This is the fifth in a five-part series about railroad growth coming from truck conversions contemplated in Union Pacific’s Dec. 19, 2025 application sent to the Surface Transportation Board to acquire Norfolk Southern, focused on UP’s proposed solution to enhance competition for shippers who use UP-CSX and BNSF-NS Carload routes today.
In Part 1, Part 2 , Part 3 and Part 4 of this series, I established the challenges and probabilities of truck conversions from the new proposed UP-NS network and the importance of new rail-to-rail competition to improve an industry on the ropes. We’ve had three years of stagnant truck rates while rail rates increased at above-inflation levels. The North American rail industry has not grown since 2017 and has consistently lost market share to truck and other modes since 2018. Why? In Part 4, I offered there’s inadequate intra-rail competition and not enough affordable oversight by the STB. Customers have been bitten by years of irregular service, reducing their business competitiveness; faced unchecked rail pricing vs. competitive rates in other modes; and are faced with one of the most non-customer-friendly transportation business processes. Railroads have too much leverage; customers don’t have enough rail optionality.
Committed Gateway Pricing (CGP) is a disingenuous way to maintain competition for shippers using BNSF-NS or UP-CSX routes following the transaction for a limited amount of time. I offer a more appropriate name for the program: Temporary Tariff Pricing (TTP). TTP doesn’t sound as positive for the target audience of the merger marketing pitch as to why this transaction is a good thing for the industry and should be allowed to progress. That’s the double-edge sword of marketing. It literally cuts both ways to the point where we can transition to false labels.
The CGP program proposed in the UP-NS merger application represents a nationalized variant of the proportional rate concept pioneered in the UP I-5 Proportional Rate Agreement (I-5A). The I-5A was negotiated as part of the 1996 Union Pacific-Southern Pacific Merger Settlement Agreement (which the STB in June 2025 revisited)—rooted in the market dynamics created by the 1995 Burlington Northern + Santa Fe merger, which established BNSF as the single serving carrier in the Pacific Northwest and Western Canada corridor for the California markets. (It also addressed the U.S. Southwest and Mexico markets). While the CGP and I-5A mechanisms both use incumbent carrier rates to establish gateway pricing for interline partners, they differ substantially in geographic scope, rate granularity, market competitiveness and—most critically for shipper planning—durability.
The I-5A program, per UP’s STB submission material, has been a success in that UP has been able to effectively compete with and offer an alternative to BNSF in these markets for business open to UP. The southern points do have to be open to UP for UP to be a competitive option. This is important to understand. Significant amounts of business are handled by BNSF to and from its northern points and handed to and from UP at Portland, Ore. for UP to move those shipments among its origins and destinations, mostly in California. The program is complicated and not always well understood by BNSF and UP Commercial personnel.
The program effectively creates a real time market “ceiling” for BNSF rates to points open to UP where UP can compete with and provide a service alternative to BNSF service if BNSF rates or service south of Portland are deemed unacceptable. This is by design: The intent of the I-5A wasn’t to create new competition but maintain existing. Last, in addition to the I-5A being a provision with no expiration date, any new facilities located in the I-5A area are also subject to this agreement—two important differentiations from CGP.
The UP-NS proposed CGP program differs from the I-5A in several key areas that make the CGP program a substantially less competitive alternative for shippers and does not maintain current competition, per Table 1.0:
Though most people I’ve reviewed this with focus on the durability issue, I believe the rate calculus is more important. Early in this article, I labeled this program Temporary Tariff Pricing. Yes, the program is temporary, but the pricing is close to tariff levels at the 70th percentile, where little competitive traffic moves. Most rail traffic will move in the 20th to 40th rate percentile. Volume shippers get discounts. Most of the traffic moves below the arithmetic mean because price/volume distributions are skewed left of the median or 50th percentile. If the intent is to enhance competition, more favorable pricing should be given to this traffic.
Why is something like a competitive CGP program important? For shippers using BNSF-NS or UP-CSX routes, over time, UP will favor business on its lines and seek profit-neutral equivalency for impacted freight not solely on its lines. What does that mean? It’s easy: If UP is making $1,500 profit on a UP-NS move to the same geographic market, like Houston to Baltimore, for a similar UP-CSX move where UP must interchange that freight at a gateway, UP will price the move to the gateway as close to the $1,500 profit equivalency target as it can. Using real numbers, if UP makes $1,500 on a new UPNS move, and $750 on the CSX move to an interchange location, UP will increase the pricing on the CSX move above market to get to $1,500 profit.
