Norfolk Southern Peer CN Strikes Deal With Union Pacific on Merger

What happened

Union Pacific and CN announced a binding Memorandum of Understanding that establishes a framework for CN to gain greater access to Midwest markets if the UP-Norfolk Southern merger proceeds. Under the terms, CN would acquire Norfolk Southern's ownership interests in the Kansas City Terminal Railway Company and the Terminal Railroad Association of St. Louis, gain overhead rights between Tuscola and East St. Louis, Illinois, and secure rights to serve customers between St. Louis and Kansas City, Missouri. CN would also gain access to shipper facilities where Class I railroad options would be reduced from two-to-one or three-to-two, where commercially and operationally feasible. In exchange, CN agreed not to oppose the merger and to collaborate with UP during the Surface Transportation Board (STB) review process. The agreement is contingent on STB approval and would only take effect if the merger moves forward.

Why it matters

This agreement represents a significant shift in CN's position, as the railway previously filed comments with the STB criticising the merger application for lacking required competitive information and meaningful enhancements. By securing expanded access to key markets-including a first-time footprint in the heart of Kansas City-CN positions itself to benefit from the proposed merger rather than oppose it, potentially removing a major obstacle to the UP-Norfolk Southern combination. For Norfolk Southern, the deal addresses one of the key competitive concerns raised by regulators and stakeholders: maintaining customer choice and competitive access in markets where railroad options would otherwise be reduced. The agreement also demonstrates UP's willingness to make concessions to win regulatory approval for a transaction that would create the nation's first transcontinental railroad, covering more than 50,000 route miles across 43 states and linking approximately 100 ports.

Bigger picture

The proposed UP-Norfolk Southern merger would trigger a final wave of rail consolidation across North America, creating a combined entity that would handle approximately 40% of American freight traffic. The STB accepted the railroads' revised merger application for consideration in May 2025 but temporarily paused the process while seeking supplemental information, which was due by July 27. The merger has drawn scrutiny from competitors and customers who worry about unprecedented market power and reduced competition. UP and Norfolk Southern argue the merger would create a stronger alternative to long-haul trucking, removing an estimated 2.1 million truckloads off the road annually and saving shippers an estimated $3.5 billion per year. The combined network is projected to require approximately 1,200 net new union jobs by the merger's third year. Industry observers note that the CN agreement could pave the way for other railroads to seek similar concessions, potentially diluting what UP aims to achieve while also demonstrating a pathway to regulatory approval.

What to watch

Monitor whether the STB approves the CN-UP agreement and whether it influences the broader merger review process. Watch for responses from other Class I railroads, particularly CPKC, which may seek similar competitive access arrangements. Key upcoming milestones include the STB's review of supplemental information submitted by UP and Norfolk Southern in July, and the regulator's ultimate determination of whether the transaction is in the public interest. Political factors, including midterm election outcomes, could also influence the regulatory timeline and final decision. Pay attention to whether additional competitors or customers file objections or seek concessions as the STB review progresses.