Mergers are not inherently bad, but they need to be analyzed on a case-by-case basis. Some mergers create an economy of scale resulting in more efficiency and lower costs of production. Others restrict competition and higher rates for consumers. In the case of railroad mergers, there is a history of those mergers resulting in negative economic outcomes.
Already there have been empty promises of how one big railroad reaching from west to east across America will be better for railroad customers, but don’t get distracted by the flag-waving. Instead, focus on the actual experience of customers who ship by rail. Every railroad merger in U.S. history has resulted in rail shippers getting the short end of the stick. The only difference is to what degree and for how long.
Mergers in today’s rail industry mean the loss of a competitor, and so a shipper will inevitably get hit with higher rail rates and worse service. We don’t have to guess that this may happen. It already has.
Business school case studies, research papers, and endless news articles all detail the raw deal shippers were handed when the Union Pacific merged with the Southern Pacific Railroad in 1996. Where the two railroads came together was a particular pain point. Transit time more than doubled, and service problems stunted promised growth in rail volumes. Where before shippers had a choice among railroads, giving them some ability to determine their destiny, the consolidated company often left them only one option.
That is called being a “captive” shipper, and it’s as bad as it sounds. Already chemical companies in the South and farmers in the North are captive shippers on one railroad or another. In these regions, there aren’t enough areas where two railroads compete, and complaints abound, with rail companies using their market dominance to drive up transportation costs. Left with no choice, shippers pay the freight.
As Union Pacific prepares to join with Norfolk Southern, with splashy marketing about creating a great new “transcontinental railroad,” there is an entire swath of the country that will be going from a competitive rail landscape to one with little to zero choice. Eric Byer on August 11, 2025 in Supply Chain Dive described the merger as “failing upwards,” because it would be “rewarding poor performance with greater power.” He pointed out that “freight rail is already highly concentrated” and “further consolidation of the industry would expand the market power and profit margins of fewer carriers to the detriment of their customers.” This redrawing of the railroad network would be anticompetitive and disastrous.
New Orleans, Memphis, Kansas City, St. Louis, and Chicago have freight moving by rail from one railroad onto another with options generally for their carrier, giving them negotiating strength for transportation services. All these critical gateway cities and more will be dominated by a combined Union Pacific and Norfolk Southern.
Proponents argue that these two railroads “barely overlap,” and so there are no real competitive concerns. They overlap in some key markets, but perhaps more importantly, consider today that a customer moving westbound freight on Norfolk Southern has a choice at the transfer points mentioned above to continue westward on either Union Pacific or Burlington Northern Santa Fe Railway. Likewise, in the opposite direction, after starting on those railroads, a customer moving goods east can choose Norfolk Southern or another railroad at these gateways to complete the journey.
This equates to market leverage for customers. A merger would take away this optionality, and in locations where there is no competing railroad, the rail rates will increase.
This is already happening. Union Pacific is known for aggressive pricing practices. Look to the Houston chemical plants, where Union Pacific “bundles” a contract for a captive and a competitive plant, leveraging power over captive locations to extract higher rates on competitive routes. Chemical companies are among the loudest voices so far expressing concerns with this merger proposal.
Agriculture shippers from America’s heartland will be similarly challenged. Union Pacific will have to pay for this merger somehow, and it will be on the backs of shippers — particularly captive shippers they already have and new ones they will acquire through Norfolk Southern.
Union Pacific has not increased its freight traffic in 20 years. To the contrary, it has decreased, and some rail analysts are already expressing skepticism about supposed merger growth. What has increased is Union Pacific’s profits because of higher rates on customers.
This merger will increase cost on customers and will impose an inflationary impact on the U.S. economy and American consumers.
Steve Sherman is an author, TV and radio guest, and former Iowa House candidate.
Image via Picryl.