“Rail 201” in commercial geographic market pricing: Be profit-neutral to alternatives. The CSX move to Baltimore becomes $750 more expensive, and the shipper who doesn’t have an option suffers.
Today, the North American rail network consists of three duopolies. One duopoly in the West (BNSF and UP), one duopoly in the East (CSX and NS), and one duopoly in Canada (CN and CPKC). In Part 4, I developed the analogy of a 900-pound gorilla (UP) becoming a 1,550-pound gorilla (UPNS) competing in the same cage (the East) as the 650-pound CSX gorilla, and at the same time, competing in the same cage (the West) of the 900-pound BNSF gorilla. If BNSF and CSX don’t merge, and the 1,550-pound gorilla is free to dominate both cages, profit-neutral pricing is but one of the tools the 1,550-pound gorilla will use to dominate its cage mates.
While some say that the UP application is the equivalent of a wolf in sheep’s clothing—a predator camouflaged as an innocent sheep—or that CGP is really a Trojan Horse—a camouflaged vessel proposed as a gift but with hidden danger inside—it is understandable to me why the application is drafted as is. Rule #1 in rail negotiations: Don’t negotiate against yourself. The application is from a railroad mindset of leverage and is a part of the negotiation process. Anchoring is a negotiating tactic of setting the bar beyond the minimum of what you’re willing to accept in the goal of attaining an outcome above your walkaway point. This application is a distant anchor from the STB’s 2001 stipulation to enhance competition for future consolidation to occur.
Will this transaction be approved? I have two peers whose opinions and perspectives I have valued deeply during my more-than 20 years of knowing each. One believes the transaction will be rejected, the other that it will be approved. They’re both right based on their reasoning. If the STB evaluates this transaction as submitted based upon the bar set in 2001 that any future Class I consolidation beyond CPKC must enhance rail-to-rail competition, the UP-NS application should be summarily rejected. If this decision is taken out of the hands of the STB and is left to become a political decision based on political influence from the current Administration, it will be approved in some neutered but not significantly degraded form. Unless the application is significantly altered, there isn’t likely a middle-ground outcome.
Size is a quality all its own. The new transcontinental UP, a single carrier connecting the eastern and western U.S., as submitted will have unprecedented rail market power and leverage CSX and BNSF will be unable to match separately. Yes, the new network will be able to convert about 500,000 truckloads to rail over a seven-to-ten-year time frame. Not talked about, the new UPNS behemoth should also take about 650,000 units from CSX and BNSF using its new market power while also extracting significant price from shippers without options.
Competition is crucial in business because it drives innovation, forces efficiency and keeps prices competitive while improving product quality. Rail is a precious commodity, and the benefits of rail (transportation cost savings, access to capacity, environmental benefits, better jobs) are without dispute. Generating new rail-to-rail competition is critical for this industry to alter its course. Adding competition through reciprocal switching among the Class I’s (like in Canada with interswitching) to enhance competition and a Permanent Gateway Pricing (PGP) solution addressing CGP’s deficiencies, could make this transaction a win-win for all parties. Regardless, we can’t keep going down the same path and expect a different outcome. We needed the Staggers Rail Act in 1980 because the industry was ill and needed to be cured. We seem to be approaching a similar fork in the road.
Per the merger rules established in 2001, to be approved, the UP-NS transaction must enhance competition. Most of us want what’s best for our industry and ultimately our country, as our rail system is a key factor in its economic success. Two million truck-to-rail conversions gave me a headache and required some independent math resulting in these five articles. I needed to do the work. I hope others do the work as well.
Rob Russell, Managing Partner, Russell-Kroese Partners (RKP), is a seasoned transportation executive who operates fluidly from the boardroom to the shop floor. A certified six sigma black belt and a LEAN champion, Rob is a proven business leader who has a track record of strategy development, financial planning, business development, operations and performance management to accomplish an organization’s desired goals. RKP partners with railroads, ports, shippers and land developers on growth strategy, market development, competitive positioning and operational execution. They help clients translate complex transportation dynamics into clear, execution-ready business decisions. You can learn more about RKP at www.russellkroese.com.
