OMAHA, Neb. — Union Pacific CEO Jim Vena says shipper associations and other railroads have whipped up some whoppers about UP’s proposed acquisition of Norfolk Southern — even before their merger application has been filed with federal regulators.
“It’s truly amazing that they know already what we’re putting in the merger application,” Vena quipped during an interview after the railroad’s quarterly earnings call on Thursday morning. UP and NS expect to file their merger application with the Surface Transportation Board in late November or early December.
The American Chemistry Council has said that the $85 billion merger will reduce competition, drive up rates, and degrade service.
The National Industrial Transportation League has expressed concern that UP would use its increased market power to strangle shipper options in the Conrail Shared Asset areas, where CSX and NS currently compete.
BNSF Railway has made similar arguments, saying UP will cut 300 interline BNSF-NS and UP-CSX intermodal lanes. BNSF also has said that UP’s 10% growth target is not achievable, which means the transcontinental system will be forced to raise rates on captive shippers while curtailing service and slashing costs.
None of that is true, Vena says.
“We’re going to keep every interchange open. We’re not shutting any interchange,” Vena says. “Somebody would say, ‘Well, you have too much market power and you’re going to try to force us to come with you.’ Absolutely not.”
Shippers will still have options to route their freight via CSX and BNSF based on service and price, Vena says.
“If you’re a shipper in the Gulf somewhere and you’re going to go to the eastern U.S. … you’re going to pick the shortest route. The shortest route to go to Florida is going to be with the CSX through New Orleans,” he tells Trains. “And we’re going to keep that gateway open, because if you try to move things 300 miles further by going the NS route that’s more circuitous, you lose.”
In other instances, where UP and BNSF or CSX routes are an equal match, shippers will have competitive options, he says.
The STB will see through “misinformation,” Vena says.
“They know we’re not going to remove 300 lanes of traffic. They know that we’re going to have more options for our customers, not less,” he said on the earnings call.
UP will retain the 40,000-strong UMAX 53-foot domestic container pool with CSX, Kenny Rocker, UP’s executive vice president of marketing and sales, said on the railroad’s earnings call.
“I want to be crystal clear on this. Absolutely, we want to make sure our customers have optionality. We’re going to completely support UMAX,” Rocker says. “That product is a strong, viable product that our customers are utilizing … that’s not going away.”
As for growth, Vena noted that UP and NS are so confident that creating seamless service — particularly in the watershed area within a few hundred miles of the Mississippi — will bring new traffic onto the railroad that they have guaranteed all union jobs.
The watershed, which sits in the de facto border between the Eastern and Western railroads, has stymied rail traffic due to the complexities of interchange and reaching commercial agreements regarding revenue sharing for what often would be a short haul for one or both railroads.
Without naming him, Vena noted that Canadian Pacific Kansas City CEO Keith Creel said that the combination of Canadian Pacific and Kansas City Southern would create new single-line service between Chicago and Mexico — and that other railroads would struggle to compete with interline service.
Railroad opposition to the UP-NS merger, Vena says, is a sign that they recognize that the transcontinental railroad will be a formidable competitor, too. “This merger provides enhanced competition, and you see it the way the railroads are reacting,” he says.
“BN is a great company, has a great franchise, has a long history, and we compete with them every day, and we compete hard,” Vena says.
But if he were in charge at BNSF, Vena says he would ask Berkshire Hathaway Chairman Warren Buffett to dip into the company’s $350 billion cash stockpile in order to find its own merger partner.
“I would phone up the big boss and say, ‘We need to do this, because it’s better for the country and better for us,’” Vena says.
Buffett has said that Berkshire has no intention of bidding for CSX — or, for that matter, Norfolk Southern.
Railroads and shippers that will oppose the UP-NS merger will try to seek concessions through the STB process, as they have historically done with other mergers, Vena says. “The problem that they have is this time, it truly is an end-to-end bolt on. It is not a big overlap. So that story of ‘I need access to the railroad’ just doesn’t fit.”
About 10 customer locations are jointly served by UP and NS where their lines overlap in the Midwest. Vena says UP will preserve their access to a second railroad. No other customers, he says, warrant having access to a rival railroad.
Vena says that if the UP-NS merger were a bad idea, competing railroads would welcome it and try to poach traffic from a weakened UP that would melt down while meshing operations with NS. But because they recognize the deal’s potential advantages, they fear having to compete with a stronger combined system — and therefore oppose it.
“It’s as simple as that,” Vena told Trains.
Vena and NS CEO Mark George have pledged to avoid the service and technology problems that have dogged other major mergers.
Vena was smart to not name Keith Creel, the CPkc CEO, probably because he knew Bill Stephens was more than ready to schill his “hero” in any article on which CPkc might be commented on… Its a trend we have seen since the transaction, formerly called a merger…