CN Challenges UP‑NS Merger: Why the Coast‑to‑Coast Plan Falters on Competition and Public Value

Canadian National Railway Co. Responds to Union Pacific–Norfolk Southern Merger Proposal

Executive Summary

Canadian National Railway Co. (CN) has formally expressed reservations about the proposed merger between Union Pacific (UP) and Norfolk Southern (NS). The joint filing, which seeks approval from the Surface Transportation Board (STB) to establish a coast‑to‑coast freight network in the United States, is critiqued by CN for lacking demonstrable competitive benefit and public value. CN further highlights its recent regulatory ruling by the Canadian Transportation Agency (CTA) that its grain revenue for the 2024‑2025 crop year was marginally below the industry‑wide maximum entitlement—an outcome that could influence operational and financial outlooks. The article investigates the underlying business fundamentals, regulatory frameworks, and competitive dynamics of the proposed consolidation, and explores overlooked trends, potential risks, and opportunities for CN and other stakeholders.

1. Regulatory Context and the STB Merger Framework

1.1 STB’s Mandate

The STB is tasked with ensuring that mergers in the rail sector promote competition, prevent excessive market concentration, and serve public interest. Under 49 C.F.R. Part 211, the Board evaluates mergers on the basis of competitive benefit and public value. The standard requires the filing to demonstrate that the merger will:

• Increase efficiency and service quality,
• Preserve or expand service options for shippers,
• Provide net economic benefits to the public.

1.2 CN’s Allegations

CN contends that the UP‑NS joint filing does not satisfy these criteria:

• Competitive Benefit: CN argues that the combined network would still leave significant gaps in intermodal connectivity, particularly in the central United States, thereby limiting competition.
• Public Value: The proposed consolidation could lead to higher freight rates or reduced service frequency, especially for mid‑size shippers who rely on multiple carriers.
• Regulatory Compliance: CN maintains that the filing falls short of the Board’s merger regulations, which require more rigorous cost–benefit analyses and stakeholder impact assessments.

These concerns align with CN’s broader strategic focus on maintaining a robust, independent network across North America.

2. Competitive Landscape Analysis

2.1 Current Market Share Distribution

• CN: Operates 20,000+ miles of track across Canada and the U.S.; holds approximately 13% of the North American freight market.
• UP & NS: Combined network spans 12,000+ miles; together command ~22% of U.S. freight volumes.

2.2 Overlooked Trend: Shipper Concentration

• The U.S. rail sector has seen a gradual shooter concentration trend, where large shippers negotiate bundled contracts with a few carriers. The proposed merger could exacerbate this concentration, potentially squeezing smaller shippers into marginal pricing tiers.
• CN’s diversified commodity portfolio—grain, coal, forest products—positions it as a hedge against sector-specific downturns, which may be threatened by a consolidated competitor with greater pricing power.

2.3 Regulatory Risk

• The STB’s Public Value test may penalize mergers that reduce market entry barriers. CN’s concerns about potential regulatory sanctions highlight an opportunity: if the merger is blocked or delayed, CN could leverage this uncertainty to renegotiate freight terms with key shippers, potentially improving revenue mix.

3. Financial Implications for CN

3.1 Grain Revenue Assessment

• CTA ruling: CN’s grain revenue for 2024‑2025 crop year was slightly below the maximum entitlement set for the industry.
• Impact: A lower revenue cap could reduce CN’s profit margin in a commodity that historically represents 25% of its revenue stream. However, the marginal shortfall suggests operational flexibility, allowing CN to allocate resources toward network modernization or strategic acquisitions.

3.2 Cost Structure Considerations

• CN’s cost advantage stems from its dual‑country operations, enabling cross‑border arbitrage and shared maintenance facilities. A merged UP‑NS entity would centralize operations, potentially eroding CN’s cost efficiencies.
• CN’s ability to maintain lower operating ratios (operating costs divided by revenue) could provide a buffer against any rate compression resulting from increased competition.

3.3 Capital Expenditure Outlook

• CN’s FY‑2025 CAPEX plan projects $1.2 billion, focusing on track upgrades in the Midwest and Canadian grain corridor. A merger that alters the competitive landscape may compel CN to increase CAPEX to preserve service levels and protect market share.

4. Strategic Opportunities and Risks

5. Conclusion

CN’s critique of the UP‑NS merger is rooted in a rigorous assessment of regulatory standards, competitive dynamics, and financial fundamentals. While the merger could yield efficiencies for the United States rail network, CN warns that insufficient competitive benefit, potential public value erosion, and the risk of altered market concentration could undermine its strategic position. Concurrently, the CTA’s grain revenue ruling, though marginally unfavorable, does not dramatically alter CN’s financial trajectory but does underscore the need for careful resource allocation amid a shifting competitive environment. As the STB deliberates, CN remains poised to maintain its existing network and service commitments while proactively exploring avenues to safeguard its market position against potential consolidation risks.