UP-NS merger promises faster carload transit, but shippers remain skeptical

Editor's note: This is the second story in a series exploring how the proposed Union Pacific and Norfolk Southern combination could affect shippers. Read the first story on intermodal shipments here.

Union Pacific (UP) and Norfolk Southern (NS) assert that their combined network would accelerate a range of shipment types, with carload traffic expected to see the most significant gains. The railroads project transit time reductions of up to two days for carload shipments currently exchanged at east-west gateways, including Chicago and New Orleans. Such improvements, they argue, would enhance rail's competitiveness against trucking, bolster reliability, and lower costs for shippers. Additionally, faster service is expected to reduce inventory carrying costs and allow customers to trim their freight car fleets, according to the railroads.

However, skepticism persists among some shippers, who point to prior mergers that failed to deliver promised service enhancements.

How UP and NS plan to accelerate carload shipments

The projected transit time savings are expected to be most pronounced for carload traffic that currently undergoes extensive handling and experiences prolonged interchange delays at east-west gateways such as Chicago.

A combined transcontinental railroad could theoretically expedite carload shipments by eliminating interchange-related delays and by controlling service design for a car's entire journey from origin to destination. For instance, UP CEO Jim Vena said in an August interview that the railroad could eliminate as many as four intermediate handlings for a lumber shipment moving from an NS-served mill in the Southeast to a distributor in Phoenix on UP's network.

Explained: How a combined railroad could handle a carload shipment differently

Consider a customer in western Nebraska shipping a carload to a receiver in northeast Ohio. After pickup by a local train, the car could be processed through multiple routes. The time and cost savings would depend on the option the railroad selects.

C. Tyler Dick, an assistant professor associated with the Texas Railway Analysis & Innovation Node at the University of Texas at Austin, walked Supply Chain Dive through three possible options railroads face.

The first option would involve moving the car on a UP manifest train from Bailey Yard in North Platte, Nebraska, to a UP yard in Chicago, where it would dwell for at least 18 hours. The car would then transfer to an NS yard in Chicago for another 18-hour dwell. From there, the railcar would travel on an NS manifest train to Moorman Yard in Bellevue, Ohio, to connect with a local train.

“The dwell times in Bailey and Moorman are essentially fixed, but the 36 hours of dwell plus transfer time in Chicago could be eliminated,” Dick explained.

The second option would route the car from Nebraska to Chicago and hand it off to one of two Chicago terminal and switching lines: the Belt Railway of Chicago or the Indiana Harbor Belt. This approach would be faster but would still leave cars sitting in Chicago for 18 hours or more, Dick said.

The UP-NS merger would introduce a third, distinct option: sending the carload on a train running directly from North Platte to Bellevue. This would cut nearly 48 hours off the transit time compared with a UP-NS interchange in Chicago, Dick said, or 18 to 24 hours if the car previously moved through the Belt Railway of Chicago or the Indiana Harbor Belt.

For shippers, the option offered by a combined railroad could mean fewer idle cars and less capital tied up in leased equipment. However, any new direct service would depend on whether sufficient volume exists to justify a dedicated train between Nebraska and Ohio, Dick noted.

Fewer car switches should improve service reliability by reducing the potential for missed train-to-train connections, said Dick. It should also enhance equipment utilization as cars move faster and more consistently through the system. Yet, carload trip times and car utilization have not improved substantially, Dick said, despite the dozens of mergers since 1980 that created modern railroad networks.

“However, the previous consolidations did little to improve the key east-west gateways, which is what the UP-NS merger is banking on,” he said.

Experts remain skeptical about service promises

Despite the railroads' aspirations, how they connect in Chicago and other gateways could temper hopes for service improvements. Those interchanges have traditionally been unpredictable due to frequent congestion and limited crew availability, according to a long-tenured and retired rail executive familiar with the railroads' Chicago terminals and operating practices, who spoke on the condition of anonymity given the sensitivity of rail operations.

A North Platte-Bellevue train, for example, would have two routing options through the Windy City, the retired executive said. One would be under UP-NS control but would face rush-hour conflicts with commuter trains. The other avoids commuter trains but is not entirely under the control of either railroad.

“Keeping the trains moving (even slowly) through interchange points saves more than 24 hours,” the executive said in an email. “However, UP and NS have poor connections at most interchange points, especially at Chicago, so these savings are not automatic.”

In general, railroad mergers have not lived up to their service-related promises, Chris Jahn, CEO of the American Chemistry Council, said in an interview.

In theory, single-line service should cut transit times and enable shippers to use fewer cars, Jahn said. “But we just haven’t seen that in reality,” he said of previous mergers.

A rail logistics manager for a major energy company, who spoke on the condition of anonymity because he was concerned about retribution from railroads, agreed. The manager said prior mergers have not produced the transit time reductions necessary to allow the energy company to shrink its tank car fleet.

“You really have to look at it by individual origin-destination pairing,” the rail logistics manager said in an interview. “There’s some incremental improvement here or there, but on the macro level, I would say it’s not been appreciable at all.”

There is nothing stopping the railroads from operating direct run-through trains today, the rail logistics manager said, noting that 25 years ago all Class I systems routinely built trains that ran deep into each other's networks.

But since 2000, carload volume has dropped by more than 20% in the East, according to data that NS and CSX provide to the Association of American Railroads. “You don’t have the volume between city pairs to run direct city-to-city trains across Chicago with seamless service, regardless of whether you put UP and NS together,” the rail logistics manager said.

Where volume exists, other railroad pairings have successfully launched direct routes that speed carload transit times.

Carload traffic has been booming in Western Canada thanks to growth in petrochemicals and energy-related traffic such as frac sand, steel pipe, and natural gas liquids. In turn, Canadian National (CN) and NS in 2017 launched two pairs of run-through merchandise trains between CN's yard in Winnipeg, Manitoba, and the NS yard at Elkhart, Indiana.

The direct move, which avoids Chicago terminal congestion by using CN's unique bypass around the city, saves 48 hours compared with the prior interchange arrangement.