From the Dome: Blueprint for the Future

ATLANTA - From the June 2025 issue of Railway Track & Structures, Editor-in-Chief David C. Lester writes about transcontinental mergers in the monthly column, "From the Dome."

Over the past several months, there has been buzz in the railroad industry about the “final set” of Class I railroad mergers to create, essentially, two transcontinental systems that would offer single-line service to many places. There are many issues and questions around this, most importantly the lack of interest of most roads to seriously entertain the subject now. Moreover, there are many industry observers who believe the Class Is need to get their own houses in order before considering any kind of industry consolidation. 

These topics have arisen in boardrooms, consulting firms, and within the industry because railroads are losing freight market share to trucks. For example, in Q3 2024, Railway Age published the testimony of Adriene Bailey, who is a partner and leads the North American Rail Practice at consulting firm Oliver Wyman. (https://www.railwayage.com/regulatory/growth-in-the-freight-rail-industry/). In her testimony, Bailey stated “. . . it is concerning that Class I rail volumes have not materially grown over the past decade. Indeed, rail is the only freight transportation mode that has lost overall net tons since 2017. Rail moved eight percent fewer total net tons between 2017 and 2023, while truck increased net tons moved by three percent.” Bailey goes on to point out that “. . . the U.S. Department of Transportation currently projects that rail will have the slowest growth among freight transportation modes through 2050 – which means that railroads are predicted to lose share to other freight modes over that timeframe.”

Most readers understand coal use has been declining for at least the past ten years, and loss of this traffic accounts for some portion of the railroads’ total car loss. This is through no fault of the railroads, but carriers must work aggressively to grow business without coal. 

Transcontinental mergers are seen by some as part of the remedy for railroads to regain and grow freight market share. While the thoughts of single-line service between, say, Atlanta and Seattle is appealing, most of the carriers are against it right now and as mentioned earlier, the industry is likely not in good enough shape at the moment to fully leverage the benefit of such mergers.

What’s the problem? Service quality. While CEOs and marketing officers talk continuously about delivering “an excellent service product,” many believe, especially shippers, that this is a goal rather than reality. Some recent examples of service lapse I’ve heard about include instances where a shipper needs two cars delivered to a plant for outbound shipment. Yet, in the recent past, when they’ve ordered two cars, they would either receive one or none, or if they did receive two, they didn’t arrive at the same time. How is a company supposed to effectively run a warehouse if a shipment, which is taking up a lot of room in the staging area, cannot leave all at once? One shipper, when needing two cars, decided to order eight cars to increase the likelihood they would receive the two they needed.

Some shippers say that it’s difficult to do business with Class I railroads. Some say that Class Is don’t want to work with you unless you want to talk about unit trains for a commodity. That’s like McDonald’s not wanting to do business with you unless you order 25 hamburgers. 

One plant owner tells of an order he placed for the installation of a rail siding at his plant because his product is better suited for shipment by rail than by truck. His request for a siding, however, was placed two years ago and the siding is not yet installed. Meanwhile, he continues to ship by truck. While the service is good from his trucking partners, the efficiency of his supply chain is challenged because he needs to ship carloads of his product rather than truckloads.

One rail customer placed an inquiry for a rate quote with a Class I carrier and went for weeks without a response. In desperation, he called a friend of his who happened to know the director of service design at the railroad and asked if the friend could help, which he did. When talking to the director of service design, the friend was asked for the name of the customer. A couple of days later, the customer called the friend and said “I don’t know who you talked to, but I’ve had eight people from the railroad call me in the past three days.” The shipper eventually got his rate quote.

Transcontinental mergers will require Herculean efforts to execute. Regulatory hurdles, the 2001 merger rules (which have never been tested because, as most know the most recent merger, CPKC, was executed under the pre-2001 rules), negotiations between powerful and strong-willed railroads looking after their interests along with the interests of their shareholders (with the exception of BNSF, of course, because it’s privately owned), integration of corporate cultures, computer integration challenges, shipper reaction (i.e., opposition), and more. And, regarding BNSF, the question of how a privately owned railroad would financially merge with one that is publicly owned needs to be answered, unless the owners of BNSF would outright purchase merger partner, and thinking about putting a deal like that together would make my head explode.  

In addition to these challenges, to reiterate, railroads and shippers cannot fully leverage the benefits of such mergers without significant improvement around the industry’s ability to execute basic blocking and tackling moves. Indeed, transcontinental mergers at this point would make basic operation even more difficult.

Service quality has certainly improved since the 1970s, when the industry was about to go bankrupt. That was a long time ago, pre-Staggers, and we live in a different world today. Yet I was told by a shipper 50 years ago that they didn’t use rail because carriers simply could not provide the quality of service they needed, so they had to use trucks. With all that has happened since those tumultuous years, why are we still talking about lack of service quality today? I don’t know. 

Note: “From the Dome” is a column featured in Railway Track & Structures‘ monthly issue. Read other editions of “From the Dome” at the link here.