Latest / Talk Track by Telegraph / A Tale of Two Railroads

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A Tale of Two Railroads · Talk Track by Telegraph

• 0:02
  SPEAKER_00: I'm Sydney Schreiber.
• 0:03
  SPEAKER_01: And I'm Harris Liggan.
• 0:04
  SPEAKER_01: You're listening to Don't Dwell On It, the podcast where we pause just long enough to figure out what's really moving freight rail forward.
• 0:13
  SPEAKER_01: Let's get into it.
• 0:16
  SPEAKER_01: Hey folks.
• 0:17
  SPEAKER_01: I appreciate everybody kind of joining in and watching.
• 0:20
  SPEAKER_01: My name's Harris Liggan.
• 0:21
  SPEAKER_01: I uh am the CEO and founder here at Telegraph.
• 0:24
  SPEAKER_01: And I'm joined today by our director of Freight Market Intelligence Intelligence, David Correll.
• 0:29
  SPEAKER_01: Uh David, welcome to our first kind of podcast on the topic.
• 0:34
  SPEAKER_01: How are things?
• 0:35
  SPEAKER_00: Things are very well, and I'm very excited to be part of launching this with the team.
• 0:39
  SPEAKER_00: I think this is going to be an interesting conversation now, and I imagine it's one we'll come back to again and again and again as the story unfolds.
• 0:46
  SPEAKER_01: Um, it has accelerated rapidly.
• 0:48
  SPEAKER_01: The whole concept of our first true continental railroad, coast to coast, um, and in a somewhat uh organization of having a lot of like market power, this is gonna be an interesting conversation.
• 1:03
  SPEAKER_01: As the topic of Union Pacific and Norfolk Southern combining um went from interesting dialogue to then rumor to then very clearly confirmed rumor to we're having talks to we woke up on Tuesday morning and it it's it's happening.
• 1:23
  SPEAKER_01: Um, how what was your initial reaction as that as that kind of built up?
• 1:27
  SPEAKER_00: You know, what struck me most is this is huge news, not only in you know the railroad industry, but across logistics, and I think even bigger too, across a broader sense of American politics.
• 1:39
  SPEAKER_00: And and in that, I guess I'm struck most by how does this news fit into the greater constellation of current events around government and business and the relationship between government and business that is changing the United States.
• 1:52
  SPEAKER_00: I think this is one data point uh that helps us understand how the relationship between the U.S.
• 1:59
  SPEAKER_00: government and industry is changing in this administration.
• 2:01
  SPEAKER_01: Aaron Powell That is that is an interesting point.
• 2:03
  SPEAKER_01: I and I I I I actually agree with you entirely.
• 2:06
  SPEAKER_01: And I I'm not sure if circumstances were different than they are today that we would have seen that we would be at the current state uh that we are at today.
• 2:19
  SPEAKER_00: 100%.
• 2:20
  SPEAKER_00: But I wonder if I push it back to you, so so I have all kinds of thoughts.
• 2:24
  SPEAKER_00: I'm excited to bounce off you on sort of the recent history, 2023 and beyond.
• 2:29
  SPEAKER_00: But I wonder, you know, what do you think about the longer lead up with your long history in railroading?
• 2:33
  SPEAKER_00: Has this been inevitable?
• 2:34
  SPEAKER_00: Is this something that you saw coming for a while?
• 2:37
  SPEAKER_00: Or how do you see the network of or the linking of these two companies in the longer history of the industry?
• 2:43
  SPEAKER_00: Was this always going to happen?
• 2:45
  SPEAKER_01: Yeah, it's it's a it's a good question, David.
• 2:48
  SPEAKER_01: Uh, and I'll I'll separate I'll uh what I'll what I'll do here is I'll separate my deeply rooted personal experience as a former employee of Norfolk Southern and put that to the side for for a minute and talk a little bit more broadly around how the the networks kind of operate today.
• 3:02
  SPEAKER_01: I think um that the question that you asked what around it really being an inevitability.
