In a letter to Surface Transportation Board Chair Patrick Fuchs, Vice Chair Michelle Schulz, Member Richard Kloster, and Member Karen Hedlund, attorney generals from six Republican states made their collective case for the STB to not sign off on the proposed $85 billion merger between Union Pacific (UP) and Norfolk Southern (NS).
This represents the most recent sign of a high-profile group voicing opposition to the merger, with a five United States-based shipper groups— The Alliance for Chemical Distribution (ACD), American Chemistry Council (ACC), The Fertilizer Institute (TFI), and the National Industrial Transportation Group—also calling on the STB earlier this month to not approve the merger, stating that UP and NS have not provided enough information regarding the merger and its impact to enable the STB to “find it meets the statutory public-interest standard,” or prima facie (accepted as correct until showing otherwise).
In their letter, the state attorney generals—Austin Knudsen, Montana, James Uthmeier, Florida, Marty J. Jackley, South Dakota, Jonathan Skrmetti, Tennessee, Kris W. Kobach, Kansas, and Drew Wrigley, North Dakota—also cited similar concerns, over how the revised merger application UP and NS sent to the STB does not present a prima facie case.
“Attorney generals across the country have warned that this merger could reduce competitive options for shippers—a reduction that would ultimately increase costs for businesses and raise prices for consumers,” the letter stated. “At a time when the railroads are prospering financially, there is no reason to create a behemoth railroad that will take more money from farmers, shippers and ultimately consumers in our States and across the country. Under the Board’s rules, a major merger is appropriate for approval only where the applicants show that the merger will produce new or enhanced rail-to-rail competition, or other competitive benefits, and that those benefits outweigh the merger’s harms. This makes sense. Railroads exert market power over farmers and local businesses that rely on rail to move their products to market. The rail industry has already consolidated greatly in recent years, and Board-approved mergers receive immunity from antitrust challenges. Any additional mergers of large railroads should proceed only where they will enhance rail-to-rail competition and clearly benefit shippers and the American public.”
As previously reported, the current status of the proposed merger remains pending before the STB and has yet to be approved, while it has advanced beyond the initial filing stage and is now in the regulatory review process, according to the STB.
The STB said that this decision held the merger process in abeyance, or temporary suspension, including an environmental review of the transaction and ordered the railroads to submit supplemental information by no later than July 27.
On July 27, UP and NS took steps to enhance their merger application and submitted provided commitments to the STB that it said “go beyond those provided in any prior rail merger” and include supplemental information requested by the STB on May 28, when it accepted the merger application as complete.
The new, or expanded, commitments submitted by UP and NS include the following:
- New Competitive Opportunities. The combined railroad will significantly expand Committed Gateway Pricing (CGP), doubling the number of eligible shipments, and extending benefits to bulk unit train shippers. The expanded program is the functional equivalent of thousands of haulage agreements in a single enforceable commitment, creating even more opportunities for customers to benefit from the merger;
- Expanded Customer Protections. The railroads will preserve Class I rail options for 3-to-2 shippers as well as 2-to-1 shippers, where they can legally grant access to another railroad. No prior rail merger has included a similarly broad commitment to preserve 3-to-2 access;
- New Service Level Protections. In the unlikely event that service performance declines during merger integration, customers will be able to obtain temporary access to alternative rail service. This commitment provides an additional safeguard to help keep freight moving if unexpected service issues arise; and
- Stronger Oversight. If the merger’s public benefits are not being delivered in a timely manner, customers will gain access to a new rate relief process. Combined with the new integration period service protection, this new process provides added accountability to customers.
The state attorney generals pointed to Committed Gateway Pricing (CGP) as the sole competitive enhancement proposal, while explaining that it is flawed in the application and does not give any shipper access to a new railroad, adding that shippers do not gain anything beyond what they currently already have. Instead, it said that CGP sets a formula for calculating rates for certain interline movements with BNSF and CSX happening today and allow for some existing interlining to continue post-merger. Which they said is not new or enhanced competition, and that, at most, partially preserves an option that already exists.
Regarding CGP, they added: it would raise rates for many eligible shippers, with UP and NS setting the CGP rate at the 70th percentile of UP/NS’s own rates for comparable traffic, rather than at a median price or a below-average level, with most eligible shippers receiving a CGP price higher than what they currently pay; UP and NS said CGP would not be competitive, with the companies saying CGP would not be single-line service and would not be as fast or reliable as single-line service; and CGP is De Minimis at scope.
In concluding the letter, the seven AGs said that a merger that creates a 50%-plus market share railroad cannot make a prima facie showing that it enhances competition without providing much more.
“Too much is at stake,” they wrote. “Safe, efficient, cost-effective shipping is essential for the agriculture, mining, forestry, and manufacturing sectors, among many others. Competitive rail underlies the global competitiveness of the American economy. In the absence of real competitive enhancements, UP and NS are attempting to sell this deal with empty promises of efficiencies and lower costs. But history has consistently shown us that these rail mega-mergers deliver exactly the opposite to rural America: fewer routing options, higher captive freight costs, and catastrophic supply chain disruptions. A deal that shifts power away from shippers to a monopoly railroad should be rejected out of hand.”
