Rail merger no guarantee of growth: Analysts
NEW YORK — While the prospect of the first transcontinental railroad has created rare buzz in a staid business, analysts questioned whether Union Pacific and Norfolk Southern can produce the kind of growth in freight traffic they say an historic merger would bring.
“Over the past 10 years intermodal freight has underperformed versus benchmarks,” said consultant Larry Gross, during a panel discussion at the RailTrends conference. “This includes gross domestic product, long-haul trucking and containerized imports. Unless something changes, we’re not going to see growth or recovery.”
Gross said a re-opening of the Red Sea shipping route would boost intermodal traffic by sending more containers directly to East Coast ports at lower cost than before the outbreak of the Gaza war in 2023. The federal crackdown on commercial driver licenses could shrink motor carrier capacity and raise rates that may push more freight to intermodal. “But international freight will continue to be under pressure and I see no increase in domestic truckloads, so for 2026 I am forecasting intermodal to be flat to down overall,” said Gross.
Analyst Rick Paterson told the conference that all six Class 1 railroads “are running well at the same time. This never happens,” but he was skeptical of assertions by UP (NYSE: UNP) and NS (NYSE: NSC) that the merger will drive substantial freight gains in an industry that has struggled with carload declines in recent years.
“They’re asking us to believe that two companies with moderate growth over the past 10 years will have 15% growth after the merger,” Paterson said.
The prospective merger has attracted praise from President Donald Trump and backing from hundreds of shippers amid a sustained campaign by UP Chief Executive Jim Vena, who was in the audience, to garner support for the historic tie-up. But it has also spurred expressions of concern from other railroads, chemical shippers and scores of Republican state legislators who worry that the consolidation will choke economic growth amid higher rates and service difficulties.
One longtime industry observer said too much is unknown to pass judgment.
“We don’t know what the merger is,” said analyst Tony Hatch, noting that details of the merger agreement won’t be known until UP-NS file their formal application with the Surface Transportation Board in the coming weeks.
“Stakeholders can oppose, support or extort this deal. UP is sailing in the dark on their own, so it’s not a slam dunk. The benefits are clear but undefined, and the question has to be asked, ‘What do you pay for those benefits?’”
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