• 3:08
  SPEAKER_01: I think for probably the past 20 years, I think the majority of folks, whether they sat in academia or the government or even in industry, would have probably said no, mainly because of the STB's role and kind of it being left over from the ICC, which was born from the fact that railroads historically, since their origin, have either held substantial market power or have manipulated the markets in a way back in the history.
• 3:36
  SPEAKER_01: I'm not saying today, but but that was there was an origin uh about barons and and stock trading that um that is somewhat nefarious and not exactly um well thought of and like the public domain.
• 3:49
  SPEAKER_01: So I think the idea of railroads increasing their market power through another major consolidation was was a little bit heresy, to be honest with you, right?
• 4:02
  SPEAKER_01: I mean, that you know, the last major consolidation was was really the breakup of Conrail between Norfolk Southern and CSX.
• 4:09
  SPEAKER_01: And and to a certain extent, that that actually lifted some markets where where Conrail operated.
• 4:15
  SPEAKER_01: And I think if you kind of talk about it from a railroad perspective, it it did kind of create some barriers because you now have uh you now have multiple different railroads that are kind of engaging with one another over different sets of track, and the technology may or may not be equitable.
• 4:30
  SPEAKER_01: Um more recent example that we had that that was adopted under a different set of merger rules, which is the combination of Canadian Pacific and Kansas City Southern.
• 4:39
  SPEAKER_01: Um, but even there, it felt as if we were engaging with two large entities and that the summation of that was still the smallest class one.
• 4:48
  SPEAKER_01: And the network overlap wasn't such that you you felt that the market power was was was substantially moving in a negative way.
• 4:58
  SPEAKER_01: And in fact, it actually felt like because of you know, quote unquote single line service along the NAFTA lines, you actually got better velocity and faster throughput.
• 5:06
  SPEAKER_01: This one, the size alone from a dollar figure.
• 5:10
  SPEAKER_01: I mean, I mean, it is the biggest acquisition obviously to date into into 2025, but I think in recent history, this is this is a fairly sizable one.
• 5:19
  SPEAKER_01: The challenge is does this actually help shippers?
• 5:24
  SPEAKER_01: And I think that is the question we are all trying to figure out.
• 5:28
  SPEAKER_01: I I think I have a hard time arguing that a combination in this way gives shippers more opportunities, at least at a high level and kind of like looking on a map, because those opportunities generally existed as they already were.
• 5:45
  SPEAKER_01: I think the real item around competition is not intra-rail competitive competition.
• 5:50
  SPEAKER_01: I think it's between rail and truck.
• 5:52
  SPEAKER_01: And does the single-line service, the lack of long handoffs here in Chicago or in other interchange points, does that allow you to actually compete more effectively with truck with the natural economies of scale and a faster transit time?
• 6:07
  SPEAKER_01: That that is an exciting proposition from my perspective.
• 6:10
  SPEAKER_00: So so I hear what you're saying that there may be sort of in the public discourse and maybe among shippers concerns about, well, does this serve us?
• 6:19
  SPEAKER_00: And maybe the longer history you alluded to of um railroad monopolies.
• 6:23
  SPEAKER_00: But could you maybe describe why does it make sense if you're a railroad?
• 6:27
  SPEAKER_00: Like why does UP want this connection?
• 6:30
  SPEAKER_00: What does it do for them, you think?
• 6:31
  SPEAKER_00: And I know you've operated these systems, so I imagine you have a pretty hands-on sense of what problems it stands to solve.
• 6:38
  SPEAKER_01: Yeah, it's uh it's it's interesting because I think you with with with your very decorated history of looking at problems to solve, naturally are approaching this as looking at as this is we're actually like solving a very specific problem.
• 6:53
  SPEAKER_01: I think from just the way that the market has kind of evolved, especially within the freight space over the past 36 months, this is less of a solution to a problem and more of an opportunistic play.
