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Proposed rail merger puts focus on grain rates and service

An ag economist says there’s a lot at stake for the ag industry as two large railroads pursue a potential merger.

Guy Allen with Kansas State University says the consolidation of Union Pacific and Norfolk Southern represents the market evolution of the rail sector. “The railroads are arguing increased efficiency and reduced internal costs for operations themselves. The question is how does that translate to rail rates to move grain from both the farm gate to domestic end users as well as important export markets?”  

The two railroads have filed a revised application with the Surface Transportation Board late last month after the STB rejected the initial submission for lack of information.

He says oversight from the Surface Transportation Board will play a critical role in ensuring fair competition if the merger is approved. “Basically, you’re establishing a monopoly or oligopoly situation there for the Western Corn Belt. The thing that keeps railroads honest in the Eastern Corn Belt is the Mississippi River system and barge freight.”

Allen tells Brownfield there are also concerns about access to service. “For grain, particularly moving to export and domestic markets since we’ve moved to just-in-time delivery of inventories, that reliability, service and efficiency is important.”

If approved, the move would create the country’s largest coast-to-cast rail system and generate over $36 billion annually. It’s unclear when the STB will finalize its decision.  

Guy Allen: