Earlier this year two of America’s largest railroads – Union Pacific and Norfolk Southern – announced their intention to merge. If approved by the government, the combined entity would establish the nation’s first single-line transcontinental railroad. It would reach across 43 states and encompass a network of tens of thousands of miles, providing shippers access to 10 international interchanges and nearly 100 ports while opening myriad new routes. Most importantly, a transcontinental railroad would sharply reduce inefficiencies and costly interchange delays in the current network, which would increase potential railway customers and have the potential to transform the nation’s freight transportation system.
Today’s rail network often slows greatly or even grinds to a halt at interchange points, where trains must transfer cargo between carriers. Cargo can sit in railyards for days before being picked up by the second railroad, and the delays cost shippers both time and money. The proposed merger will eliminate some of those high volume choke points, as well as improve its speed and reliability and increase the network’s overall capacity. The holding costs for undelivered inventory in the industry are roughly 25 percent of a good’s value, a figure that is high because a good portion of the goods transported by rail tend to be heavy commodities like grain, lumber or coal (Freight rail cargo is split almost evenly between consumer goods and bulk commodities). Reducing shipping delays will ultimately reduce costs for businesses and consumers alike for a wide variety of goods.
Establishing a single line rail service from the east coast to the west coast would greatly reduce such delays. Instead of shippers needing to have shipments going across the country transferred between two railroads, their goods could travel seamlessly from origin to destination, greatly increasing the effective speed of the overall rail network. As it currently stands, the Union Pacific and Norfolk Southern railroads are each other’s most frequent partners, exchanging about one million shipments each year. Integrating the two would constitute a logical next step.
The merger will open up new pathways in the American supply chain by making rail shipping more competitive, so that U.S. manufacturing becomes more cost-efficient and competitive in the global marketplace.
Everyone who drives a car will benefit from this transformation of the supply chain. American roads get more congested every year and trucks are a major contributor to congestion, which not only costs us time stuck in traffic but also results in more smog and CO2 emissions. The congestion exacerbated by trucking also results in more accidents and deaths on U.S. roads: Trucks directly cause thirteen percent of all highway deaths each year.
The natural objection to mergers--which is that they inevitably reduce competition--does not hold here, since the Union Pacific and Norfolk Southern networks do not overlap at all: Union Pacific operates primarily west of the Mississippi River and the Norfolk Southern’s network is in the eastern United States. Shippers would not face reduced options because of the transaction.
The American economy would greatly benefit from a more efficient supply chain that can move more goods quicker and cheaper than is currently the case. The Union Pacific–Norfolk Southern merger is exactly the kind of private-sector modernization that can make the country’s logistics faster and cheaper, and boost the competitiveness of U.S. manufacturing.