• 7:08
  SPEAKER_01: I think one of the really interesting things that I have actually grown to admire as this process has gone on is um the railroads back in 2018 to 2019, and I don't have the exact numbers up in front of me, but all seven of the big class ones at the time um kind of began talking much more about growth.
• 7:29
  SPEAKER_01: And the word growth or growth-related phrases on earnings calls and investor conferences and shipper conferences, it started kind of building.
• 7:39
  SPEAKER_01: And uh, if you look back historically at that time, volumes were also beginning to really, really grow up.
• 7:45
  SPEAKER_01: And so there was a sense that growth is good, our networks are expanding, revenues going really great, and pricing power is obviously in a really good spot.
• 7:52
  SPEAKER_01: And the challenge is with that, cost also started to rise.
• 7:56
  SPEAKER_01: And so the precision schedule railroading and some other items look to kind of control those costs as kind of a natural deterrent.
• 8:02
  SPEAKER_01: But one of the things is that you all know from a lot of your studies cost is a lever that you only get to pull once or twice.
• 8:11
  SPEAKER_01: So effectively, that lever goes all the way down and you can extract more value to return back to shareholders, but only so far on the cost lever.
• 8:18
  SPEAKER_01: And so once you tamp down the cost, the only lever you have is revenue.
• 8:22
  SPEAKER_01: And so obviously, in the buildup to COVID in 2020, things were as if you were a freight operator during that time, your PL looked amazing.
• 8:34
  SPEAKER_01: Amazing.
• 8:35
  SPEAKER_01: However, as we all know, post-2020 and kind of the the downturn that followed there, um, you may have constrained all your costs that you possibly can.
• 8:45
  SPEAKER_01: The lever that you have for an operating ratio standpoint or maybe a revenue side is pretty limited.
• 8:50
  SPEAKER_01: Like you're you're market dependent at that point.
• 8:52
  SPEAKER_01: And so I look at this, this combination of the Union Pacific and Nordic Southern as a continuation of people looking around the table and talking about growth.
• 9:01
  SPEAKER_01: Um, the the number of times that it was mentioned pre-COVID to now post-COVID, it's not even comparable.
• 9:06
  SPEAKER_01: We're talking hundreds of times a year.
• 9:08
  SPEAKER_01: Railroads will talk about growth.
• 9:10
  SPEAKER_01: And candidly, for me, the way that Union Pacific has played this out, it was an aggressive, all gas, no-breaks approach is that I think they view this as if we can't grow organically, we might as well figure out another way to go get growth.
• 9:24
  SPEAKER_01: And this is one way that when you look back at the PL in 24 months, assuming it closes, it's a good growth story.
• 9:31
  SPEAKER_00: You know, that makes sense of a riddle that's been in my mind.
• 9:33
  SPEAKER_00: And we've been sort of talking about around the shop, if you will, that like, why now?
• 9:38
  SPEAKER_00: You know, like why, like, particularly, you know, right now as we sit here in the summer of 2025.
• 9:44
  SPEAKER_00: And and so it sounds like I hear you framing the story as the the smartest move available was to buy growth, if you will.
• 9:51
  SPEAKER_00: And this was the most opportune time to get that purchase approved by the Surface Transportation Board.
• 9:58
  SPEAKER_00: Right.
• 9:58
  SPEAKER_00: Do you agree with that hypothesis?
• 10:00
  SPEAKER_01: Yeah.
• 10:00
  SPEAKER_01: David, when when you think about the landscape um from a public policy standpoint, let's put aside railroad performance and and financial performance and investor interest for the moment.
• 10:11
  SPEAKER_01: When we think about just the environment, what do you feel like is changed from the government standpoint, at the regulatory standpoint, kind of how has that evolved?
• 10:20
  SPEAKER_00: I'm glad you you took it that way because that's really where my thinking started.
• 10:24
  SPEAKER_00: And it sounds like it's lining up or on the tracks with uh what you described as the history leading up to the present moment.
• 10:31
  SPEAKER_00: I really think for me, you know, the the history or the current history that lays out in my mind is I first start thinking about the Trump administration's approval of the U.S.
