In July, Union Pacific (UP), the largest railroad by revenue in the United States, announced plans to acquire Norfolk Southern (NS), the country’s fourth largest railroad. With UP’s dominance west of the Mississippi River and NS’s dominance to the east, the combined $250 billion railroad would create the first coast-to-coast railroad company and leave America’s already consolidated rail system even more concentrated.
Freight railroads are the backbone of the United States economy. They move the inputs and outputs of nearly every industry: grain, coal, steel, lumber, chemical, and finished goods like automobiles. A functional, competitive freight rail system is necessary if the United States wants to reshore manufacturing or build a green economy.
At first glance, a freight railroad that spans the United States might appear to bring significant efficiencies—faster transit times and more efficient routing because traffic would not need to be interchanged between the railroads. However, experience shows that mergers often result in chaos instead of coordination. The 2023 combination of Canadian Pacific and Kansas City Southern, the first large railroad merger in more than two decades, quickly ran into trouble, causing delays, service failures, and growing frustration among shippers. When Union Pacific acquired Southern Pacific and CSX and NS absorbed Conrail in the 1990s, the combined companies attempted to “rationalize” their systems, creating nationwide service meltdowns so severe that regulators were forced to impose a 15-month merger moratorium.
Rather than streamline freight services, these mega-mergers tend to break systems and concentrate power.
For most of the 20th century, the American rail system operated under a very different model rooted in public accountability, regional balance, and cooperation, not consolidation. The Interstate Commerce Act of 1887 and subsequent legislation subjected railroads to strict federal oversight, including uniform pricing, service obligations to rural communities, and “common carriage” responsibilities that required them to serve all customers fairly. Railroads could not play favorites, abandon lines at will, or set arbitrary rates based on market leverage. The system was far from perfect, but it helped ensure that rural and urban communities could access reliable freight and passenger service, even if they weren’t along the most profitable corridors.
This regulatory framework also encouraged operational creativity. During this period, a consortium of regional carriers that went by their acronyms, including the W&LE, the P&WV, and the NYNH&H, cooperated to form the “Alphabet Route,” an informal alliance that provided long-haul service across multiple jurisdictions—without consolidation. They proved that collaboration, not monopoly—through standardized tariffs, car interchange agreements, and coordinated schedules—could meet national freight needs.
After the Staggers Act of 1980 largely discarded this regulatory regime, the industry rapidly consolidated. In 1980, the United States had 33 Class I railroads. Today, there are six. The biggest lines ripped up tracks, closed yards, and stopped serving regions. By consolidating, railroads began exerting monopoly pricing over shippers; shippers were effectively told to take or leave it.
Then came the financiers.
With barriers to competition high and oversight minimal, Wall Street moved in. Hedge funds took control of every major U.S. freight railroad except one. Their mission wasn’t to grow the rail business but to extract as much cash as possible, as fast as possible. The preferred tool for this was “Precision Scheduled Railroading” (PSR), a euphemism for asset liquidation and severe job cuts. Under PSR, railroads laid off workers, parked locomotives, and “rationalized” operations to focus only on the most profitable long-haul freight. Customers with more complex needs, especially those in rural areas or those moving lower-margin commodities, were abandoned.
Since 2014, the Class I railroads have cut nearly a third of their workforce. In theory, PSR was about efficiency. In practice, it gutted the system’s ability to handle real-world logistics. The biggest railroads have experienced 13 major operational meltdowns in the past decade. Disruptions deteriorated service quality, rates rose, and many shippers decided to move to trucks.
That shift carries immense costs. Trucks are far less efficient than trains, emitting more carbon, causing more accidents, and inflicting more wear and tear on public infrastructure. Yet railroads have done little to win that business back. Instead of investing in expanded capacity or better service, they’ve used their profits for stock buybacks and dividends. Between 2010 and 2021, the rail industry spent nearly $50 billion more on rewarding shareholders than on maintaining its network.
Union Pacific is emblematic. In 2021, it spent $4 billion more on buybacks and dividends than it had available from free cash flow, even as it racked up $100 million in deferred maintenance. Technologies like positive train control, a system designed to prevent crashes and derailments, long touted as game-changers for safety and reliability, were only implemented under heavy regulatory pressure. The industry has repeatedly chosen extraction over investment, and financial engineering over operational excellence. Despite making the systems brittle and ripe for financialization, mergers rarely deliver the efficiencies they promise. Since 2004, railroad stocks have soared nearly four times as much as the S&P, all while the railroads have lost 10 percent of their business.
Despite that record, the Union Pacific-Norfolk Southern deal may still win federal approval. The Surface Transportation Board has the sole authority to approve or reject rail mergers and is currently split 2-2 between Democratic and Republican appointees, with one seat vacant. Crucially, the terms of two board members—Democrat Karen Hedlund and Republican Michelle Schultz—will expire during the lengthy review process. That opens the door to a Trumpian shift in the board’s balance.
Trump has shown that consolidation does not bother him as long as the checks clear. If Trump faces any Republican opposition to his yet unannounced STB nominee, there’s every reason to believe Trump could fire the Democratic board members and replace them with industry loyalists eager to rubber-stamp the merger.
The review process will likely be long, technical, and riddled with opportunities for corporate influence. Even under the Board’s current composition—split between Democrats and Republicans—a merger of this scale could gain approval. The Surface Transportation Board’s recent track record offers little reassurance. An STB with a Democratic majority voted to approve the Canadian Pacific-Kansas City Southern merger despite significant reservations from labor unions and shippers.
This merger will be the first to be reviewed under the Board’s more-stringent 2001 merger guidelines, which require any transaction to enhance competition and avoid downstream consolidation, which is critical, as all signs point to a second shoe dropping. If the Union-Pacific-Norfolk-Southern merger is approved, BNSF, the other western railroad—owned by Warren Buffett’s Berkshire Hathaway—will almost certainly pursue CSX, the other eastern railroad, to avoid being boxed out. The result, a national duopolistic rail system, was precisely the downstream effect the STB’s 2001 merger guidelines were designed to prevent.
It would also be historically perverse.
In 1904, President Theodore Roosevelt broke up the Northern Securities Company, a J.P. Morgan-backed trust that aimed to consolidate control of the western railroads. The Supreme Court sided with Roosevelt, ruling that such consolidation violated the Sherman Antitrust Act. The lessons were not learned, however. Through a series of mergers in the mid-20th century, several pieces of the broken-up railroad would be reconstituted into a significantly larger entity that would eventually create BNSF. The current merger proposals, if approved, would be multiple orders of magnitude larger and more impactful than the monopoly created by Northern Securities.
If the United States is serious about reshoring manufacturing, it cannot afford to let its rail system become a duopoly. Allowing Union Pacific to absorb Norfolk Southern would leave just two national carriers, each with incalculable leverage over customers, workers, and regulators.
