Introduction
Chris Jahn, President and CEO of the American Chemistry Council (ACC), recently shared insights with Logistics Management magazine regarding potential major changes in the U.S. railroad industry—specifically the proposed merger between Union Pacific (UP) and Norfolk Southern (NS). The interview addressed critical concerns about rail service quality, pricing mechanisms, and regulatory oversight. This report analyzes Jahn's perspectives alongside industry data to assess how the UP-NS merger might affect America's chemical industry, manufacturing sector, and broader economy, while offering policy recommendations.
Chapter 1: The Strategic Importance of U.S. Chemical Industry and Its Rail Dependence
1.1 Chemical Industry: The Foundation of Modern Manufacturing
The chemical industry serves as the backbone of modern manufacturing, with products essential to agriculture, construction, electronics, healthcare, and transportation. Nearly all consumer goods—from clothing and furniture to computers and smartphones—rely on chemical products. In the United States, the sector supports 25% of GDP and millions of jobs, making it the world's second-largest chemical producer after China.
1.2 Rail Transportation: A Vital Lifeline
Due to the hazardous nature of many chemicals—including flammability and corrosiveness—rail transport remains the preferred method for long-distance, bulk shipments. Its cost-effectiveness and safety advantages make it indispensable for moving raw materials to production facilities nationwide.
1.3 Rail Bottlenecks: Growing Challenges
Recent years have seen deteriorating rail service characterized by:
- Capacity shortages: Insufficient infrastructure investment fails to meet growing demand.
- Service declines: Workforce reductions lead to frequent delays and cargo losses.
- Price hikes: Monopolistic pricing power drives up transportation costs.
Chapter 2: The UP-NS Merger: Industry Concerns
2.1 Merger Overview
A combined UP-NS would control nearly half of U.S. rail traffic, creating a coast-to-coast duopoly. The ACC has expressed strong reservations, citing historical precedents where mergers reduced competition and service quality.
2.2 Key Risks
Potential consequences include:
- Higher freight rates due to increased monopoly power
- Further service degradation from operational consolidation
- Reduced innovation in rail logistics
- Greater supply chain vulnerabilities
Chapter 3: Pricing Mechanisms: An Opaque Burden
Rail pricing structures—including fuel surcharges, demurrage fees, and empty-car charges—lack transparency. Notably, fuel surcharges often remain elevated despite oil price drops, while demurrage fees penalize shippers for rail-caused delays.
Chapter 4: Service Quality: Data vs. Reality
While Surface Transportation Board (STB) metrics suggest adequate service, ACC argues these reflect reduced freight volumes rather than improved performance. Workforce cuts (30% since 2016) and deferred infrastructure maintenance have created a fragile network vulnerable to disruptions.
Chapter 5: Regulatory Environment: A Call for Reform
The STB's perceived lax oversight has enabled railroad consolidation. Recent attempts to implement reciprocal switching (allowing competing railroads to share tracks) were overturned in court—a missed opportunity to foster competition.
Chapter 6: International Lessons from Canada
Canada's competitive rail duopoly (CN and CP) demonstrates how reciprocal switching can balance efficiency with shipper choice. Their model has maintained lower rates and better service than U.S. counterparts.
Chapter 7: Policy Recommendations
- Strengthen STB merger reviews and rate oversight
- Reinstate reciprocal switching rules
- Increase infrastructure investment
- Promote technological innovation
- Level the playing field among transport modes
Chapter 8: ACC's Advocacy Strategy
The council plans a multi-pronged approach including:
- Legislative outreach emphasizing broad manufacturing impacts
- A seven-figure public education campaign
- Coalition-building with agriculture and energy groups
- Potential legal challenges if the merger advances
Conclusion
The UP-NS merger threatens to exacerbate systemic rail issues that already constrain U.S. chemical competitiveness. Without robust regulatory intervention and market reforms, further consolidation risks harming manufacturing productivity and economic growth. The ACC's mobilization reflects industry-wide apprehension about surrendering more leverage to rail monopolies.
Future Outlook
Emerging technologies (automation, AI routing) and sustainability pressures may reshape rail transport. However, realizing these opportunities requires addressing current structural deficiencies through policy and investment.