• 10:41
  SPEAKER_00: steel merger in February 2025.
• 10:43
  SPEAKER_00: And I say that because only weeks before, really before the current administration came into office, the the Biden White House had disapproved of that merger, had canceled it by executive order.
• 10:56
  SPEAKER_00: Trump comes in within weeks and says, no, we're doing it.
• 10:58
  SPEAKER_00: And I guess to me, as I sort of put the pieces together and what might have been going on in UP's mind, is you say, you know, they were looking for an opportunity to grow through merger.
• 11:09
  SPEAKER_00: I feel like that was a very clear signal and perhaps one aptly read by the UP team to say, this team will play ball.
• 11:16
  SPEAKER_00: Like this Washington administration may be our highest probability shot at merger approval.
• 11:22
  SPEAKER_00: So to my mind, it's it's a way of evidencing uh the relationship that this new administration wants to have with major industries.
• 11:30
  SPEAKER_00: The the note there, and and maybe we'll kind of get into it as we think more about the the evolution of this, because we're still at the beginning of it, is you know, if if you ask me, you know, Dave, what do you think they did brilliantly?
• 11:43
  SPEAKER_00: I think it was reading the tea leaves to see the potential for this opportunity and being a first move, taking the opportunity to see his first mover advantage.
• 11:50
  SPEAKER_00: What I wonder though, and where I think this plays out going forward, is so we do have precedent for pro-business positions in this administration.
• 12:00
  SPEAKER_00: We also have precedent for to get that merger approved, this team will take its pound to flush.
• 12:06
  SPEAKER_00: And so, you know, when I think about like how is U.S.
• 12:08
  SPEAKER_00: Deal approved, it was approved with a golden chair for the president himself.
• 12:13
  SPEAKER_00: You know, I think in in this, you know, maybe just more of my own personal take, but to something that's on my mind.
• 12:19
  SPEAKER_00: You think about other mergers that have been treated favorably in this administration, uh, Skydance Paramount, how is that approved?
• 12:26
  SPEAKER_00: That came with concessions.
• 12:27
  SPEAKER_00: That came with concessions to how journalism will be practiced.
• 12:31
  SPEAKER_00: And there's some speculation that that came with canceling of television shows uh at the discretion of the White House.
• 12:37
  SPEAKER_00: I don't know for sure that that's true, but you know, people may have seen some of the speculation on that latter claim.
• 12:42
  SPEAKER_00: But my my point is I get the idea that this gets approved.
• 12:45
  SPEAKER_00: I just don't know if everyone has thought through the pound of flesh that this administration will take from the new mega railroad to approve the merger that could end up having government involved in this system in a way that we've not previously seen.
• 12:57
  SPEAKER_01: Yeah, I I think you raise you raise a good point because the the shippers organizations, and I think some of the major shippers that themselves have already come out in response to this in a generally not optimistic manner.
• 13:12
  SPEAKER_01: And I think from what I'm seeing from some of the unions, not optimistic as well.
• 13:17
  SPEAKER_01: And so I think many on both sides have actually said likely to be that that there is potentially a path, but it will require some some concessions.
• 13:25
  SPEAKER_01: I don't know if that will be a revival of reciprocal switching or inner switching, or if there will be um other items that the the NITL or some other organizations actually say that they they want to enforce upon the railroad to allow the merger to go through.
• 13:42
  SPEAKER_01: That that will be it will be interesting because I think one of the very lingering concerns that that I, after listening to the the the Norfolk Southern conference call that was kind of a Union Pacific conference call about their second quarter earnings, there are roughly around 20,000 spoken words.
• 14:01
  SPEAKER_01: And quite a few of them were actually spoken by Jim Venna, not by Mark George, the CEO of Norfolk Southern.
• 14:06
  SPEAKER_01: It is interesting when you dig into it that Shipper was only mentioned three times.
• 14:11
  SPEAKER_01: So out of 20,000 spoken words, Shipper was only brought up three times.
