Rail Consolidation Has a Track Record – It’s Not Good

By Daren Coppock

Farmers and ag retailers operate on razor-thin margins, so even a small, artificial cost increase can have a big impact. 

As the Surface Transportation Board (STB) considers the proposed merger of Union Pacific (UP) and Norfolk Southern (NS), the Agricultural Retailers Association (ARA) has serious concerns about how this merger would affect members and the agribusiness sector as a whole.

ARA proudly represents more than 5,000 ag retail locations across the U.S., many of which rely on safe, consistent rail service to operate. Ag retailers supply farmers and ranchers with products and services such as seed, nutrients, crop protection products, feed, equipment, technology and more.

ARA members range in size from small, family-held businesses to large companies and farmer-owned cooperatives with many outlet stores. 

Right now, four railroads – including UP and NS – already control 90 percent of freight traffic. 

The voices of ARA’s many members agree when rail service is dominated by just a few players, they hold the power to set terms that work for them – not for the shippers and customers who depend on rail to move agricultural commodities, fertilizer, ag chemicals, fuel and other essential supplies. 

This imbalance drives up costs and threatens the reliability of the country’s entire supply chain.

After adjusting for inflation, U.S. freight rail rates have risen by more than 40 percent over the past 20 years – about 70 percent faster than truck rates. Fertilizer shippers have been hit even harder, with rail rates for key inputs like anhydrous ammonia climbing more than 200 percent since the mid-2000s. 

At the same time, rail remains essential to the supply chain – a single railcar can carry roughly the equivalent of four truckloads of anhydrous ammonia – leaving many agricultural retailers and farmers with limited alternatives. 

Against a backdrop of already high input costs, past rail consolidation has consistently reduced competition, resulting in higher transportation costs and less negotiating leverage for agricultural shippers.

While supporters of this merger promise “efficiency,” we’ve seen this pattern before – costs rise, service suffers and we end up in a worse place than where we started. 

Past large rail consolidations have led to service disruptions, reduced competition and higher transportation costs, particularly for captive agricultural shippers. In fact, the service issues following earlier mega-mergers were so severe, federal regulators temporarily paused further consolidation to stabilize the network.

In our industry, we need something that moves a lot of freight, and rail is the way to do it in rural America. Two-thirds of the fertilizer used for crop inputs moves by rail, along with fuel and chemical products. 

One jumbo hopper car moves as much as 3.4 trucks and is three times more fuel efficient per ton-mile than other transportation alternatives.

Some ARA members have had the railroad tell them they didn’t feel they were generating enough business and threatened to cut service back to their locations, and when this happens, how will we measure cost when we can’t move goods anymore? 

Not being able to move goods isn’t exactly “efficient” either, is it?

ARA believes supporting ag retailers is the first step toward ensuring a safe and plentiful food supply for the entire country, because retailers provide farmers with what they need to operate. 

This proposed merger directly threatens our ability to operate and, by extension, impacts U.S. farmers and the food supply for all Americans.

If the STB isn’t hearing alarm bells, they should be, because this is going to be a big problem for all of us.

For those who are still on the fence about this merger, let us ask this – would we be better off with only two airlines, automakers, insurers or bankers? No.

STB’s own rules require mergers to “enhance” competition, not merely preserve it. The proposed UP and NS merger fails this test. 

ARA wants to see the standard of increased competition because this is what’s best for everyone, not just two rail companies.

Daren Coppock is president and chief executive officer of ARA. This opinion column was originally published by AgriPulse on June 8.