An ag economist says there’s a lot at stake for the ag industry as two large railroads pursue a potential merger. Guy Allen with Kansas State University says the consolidation of Union Pacific and Norfolk Southern represents the market evolution of the rail sector. “The railroads are arguing increased efficiency and reduced internal costs for operations. The question is how does that translate to rail rates to move grain from both the farm gate to domestic end users as well as important export markets?”
The two railroads filed a revised application with the Surface Transportation Board (STB) late last month after the STB rejected the initial submission for lack of information.
He says oversight from the STB will play a critical role in ensuring fair competition if the merger is approved. “Basically, you’re establishing a monopoly or oligopoly situation for the Western Corn Belt. The thing that keeps railroads honest in the Eastern Corn Belt is the Mississippi River system and barge freight.”
Allen contends that there are also concerns about access to service. “For grain, particularly moving to export and domestic markets since we’ve moved to just-in-time delivery of inventories, that reliability, service and efficiency is important.”
If approved, the move would create the country’s largest coast-to-coast rail system and generate over $36 billion annually. It’s unclear when the STB will finalize its decision.
EDITOR’S TAKE:
It seems like rail mergers have been happening at an increasing pace in recent years. This proposed merger is another example of just how large the end result could be in terms of company size financially, as well as the impact on customers. Farmers/ranchers depend on rail a great deal to move their commodities from the farm gate to processors or export destinations. If prices for rail increase or service declines, as a result of such mergers, that would have serious consequences for agriculture. This is another one of those issues we will continue to monitor.
Speaking of monitoring, how well do you track your agricultural market share compared to the potential for your area? Also, how do you measure the performance of your agricultural team, whether it is sales, parts or service? Good news! The Certified Agriculture Group team has developed a tool that will soon be available to all CAD members that can help with these measurements and more. We’ll be sure to announce when it is available! Keep watching….