• 14:15
  SPEAKER_01: No, they did they did mention customer roughly around 60 times, but you know, there's a lot of a lot of dialogue there that the the customer has not been included upon.
• 14:23
  SPEAKER_01: And so I wonder what that does mean for future relations, um, market access, competitive rates.
• 14:30
  SPEAKER_01: I I think it it does raise a ton of concerns.
• 14:34
  SPEAKER_01: But I think as you were kind of saying, like it was an aggressive move.
• 14:38
  SPEAKER_01: Kudos to the entire team at Union Pacific.
• 14:40
  SPEAKER_01: Jim Venna has been on record for many, many, many years and many months more recently about being pro uh merger, and they took the opportunity to go after it.
• 14:50
  SPEAKER_01: If I if I put back on my employee hat, it was nearly 10 years since the last attempted takeover of Norfolk Southern.
• 14:58
  SPEAKER_01: It was originally spurned by Bill Ackman, Paul Halal at Pershing Square, and Hunter Harrison attempting to come in.
• 15:05
  SPEAKER_01: And it was uh it was a very different attitude at the company.
• 15:10
  SPEAKER_01: And I I candidly was surprised at um there seemed to be no pushback on this one.
• 15:16
  SPEAKER_01: And so that that's uh I think that um that that is an interesting uh I think just kind of takeaway as well.
• 15:24
  SPEAKER_00: No, it's very interesting.
• 15:25
  SPEAKER_00: And and I guess two things in the concession space I would highlight there, because I to my mind they're both fascinating.
• 15:31
  SPEAKER_00: And in you know, people who personally opt to listen to a podcast like this one might also think that freight things like this are especially interesting.
• 15:38
  SPEAKER_00: Uh the first one on the the concessions related to competitive position that the STB may demand.
• 15:45
  SPEAKER_00: And in, you know, I I've seen that same commentary that, okay, well, if you're we're gonna the idea is that provers will say we cannot approve this if it hurts competition.
• 15:54
  SPEAKER_00: So we are going to really uh protect competitive um forces around the country in the event of this merger.
• 16:02
  SPEAKER_00: We're not gonna let this mega railroad take over everyone's business.
• 16:04
  SPEAKER_00: The fascinating thing there is that that's essentially asking for the SDB to take a light hand to merger approval, but a strong hand to post-merger railroad interchange agreements.
• 16:20
  SPEAKER_00: I don't know if you can expect it to work both ways, frankly.
• 16:23
  SPEAKER_00: And the other side of the concession is that so so those are the expected course of business, railroad business concessions that I think should be on the table exactly as you described.
• 16:32
  SPEAKER_00: I guess my broader point is that I see every reason to believe there's going to be some out-of-left field concession posed on this, because that's what we saw with U.S.
• 16:41
  SPEAKER_00: Steel.
• 16:41
  SPEAKER_00: That's what we saw with Skydance Paramount.
• 16:43
  SPEAKER_00: I I don't know what it will be, but I think it could really be a curveball that you know those of us who are looking strictly at the logistics business won't see coming.
• 16:52
  SPEAKER_01: I think if we've learned nothing in the past, I don't know, 36 months of everything that's happening in the broader freight space, it is that it is absolutely to expect the unexpected.
• 17:01
  SPEAKER_01: And I think as we even opened, this was not something that was really on anybody's radar.
• 17:07
  SPEAKER_01: I I think again, going back 10 years ago, I think two chairmen of the STB ago, they gave a chance of another big merger at like 20, 25, right?
• 17:18
  SPEAKER_01: Like they there wasn't a lot of sentiment that that there was a belief that this was potentially going to happen.
• 17:22
  SPEAKER_01: And so one of the things that I I continue to keep coming back to is we we definitely live in exciting times.
• 17:30
  SPEAKER_01: The question now becomes you're gonna satisfy the shareholders.
• 17:37
  SPEAKER_01: A lot of questions about the employees on on both sides, right?
