances competition, creates union jobs, improves safety, and unlocks meaningful value for customers,” the statement said. “… We look forward to advancing through the STB review process and realizing these benefits for customers, communities, and employees nationwide.”

Still, Williams ends the letter by encouraging customers to submit a Notice of Intent to Participate in the STB review. If the board accepts the revised application, those letters could be due by June 14.

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