Union Pacific CEO Criticizes Rival Railroads' Merger Demands

Union Pacific CEO Jim Vena has blasted rival railroads' plans to request widespread trackage rights over a combined Union Pacific-Norfolk Southern system. Vena told an investor conference that giving up tracks for no reason goes against fundamental business principles.

Last week, BNSF Railway, CPKC, and CSX-along with 11 short lines-filed plans with the Surface Transportation Board to seek trackage rights and customer access should the proposed UP-NS merger gain approval. BNSF's proposals are the most specific, calling for 824 miles of rights between Chicago and Pennsylvania and a neutral switching carrier on the Gulf Coast.

Vena's Critique of Rival Proposals

Without naming BNSF, Vena argued the long-distance request is illogical. He stated UP would charge a per car-mile fee that would make it more expensive for the rival to reach its destination. "I thought about just agreeing because guess what: We would just reset the price higher for us," Vena said. He added, "That doesn't make a particle of sense in business."

BNSF told regulators the rights are necessary to preserve service and competition to eastern Pennsylvania, a major consumer goods distribution hub. The UP-NS merger agreement allows UP to walk away from the $85 billion deal if the STB approves the combination but adds onerous concessions. UP would owe a $2.5 billion breakup fee to NS.

Contrasting Deals with Canadian National

Vena clarified he is not opposed to mutually beneficial agreements, citing haulage and trackage rights deals reached with Canadian National in July. In separate transactions, UP granted CN rights between Memphis and Eagle Pass, Texas, to reach Ferromex. In exchange, CN granted UP rights to use its former Elgin, Joliet & Eastern bypass around Chicago.

A further deal, contingent on the UP-NS merger approval, would let CN operate on UP's line between St. Louis and Kansas City, including use of UP's Neff Yard. Would I make a deal with another railroad? Absolutely. But it would have to be a win-win for Union Pacific and for them, Vena said. He expressed enthusiasm about the CN deal adding competition in Canada.

Disputing Market Share Claims

Vena disputed rivals' claims that a merged UP-NS would control half of U.S. Rail traffic. Some railroads are out there saying that we end up with 50% of the business. That's just a lie, he stated. He noted BNSF, owned by Berkshire Hathaway, has more gross ton-miles, making UP number two.

BNSF, CPKC, and CSX have urged the STB to reject the merger, arguing a transcontinental UP would have unprecedented size and market power. Vena countered that coast-to-coast single-line service is a competitive necessity, especially with autonomous trucks on the horizon. He argues eliminating interchanges provides faster, cheaper service to compete with trucks.

Current Traffic and Economic Concerns

Chief Financial Officer Jennifer Hamann reported UP's traffic is up 5% for the quarter to date. Domestic intermodal is on pace for a fifth straight record quarter, and for the first time since 2018, UP has deployed all its domestic intermodal containers. High diesel prices and tight trucking capacity have driven more freight to rail.

However, Vena worries sustained high fuel prices could hurt consumer spending and freight demand. Fundamentally a higher fuel price is never good for the economy in the long run, he said. The railroad has yet to see a broad freight downturn.

Vena and Hamann spoke at the Morgan Stanley 14th Annual Laguna Conference.