• 17:41
  SPEAKER_01: Because there will be plenty of I think redundancy.
• 17:45
  SPEAKER_01: I mean, I how many how many people do you do do you need doing the same work on a on a much big bigger enterprise?
• 17:50
  SPEAKER_01: I don't know.
• 17:50
  SPEAKER_01: There, there's some questions there.
• 17:52
  SPEAKER_01: Um, but I think I at the end of the day, what it what it comes down to is I think you know, shippers that have single line access today, if they ship interline, so if they're going west to east or east to west, they can at least have two options on kind of a rule 11 combination, right?
• 18:08
  SPEAKER_01: So if I'm shipping off of Norfolk Southern and I'm shipping to the West Coast, generally speaking, I oftentimes have two options that I might be able to pick for all.
• 18:18
  SPEAKER_01: I think just basic math, some of those, some of those rate opportunities may decrease just by virtue of this.
• 18:25
  SPEAKER_01: And so I think that is going to be one of one of the big considerations going forward.
• 18:30
  SPEAKER_01: And I'm not sure how you address that if you are an originating point or maybe even a destination point that is a single line service.
• 18:38
  SPEAKER_01: So if you are on the high line in Montana, there is one railroad that shows up to pick up and deliver.
• 18:44
  SPEAKER_01: And so if the uh if the options of your destination points reduce from two railroads to one, it it it it just raises some questions.
• 18:53
  SPEAKER_00: Oh, precisely.
• 18:54
  SPEAKER_00: And in as I've been working with the team to try to think about implications for shippers, it's fragmented in my mind into different buckets.
• 19:02
  SPEAKER_00: So let's say you're uh someone, you're already a UPNS customer.
• 19:07
  SPEAKER_00: Is this good news?
• 19:08
  SPEAKER_00: I think it's a big yes.
• 19:09
  SPEAKER_00: You're you're removing one layer.
• 19:11
  SPEAKER_00: That's perfect.
• 19:12
  SPEAKER_00: What if you're an existing UP CSX customer?
• 19:17
  SPEAKER_00: I think it's a big question mark for all the reasons you describe.
• 19:19
  SPEAKER_00: You know, I mean, potentially there will be no change to how I'm serviced as a CSX customer feeding into the mega railroad.
• 19:27
  SPEAKER_00: But that again depends on sort of this angelic STB that's light on the merger regulation but heavy on the interchange agreement regulation.
• 19:34
  SPEAKER_00: Right.
• 19:35
  SPEAKER_00: Not sure that that plays out.
• 19:36
  SPEAKER_00: The third one that I think is so interesting is say, okay, but what if you're a truck customer?
• 19:41
  SPEAKER_00: What if you're a shipper who uses truck?
• 19:43
  SPEAKER_00: You're not thinking about rail.
• 19:45
  SPEAKER_00: Does this make you any more likely to think about rail?
• 19:48
  SPEAKER_00: The answer in my mind right now, and very curious to hear your answer, or you know, anyone listening who has has developed thoughts here, but I think it's a plus.
• 19:56
  SPEAKER_00: I mean, I think as we've talked about what are some of the reasons that people ship freight on truck over rail, a lot of times I think it's maybe they feel that the rail network is overly complicated compared to truck, and the merger potentially makes it simpler.
• 20:12
  SPEAKER_01: Yeah, I I uh I agree with you here because if we if we think about it from just like a pure consumer standpoint, and if you think about it, that consumer mindset walking into the role of procurements uh of a procurement executive um that is managing billions in shipper spend and that transportation portfolio of SKUs heavy truck.
• 20:33
  SPEAKER_01: Generally speaking, unless there's an exception, truck is a fairly straightforward value, right?
• 20:39
  SPEAKER_01: It is a driver, a cab, and a piece of equipment, and an origin and a destination, and some constraints around expectations for appointments and transit time.
• 20:47
  SPEAKER_01: Rail is actually a step function or two much more complicated than that.
