By Karen Burchfield, Rail Industry Advisor and Senior Project Lead

A Critical Gap in the Application

The Surface Transportation Board’s review of the proposed Union Pacific–Norfolk Southern merger should not focus solely on projected benefits. It must also evaluate what happens if those projections fail to materialize.

One critical element remains largely absent from the application: a meaningful sensitivity analysis.

The Problem with Growth-Dependent Projections

The forward-looking financial projections depend heavily on assumptions about significant traffic growth and diversion forecasts. Yet the application does not meaningfully evaluate lower-growth or no-growth scenarios — nor does it explain how the merged carrier would service approximately $1.4 billion in annual fixed financial obligations if those growth assumptions fall short.

That matters — and it’s not just a financial observation. Under 49 U.S.C. § 11324(b)(3), the Board is required to consider whether the merged railroad can continue servicing the total fixed charges resulting from the transaction. This is not an accounting exercise. It is a public interest requirement embedded in the statute.

What Happens When Growth Falls Short

If projected traffic growth does not occur, the financial burden does not disappear. The railroad must still generate the cash flow necessary to support those obligations. Historically, that pressure manifests through:

  • Increased pricing pressure on captive shippers
  • Operating-ratio-driven cost reductions
  • Train-start and workforce reductions
  • Deferred infrastructure investment
  • Reduced network resiliency

These Risks Are Not Theoretical

Over the last decade, the rail industry has absorbed significant volatility — economic contraction, supply chain disruption, geopolitical instability, and a global pandemic. Stress testing major financial assumptions under adverse conditions should be considered foundational in any merger review of this scale.

 

The Public Interest Requires More Than Optimism

A merger application should not only present the upside case. It should demonstrate resiliency under downside conditions.

The public interest standard established by Congress requires more than optimistic forecasting. It requires transparent risk evaluation, contingency planning, and the practical implications of carrying substantial fixed financial obligations across varying economic conditions.

As the STB’s review continues, sensitivity analysis deserves far more attention than it has received.

 

About PraxiChain’s Rail Merger Advisory Practice

PraxiChain is a Chicago-based industrial supply chain and logistics consulting firm serving energy, agriculture, chemicals, industrials, transportation, and private equity clients. Our Rail Merger Advisory practice helps shippers, investors, and trade organizations understand the strategic and operational implications of major rail transactions — and navigate the STB process with precision.

Karen Burchfield, Rail Industry Expert & Sr. Project Lead at PraxiChain, brings a Class I railroad background spanning operations, commercial strategy, and regulatory proceedings. She translates complex STB filings into actionable shipper strategy and has guided clients through prior Class I consolidation events.

Ready to map your exposure? Contact us to learn more about our Rail Merger Advisory services.