Union Pacific and Norfolk Southern's merger application could have significant repercussions for refiners and petrochemical manufacturers across the nation.
- Extreme Market Concentration: The merger would create a "mega-railroad" controlling 51% of all petrochemical rail traffic and 41% of crude oil and NGL (Natural Gas Liquids) shipments in the United States.
- Captive Shipper Crisis: Approximately 75% of U.S. refineries and petrochemical facilities are already "captive shippers," meaning they are served by only one railroad and have no competitive options to shop for better rates or service.
- Rising Costs vs. Declining Service: Since 2004, freight rail rates have increased by 44% (more than double the pace of inflation), even as railroad operating costs rose by only 8% and carload volumes declined by 13% over the last decade.
Another merger could have drastic and long-lasting impacts on the entire U.S. economy, specifically in the domestic manufacturing and energy sectors. The proposed merger, pending approval by the Surface Transportation Board (STB), builds off of decades of declining rail service quality and ever-increasing rail costs.
"Free markets do not work when there is no competition or even a realistic threat of competition to empower consumers. The U.S. freight rail industry has consolidated to a point where customers have very little power and leverage to push for better service that is worthy of the rates we're paying. In fact, roughly 75% of U.S. refineries and petrochemical facilities are considered ‘captive shippers,' meaning there's one freight rail game in town and customer facilities have no other options to shop for better rates or service, both of which are costing consumers dearly," said AFPM VP Rob Benedict.
In 1980, there were 30 different freight rail carriers in the U.S. Today, there are six. Freight rail customers are greatly impacted by this continued merging. Since 2004, freight rail rates have climbed 44%, more than twice the pace of inflation, while railroad operating costs have risen by just 8%. Past mergers have led to massive service failures, including reduced routing options, fewer days of service, disruptions and embargoes that choke production and weaken supply chains. All of this has led to carload volumes declining more than 13% in the last decade.
Freight rail customers today are paying a lot more for less service and are having to spend even more on unproductive things like new storage yards and larger railcar fleets to cushion their operations from the impacts of reduced and unreliable rail service. This also means American consumers are being forced to pay more for everyday necessities like food, electricity, gasoline, automobiles and building materials.
Years of experience have shown that with excessive consolidation among Class 1 freight railroads, fuel and petrochemical manufacturers lose optionality on choosing long-haul routes as well as the ability to shop for better freight rail prices and service. Ultimately, refining operations can and have been disrupted with little to no warning or recourse due to unchecked consolidation.
"American refiners and petrochemical manufacturers need competitive, efficient and reliable rail networks to produce the affordable fuels and products Americans depend on every day. Unfortunately, decades of bad service and price increases in the wake of freight rail consolidation leave us and other carload shippers highly skeptical of this merger. Unless the Surface Transportation Board can demonstrate conclusively that it will enhance competition across all modes of transport, especially between railroads, this merger application should be denied," said AFPM President and CEO Chet Thompson.
The rail merger application that STB will consider falls under new rules, which require the Board to ensure any future Class 1 railroad mergers are in the public interest and that they enhance competition, not just preserve it. On its face, going from 30 carriers to six to potentially five doesn't sound like more competition. Fuel refiners and petrochemical manufacturers have no confidence that another merger would lead to improved service, more routing options or better prices. This proposed rail merger would impact the heart of American refining and petrochemical manufacturing, giving one new mega-railroad control of 51% of petrochemical rail traffic and 41% of crude and NGLs. With so many of the products Americans depend on every day reliant on freight rail, competition among carriers is essential to keeping freight service reliable, affordable and fairly priced.
For more information, visit afpm.org.
