With decades of experience navigating the intricate web of North America’s supply chains, Rohit Laila has become a leading voice on the logistics industry, particularly where technology and transportation intersect. Today, he lends his expertise to dissect the monumental proposed merger between Union Pacific and Norfolk Southern. Our discussion will explore the far-reaching consequences of creating a rail behemoth, touching on how it could reshape market competition, the practical realities behind promises of “open gateways,” and the potential ripple effects on everything from shipping rates to the price of goods on store shelves. We’ll also examine whether collaborative alliances offer a more competitive path forward than massive consolidation.
A combined UP-NS would create a railroad with over 40% market share in most commodity categories. What specific mechanisms could this new entity use to leverage its scale and potentially raise rates, and which commodity shippers, such as chemical or agricultural producers, are most at risk?
When you create a network of this unprecedented size, you’re fundamentally changing the competitive landscape. We’re talking about a railroad that would command over 40% of the market in most commodity groups and boast 56% more revenue than its closest competitor, BNSF. The mechanism for leverage becomes single-line service. Right now, an eastbound shipment from a UP-served chemical plant in Houston can be handed off to either NS or CSX. That choice creates competition. Post-merger, the natural, most efficient, and most heavily promoted route will be to keep that traffic on the combined UP-NS system from coast to coast. They can then use their local pricing power at the origin to make it financially punishing for a shipper to choose an interchange with a rival. The shippers who will feel this most acutely are those with captive facilities—the chemical producers, the grain elevators—who rely on rail and are located in areas where competitive balance will be upended.
Proponents of the merger promise to keep all interchanges open, yet some experts argue this doesn’t guarantee fair competition. Could you walk us through a scenario where a gateway remains open, but the merged railroad uses its local pricing power to make interchanging with a rival economically unfeasible?
Certainly. It’s a classic strategy, and the promise to “keep gateways open” can be a bit of a smokescreen. Imagine you’re a shipper in the West moving goods to the East Coast. Your product originates on the UP line. The interchange gateway in Chicago remains physically open, so technically, you can still hand your freight off to CSX. However, the new, larger UP-NS entity controls the first leg of that journey. They can set a very high local rate for just their portion of the move if you choose to interchange with their competitor, CSX. Simultaneously, they can offer you a slightly lower, but still inflated, single-line through-rate if you stick with their combined system all the way to the destination. The gateway is open, but the price to use it to access a competitor is so prohibitive that you have no real choice. The math just won’t work for the BNSF-CSX option, and competition effectively dies on the vine, even though the physical connection is still there.
Rivals suggest that a proposed “Committed Gateway Pricing” plan would benefit as little as 1% of customers. Could you explain the practical limitations of this plan for the average shipper and describe what a more robust, pro-competitive pricing agreement would need to include?
The “Committed Gateway Pricing” plan sounds good on paper, but in practice, it’s a very narrow solution to a very broad problem. The criticism from rival CEOs, pegging its benefit to a sliver of the market—as low as 1% according to BNSF’s CEO—highlights its limitations. This plan seems designed for specific, pre-determined interline routes, offering a streamlined price. For the average shipper, whose routes and needs are dynamic, it’s likely irrelevant. It doesn’t address the core issue of a merged carrier using its dominance to manipulate local rates or favor its own single-line service. A truly pro-competitive agreement wouldn’t be a small, curated program. It would need to establish transparent, non-discriminatory pricing rules for all traffic at major gateways, ensuring that the rate to interchange with a competitor is fair and comparable to the rates used for their own internal movements. It would need real teeth and regulatory oversight to prevent the kind of pricing games we just discussed.
Some believe this merger could ignite broader inflation by raising both rail and trucking rates. Based on historical data, how significant could these rate hikes be for rail-dependent industries, and what are the potential downstream effects on consumer prices for everyday goods?
The concern about inflation is very real and grounded in historical data. We have seen a dramatic divergence in pricing based on competition. Over the last 15 years, rates on non-competitive rail routes have skyrocketed by 240%, while routes with healthy competition saw a modest 24% increase. That’s a tenfold difference. If this merger reduces competition on a transcontinental scale, we can expect rates for shippers of essential goods—energy, chemicals, food products—to climb steeply. These aren’t abstract costs; they get baked directly into the price of fuel, plastics, groceries, and nearly everything else. And it doesn’t stop with rail. When rail rates go up, it gives the trucking industry a clear signal to raise its own prices, especially on long-haul routes. This creates a cascading effect across the entire supply chain, and ultimately, it’s the end consumer who will feel the pinch at the checkout counter.
The recent BNSF-CSX intermodal alliance has already impacted market share, challenging the idea that transcontinental mergers are the only path to better service. What does the success of such partnerships tell us about the future of rail competition, and could they offer a viable alternative to mergers?
The BNSF-CSX partnership is a fascinating and powerful counter-narrative to the “merger-is-the-only-way” argument. This alliance, linking the Southwest and Southeast, wasn’t just a theoretical exercise; it produced immediate, measurable results. In its first six weeks, CSX saw its intermodal volume jump 8%, while Norfolk Southern’s fell by nearly 7%. That’s a direct shift in market share, driven by a new, competitive service offering. It proves that railroads can collaborate to create efficient, coast-to-coast products without the massive, anti-competitive consolidation of a merger. These alliances are more agile, less disruptive, and preserve the crucial element of choice for shippers. They demonstrate a future where competition is fostered through smart partnerships, not eliminated through the creation of a single dominant player. It is a very viable alternative.
What is your forecast for the North American railroad industry if this merger is approved?
If this merger goes through, I believe we are looking at the beginning of the end for the current rail map as we know it. The creation of a UP-NS behemoth would exert immense pressure on the remaining Class I railroads. BNSF and CSX would almost be forced to consider their own transcontinental merger simply to remain competitive in scale and scope. We would quickly move from a system of four large, regionally-focused railroads to a duopoly of two massive, coast-to-coast giants. This level of consolidation would drastically reduce competition, likely leading to the sustained rate increases and service issues that shippers fear. The regulatory landscape would become incredibly complex, and the delicate competitive balance that exists in key hubs like Chicago and Houston would be permanently shattered. In short, it would trigger a final wave of consolidation, leaving shippers with fewer options and higher costs for decades to come.
