US intermodal volumes are running at record levels while the industry argues over the biggest rail consolidation in a century. The first six months of this year saw more intermodal loads moved than in any comparable period in history, according to Ian Jefferies, CEO of the Association of American Railroads, and the second half has continued with week-over-week increases of about 5.7%.

That surge forms the backdrop to the proposed Union Pacific–Norfolk Southern merger, which the Surface Transportation Board is now reviewing. On Sept. 18, the STB denied several motions seeking summary denial of the railroads' revised major merger application, allowing its proceedings to continue.

Every corner of the shipping and supply chain community has weighed in — shippers, labor unions, industry groups, politicians and rival Class 1 railroads — raising questions of competition, capacity, safety, jobs, costs and service that will shape the STB's final decision.

A 100-year decision

Jason Seidl, managing director of industrials — airfreight and surface transportation at TD Cowen, calls it plainly: "This is the most important decision being made in the rail space in the last 100 years."

"If you are an intermodal shipper, you love the deal, automotive shippers too," he says. "If you are in the bulk commodities market, it probably depends." Many shippers carry long memories of disruptions from previous mergers, he notes, "so they are cautious."

Unlike the territory-overlapping combinations of the 1990s, UP-NS is an end-to-end merger, which Seidl says is far less complex. Still, "shippers have some fear of disruption. The onus is on UP to soothe some of those fears." He expects the STB to approve the deal with concessions. "Will those be too onerous for the UP to accept; that's to be decided."

Rail unions point to the 1990s mergers — UP's absorption of the Chicago & Northwestern, the creation of Burlington Northern Santa Fe, and the CSX/NS split of Conrail — which cut rail employment by roughly 20%, according to union figures.

The National Industrial Transportation League opposes further consolidation outright. "NITL has consistently been on the record as opposing further consolidation in the rail industry," executive director Nancy O'Liddy said. Prior mergers "drastically reduced" competition and left members "captive to only a single railroad. Despite past promises that rail customers would benefit from mergers through more efficient service, today, captive rail customers pay increasingly higher prices for unreliable and inadequate services." She has demanded transparency on how the combined railroad will meet the public good, enhance rail-to-rail competition, mitigate anti-competitive practices on gateways and pricing, and be held accountable for service failures and fees.

UP's pitch: $3.5bn in shipper savings

Union Pacific argues the combination creates America's first transcontinental railroad. Eric Gehringer, UP's executive vice president of operations, wrote in a company commentary titled "If This Railroad Merriage Isn't Approved, It Hurts America" that freight today often changes railroads mid-journey simply because the system requires it, adding "unnecessary time, cost, and complexity."

He estimates shifting freight from higher-cost truck to lower-cost rail will save shippers $3.5 billion annually. The two railroads currently invest about $5.6 billion a year in infrastructure and innovation and, if approved, "will invest an additional $2 billion in new track, terminal capacity, rail yards, and technology." Faster, more reliable coast-to-coast movement, he adds, will help manufacturers cut inventory costs and reduce production-disruption risk.

BNSF sees it differently. "We believe the proposed merger is costly and unnecessary in an otherwise thriving industry while being harmful to customers, communities, the entire supply chain, and the U.S. economy," said Zak Andersen, BNSF's chief of staff and vice president of communications. "A transaction of this size would give around 50% market share to one company, which greatly reduces competition, eliminates customers' choices, and eventually result in increased prices for the American consumer." He argues the STB standard requires the deal to enhance competition and serve the public interest, and "on that point alone, this merger doesn't even come close to passing the test."

The two-to-one problem

The merger will change shippers' options regardless of outcome. Shippers with three rail options today could see two; those with two could end up with one.

Writing in Railway Age, consultant Bob Granatelli outlined the competitive exposure of the "two-to-one" customer. "These are locations where UP and NS both provide direct rail service today," he noted — combining them leaves one carrier. The applicants have proposed access by another railroad at those locations.

The second form is subtler. A customer shipping from an origin served only by UP to a destination served by both NS and CSX currently has two independent interline routing options. Post-merger, "the UP-NS interline movement becomes a single system UP movement," Granatelli explains. He urges rail customers to audit their own traffic, assess how the merger changes their routing choices, and determine what mix of mainline and short-line service best fits a post-merger network.

Truck capacity drain fuels intermodal

Intermodal's cost advantage is pulling freight off the highway. In the July Producer Price Index, the cost of moving goods by rail rose 1.2%, well below inflation, while truck costs rose more than 10%. "We are absolutely taking advantage of that and taking traffic off the highways," Jefferies says.

"Truck markets have been shedding capacity," says Anne Reinke, CEO of the Intermodal Association of North America, citing regulatory pressure on drivers and rising wages, insurance, fuel, maintenance and tolls. "That's driving more shippers to explore intermodal, which is considered a lower-cost option." She notes both sides of the merger debate want truck-to-rail conversion: "UP is doing it by consolidation and merger. The BNSF is pursuing it through collaboration... And I'll take that as a win."

D rayage capacity is the pressure point. English-language requirements, removal of non-domiciled drivers and closures of questionable CDL "paper mills" are complicating drayage operators' ability to find and keep qualified drivers. Seidl predicts more FMCSA actions over the next six months. "So you have reduced supply in truck and increased demand for intermodal; that's usually not a good omen for price if you are a shipper," he says. "The industry should consider itself lucky that the housing market is not strong right now, because if it was, we would likely have a supply chain crisis on our hands similar to what we had coming out of Covid."

Meanwhile, non-merged operators are expanding. BNSF's "Shortline Select" program has eight short-line participants and plans to add more, while its CSX service agreements already offer coast-to-coast intermodal, alongside expedited Los Angeles–Houston service and the buildout of the 4,500-acre Barstow International Gateway in Southern California. Shelli Austin, president of IMC InTek Logistics, says the merger debate alone has created "recognition of intermodal's role as a fundamental supply chain resource" and a chance for shippers to "level set on intermodal as the first choice, not just a backlash reaction for when truck capacity gets tight."

With the STB proceedings now cleared to continue, the decision will hinge on whether UP and NS can prove a single transcontinental system enhances — rather than merely preserves — competition, and what concessions the board extracts on gateway access and pricing.