BNSF warns short lines on UP-NS merger impacts

UP-NS merger impacts could leave customers and short lines with fewer options and higher rates. BNSF Railway CEO Katie Farmer delivered that warning on April 13 at the ASLRRA conference.

UP-NS merger impacts and competition

Farmer was the keynote speaker on April 13. It was the American Short Line and Regional Railroad Association’s annual conference. There, she said a combined UP-NS system “would be looking to optimize their network, and that’s not always good for customers and it’s not always good for the short line community.”

Farmer has repeatedly voiced BNSF’s opposition to the proposed Union Pacific-Norfolk Southern merger. She told the audience a combined railroad would handle almost half of U.S. rail traffic. She said that could sharply reduce competitive flexibility. In her words, “you eliminate or you significantly reduce flexibility for customers … ultimately, there’s going to be fewer interchange points, less optionality, and more consolidation.”

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Separately, she challenged the traffic-growth assumptions in the original merger filing. The Surface Transportation Board rejected that filing as incomplete in January. The merger debate is now moving into its next regulatory step. The two railroads are expected to submit an updated application at the end of this month.

Surface Transportation Board filing and short line concerns

For example, Farmer pointed to the last major railroad merger. “If you go back and look at the last large rail merger, Union Pacific-Southern Pacific, their volumes have declined by 13% over the last 10 years,” she said. “But if you look at their revenue per unit, it has increased by 37% above all the other Class Is.

“If I was a short line I’d been concerned about. … Fewer options and higher rates.”

Farmer also said that if the growth anticipated by UP and NS does not materialize, the merged company may look to shed parts of its network. “Now, you may be sitting there thinking, ‘Katie, that may be an opportunity for me, because maybe they’ll spin off part of the railroad, something that’s suboptimal for them. But you should be requesting mandatory oversight of that. … They’re going to be optimizing their network and not worrying about local service, or any of the things we started with that are important for us.”

Baker and the STB process

At the same time, the discussion unfolded in a “fireside chat” with ASLRRA President Chuck Baker. Baker said the association probably would not support or oppose the merger. Instead, he suggested it may tell regulators, “Dear STB, if you’re going to approve this, we have the following suggestions for concessions you ought to demand that actually enhance competition and service and grow volume. And I’ve got a lot of folks working together trying to figure exactly what those suggestions are.”

Meanwhile, Farmer urged the short lines in attendance to follow advice from both sides of the merger debate. She told them to submit a letter of intent to participate with the STB. “Participate in a conversation that’s significant to shaping the future of the rail industry,” she said.

Still, the conference is expected to hear a different view on Tuesday. Norfolk Southern CEO Mark George will appear as one of two keynote speakers alongside Federal Railroad Administration Administrator David Fink.

Collaboration and BNSF short line programs

Also, Farmer turned to what she described as the “unprecedented time” confronting the industry. “Iran, obviously the continuing conflict with Ukraine, the tariffs have made things incredibly challenging for our customers. We are living in a time where we have got to be flexible and nimble and agile for our customers, because to give our customers the perfect forecast of what’s going to happen, it’s not going to happen.”

In addition, she discussed BNSF’s Shortline Select program. She also discussed the railroad’s First Mile/Last Mile team. Both are part of its effort to grow carload traffic.

Asked what defines a strong short line partner, Farmer answered: “Someone who is willing to collaborate,” she said. “We very much want to go into this recognizing that if we win and you guys don’t win, it’s not going to be a great partnership. It’s not going to last. And it’s certainly not going to give the customer what they want.

“We want a shortline partner who can … understand customer requirements and be transparent with us on that — that we look at this as a single, seamless service for our customers, and so is focused on creating a solution.”

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