Freight Class I Three days that shifted the transcon merger chessboard: Analysis

Three days that shifted the transcon merger chessboard: Analysis

By Bill Stephens | August 29, 2025

From Warren Buffett’s retreat to a shakeup at the Surface Transportation Board, the players make moves that may affect the Union Pacific-Norfolk Southern merger

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Train crossing bridge over canal
Union Pacific ES44AC No. 7819 and Norfolk Southern Dash 9-40C No. 8767 lead a train over Chicago’s Sanitary and Ship Canal on March 7, 2015. David Lassen

What a week this was for unexpected twists and turns in the Class I railroad merger landscape.

First, on Monday Berkshire Hathaway Chairman Warren Buffett said the company would not bid on CSX or Norfolk Southern, which had been viewed as potential merger partners for the Berkshire-owned BNSF Railway. A BNSF-CSX combination, in particular, had been viewed as the logical competitive response to the $85 billion Union Pacific-Norfolk Southern transcontinental merger proposal announced last month.

Instead, BNSF will focus on extending its reach through interline partnerships. Last week BNSF and CSX announced new joint domestic and international service. The railroads said this was unrelated to the UP-NS merger, but now it’s clearly a part of the merger discussion.

Second, Canadian Pacific Kansas City said on Tuesday that Class I railroad mergers are not necessary and that it isn’t interested in participating in an immediate round of consolidation. Activist investor Ancora Holdings, which has a small stake in CSX, earlier this month urged CSX to engage in merger talks with both BNSF and CPKC.

But CPKC said an initial transcontinental merger would pose a huge risk to customers, employees, and the broader supply chain given the way megamergers have historically produced integration-related service meltdowns. The railroad contends that the industry can grow through more interline agreements, like the CPKC-CSX service linking the Southeast with Texas and Mexico via their new interchange in Myrtlewood, Ala. (Never mind that Canadian Pacific and Kansas City Southern touted single-line service as a key benefit of their 2023 merger. Flip, meet flop.)

Third, on Wednesday President Donald Trump dismissed Surface Transportation Board member Robert E. Primus, a Democrat who cast the lone dissenting votes against the CP-KCS merger and Canadian National’s acquisition of regional Iowa Northern Railway.

The unprecedented White House decision — which Primus said he would challenge — for now leaves the board with two Republicans and a lone Democrat just months before the UP-NS merger application will be filed.

Some industry observers viewed this as a sign that the Trump administration favors the UP-NS merger as part of its goal of beefing up U.S. manufacturing. “Trump has now stepped into the rail … arena and shown his cards on a potential transcon in favor of a merger,” TD Cowen analyst Jason Seidl wrote in a note to clients.

These three developments suggest that the remaining Class I railroads will line up against UP-NS. This is nothing new. In fact, it’s a tradition in the rail industry, where CEOs don’t like any merger that is not their own.

They’ll urge the STB to reject the merger outright, arguing that it does not meet the board’s tougher 2001 review rules that require Class I combinations to enhance competition and be in the public interest.

But the Class I’s also will seek major concessions that could be imposed as part of regulatory approval of the transcon deal, such as access to sole-served shippers on the UP-NS system. Their hope? That the conditions are so onerous that UP and NS scuttle their deal.

Now back to the interline agreements that BNSF, CPKC, CN, and CSX have all advocated. (For the record, long before merger talks surfaced CSX CEO Joe Hinrichs said he was baffled that railroads did not cooperate more often — and suggested that they team up to provide their joint customers with better service.)

The STB’s 2001 review rules urge railroads to consider steps short of mergers. Alliances and partnerships, the board said, could realize some of the growth benefits of mergers without the risk of widespread service disruptions.

What’s shaping up here are two competing visions for the future of the North American freight network.

On one side, BNSF, CPKC, CN, and CSX will argue that mergers are not necessary and that they can successfully make interline agreements work to the benefit of shippers, the public, and the rail industry.

Trains Columnist Bill Stephens
On the other side, UP and NS will argue that single-line service is the future. They’ll say interline agreements are limited in scope, don’t last, and can’t possibly compare to true single-line service, where one railroad is responsible for the end-to-end move. Shippers prefer single-line service, the railroads will note. And every interchange, they’ll argue, puts railroads at a competitive disadvantage against trucks.

This week’s developments show that the STB won’t be judging two transcontinental mergers in tandem, as many industry observers had predicted in the wake of the UP-NS announcement. Instead, the board will be presented with dueling views. It will essentially have to choose between the status quo and the creation of the first U.S. transcontinental railroad.

The STB will do so, however, knowing full well that approval of UP+NS ultimately will lead to two go-everywhere U.S. systems. The other Class I railroads may be against mergers now. But that will change in a hurry if they’re faced with a coast-to-coast juggernaut in the form of a 52,215-mile Union Pacific system.

A wildcard now is the STB itself. As the president seeks to exert more control over independent agencies, will the board simply roll over and rubber stamp the merger if that’s what the White House wants? Or will its members take a data-driven approach to UP+NS and evaluate it on the merits?

You can reach Bill Stephens at bybillstephens@gmail.com and follow him on LinkedIn and X @bybillstephens

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