Railroads play a critical role in moving U.S. soybeans from farms to domestic and international buyers. But as the rail industry continues to consolidate, farmers and grain shippers are closely watching a proposed merger between Union Pacific and Norfolk Southern. Mike Steenhoek, executive director of the Soy Transportation Coalition, explains what’s at stake.
“So for farmers to be profitable, whether soybeans or grain farmers to be successful, it’s not just a function of growing a crop and it’s not just a function of having demand for that crop. A third element that’s very critical is being able to connect supply with demand. And that’s what our multimodal transportation system achieves. And railroads are a very important component to that. Railroads are very well positioned to move heavy volume commodities, like soybeans, very long distances in a very economical, sustainable manner. So they’re very, very critical to the success of our industry. A lot of the soybeans that are exported, and also a lot of the domestic moves as well, is accommodated by rail.”
Steenhoek says the rail industry has changed significantly over time.
“The reality is for any capital intensive industry, there is always a strong tendency for consolidation. And certainly the railroads are a really strong example of that. And it’s happened in agriculture as well. That’s something that farmers are wrestling with on a myriad of fronts, but certainly within the rail industry that has occurred over the years, and to the point where today we have six what are called Class One railroads. There are only six of them.”
That trend toward consolidation is at the heart of a proposed merger.
“Union Pacific and Norfolk Southern announced the intention to actually merge. Technically it would be Union Pacific acquiring Norfolk Southern because Union Pacific is the larger railroad. But for the first time in U.S. history, it would provide one single railroad company uninterrupted service from the East Coast of the United States all the way to the West Coast.”
Supporters say a combined railroad could create a more seamless transportation network.
“One of the fundamental realities that is widely acknowledged within supply chains is that whenever you have a handoff going from one railroad to the next or going from trucking to rail or going from trucking to barge, whatever the handoff is, there’s a cost associated with that. Freight doesn’t like to be treated like a baton in a track and field relay race. The more you can limit handoffs, the more efficient that service is and usually the more economical that service is. So, there’s a lot of agricultural shippers who do subscribe to that.”
But others worry the merger could leave customers with fewer transportation choices and less leverage in the marketplace.
“For a railroad customer, it’s in our best interest to have as many transportation providers and railroad companies competing for our business. That’s good for us. When all of a sudden you have the prospect of reducing those number of transportation providers competing for your business, what that usually results in is an increase in rates, a decline in service. And so, hence there’s a lot of growing concern being expressed by railroad customers within in agriculture and elsewhere.”
The merger proposal is now before the U.S. Surface Transportation Board for review. Mike Steenhoek says the process is expected to take at least a year, with a decision likely not coming until the summer or fall of 2027.