Americans benefit when businesses compete. Competition forces companies to lower prices, improve service, and innovate ceaselessly as they must compete not only with rivals in the same industry, but also with companies in other industries offering substitutes that may better meet customers’ needs. Yet when policymakers evaluate transportation markets, they often overlook interindustry rivalry, focusing solely on competitors within a single industry.
The debate spurred by the proposed Union Pacific-Norfolk Southern (UP–NS) merger highlights a broader question about how policymakers can strengthen competition across America's freight transportation network.
In freight transportation, competition extends beyond the number of freight carriers operating in a given market. Rivalry between transportation modes is no less vigorous. In fact, for many shippers, the primary alternative to rail is trucking, not another railroad.
Since 2006, when railroads moved a record number of trailers and shipping containers, trucking has become an even stronger competitor to freight rail, carrying roughly 67 percent of total domestic freight volume.m of Form As trucking has become the dominant option for freight shippers, policymakers should account for competition across the entire freight transportation system.
Critics of the UP–NS merger view the freight market too narrowly when they argue that the merger would reduce competition and leave shippers across the country with fewer options. The Union Pacific and Norfolk Southern railroads have barely any geographic overlap, serving different parts of the country; their networks meet in the middle, around the Mississippi River. The combination of the two railroads, therefore, would not eliminate a direct rail competitor for most shippers.
To the contrary, a single end-to-end rail route could improve the industry’s ability to compete with trucking by reducing shipping times and costs and offering shippers one railroad to deal with––from pickup to delivery.
Despite rail being more fuel-efficient and cost-effective for long-distance freight movement, with greater carrying capacity and other important supply-chain benefits, trucking continues to dominate freight transportation––precisely because of how fragmented the rail industry is.
Due to the existing divisions between railroads, cross-country shippers have to navigate the complexity of multiple rail lines’ systems, which comes with inconveniences of interchanges––freight having to be shifted from one network to another. These interchanges often lead to days-long delays while crews switch and paperwork is being filed. When, on any given day, roughly 25 percent of rail traffic is headed to, from, or through Chicago, the delays from interchanges are felt nationwide.
While, to avoid interchange-related bottlenecks, shippers increasingly opt to pay more for door-to-door service by truck, this shift toward trucking has raised supply chain costs that ultimately trickle down to consumers. Not to mention, unlike freight rail, trucking is much more dependent on the taxpayer-financed infrastructure.
Billions of dollars in public funding are invested in transportation infrastructure every year, helping support roads and waterways that freight carriers rely upon. Meanwhile, freight railroads fund the maintenance and expansion of their networks primarily through private investment. In 2021, state and local governments spent roughly $206 billion on highways and roadways, whereas, that same year, rail committed $23 billion in private investment. Continued private investments is the best way to strengthen rail service and create a more balanced and competitive freight marketplace.
The UP–NS merger would thus create the nation’s first coast-to-coast freight railroad, strengthening rail’s competitive position within the broader freight transportation marketplace. Their integration would eliminate the costly delays and inefficiencies of interchanges, immediately improving transit times by 24-48 hours and saving shippers $3.5 billion each year, passing some of those savings on to consumers.
Moreover, Union Pacific and Norfolk Southern expect many shippers to switch from trucking to the combined railroad once they recognize the benefits of a single-line transcontinental network. Such a shift would produce not only consumer savings but also taxpayer benefits by reducing the number of heavy-duty trucks weighing down on publicly funded roads.
Last month, the Surface Transportation Board accepted the companies’ merger application as complete, launching a months-long review through which the regulator will determine whether the merger serves the public interest. The evidence is clear: the merger would reignite the ability of freight railroads to compete with trucking for long-haul business, delivering numerous benefits to shippers, consumers, and taxpayers.