• 20:51
  SPEAKER_01: And if we think about it, right?
• 20:52
  SPEAKER_01: And and candidly, I don't know about you, but that's why I think the industry is so meaningful and so interesting and so much fun to work in.
• 21:00
  SPEAKER_01: I think the the challenge is going to be, and this is what every transportation company struggles with when they have a new initiative or they're they're doing something new, is explaining and making it particularly meaningful for the for their customer.
• 21:15
  SPEAKER_01: And absent that, it's really hard to get excited about what feels like an expansion of market power.
• 21:23
  SPEAKER_01: But I think there is an opportunity here to explain the why and actually get in front of customers and help them understand um how you're how you're gonna you're gonna manage this new service offering.
• 21:34
  SPEAKER_01: The challenge is have you done what you said you were gonna do for the past 10 years?
• 21:40
  SPEAKER_00: And and can you convey that to people who have a quick other option to just put it on a truck?
• 21:46
  SPEAKER_00: Correct.
• 21:46
  SPEAKER_00: You know, like you don't get an hour, you don't get to write a book.
• 21:48
  SPEAKER_00: Like I think you're gonna do it.
• 21:49
  SPEAKER_00: Yeah, no, no, no, no.
• 21:50
  SPEAKER_00: Very quickly achievable.
• 21:51
  SPEAKER_00: I just reminds me of um when I was doing projects in you know ocean shipping and we were uh arranging logistics for moving things from Port, you know, to somewhere in the interior of the country.
• 22:02
  SPEAKER_00: And oftentimes the European Ocean shippers would say, Well, this data can't be wrong.
• 22:06
  SPEAKER_00: You're not sending anything across the United States on truck, are you?
• 22:09
  SPEAKER_00: Rail is far superior to we are.
• 22:12
  SPEAKER_00: Like I do believe that Rail has all of the uh efficiencies that you're looking for, both in terms of cost and environmental efficiencies, but to a lot of shippers, it's just not as convenient for them to execute.
• 22:24
  SPEAKER_00: And they've got a lot of things to execute in their workday.
• 22:27
  SPEAKER_01: Right, right.
• 22:28
  SPEAKER_01: And uh in a truck market that has widely available capacity and nearly historically low rates, uh, I think that is a very, very big consideration for railroads, whether they're merging or not merging.
• 22:41
  SPEAKER_01: If you are if you are truly committed to growth, not through just mergers and acquisitions, um, there's a very clear path there that you if you set yourself up well, we'll be there long after this freight recession ends.
• 22:54
  SPEAKER_00: On that, I wonder if I could kind of push you to prognosticate a little further out.
• 22:58
  SPEAKER_00: So, you know, if I think we're both sort of in um agreement or or seeing things the same way, that this particular merger made a lot of sense to the UP team.
• 23:09
  SPEAKER_00: And it seems like they quite cleverly read the tea leaves to take a first mover advantage there, you know, with my caveat about some concessions that may come down the road.
• 23:17
  SPEAKER_00: Uh so then do you think this means, well, of course, we're gonna see another merger?
• 23:21
  SPEAKER_00: Does the other shoe drop right away, or what is your sense of timeline there?
• 23:24
  SPEAKER_01: Yeah, that that's uh it's um so again, kudos to the UP team because they they they did they did their homework, right?
• 23:31
  SPEAKER_01: When they looked at their network and the potential fit with maybe another East Coast provider and what that would do from a mix standpoint, from traffic, from revenue per unit, right?
• 23:41
  SPEAKER_01: The NS relationship makes a ton of sense.
• 23:44
  SPEAKER_01: I think it creates some particularly hairy um relationships, especially for some of the domestic and international intermodal carriers, um, that they may have some very exclusive or long-term contracts with certain providers.
• 24:00
  SPEAKER_01: I think the uh the other interesting item is does this force another action to happen?
• 24:07
  SPEAKER_01: And what what I would say is I definitely had the sense along the way that the Union Pacific team at every step, when it was just a rumor, when it was a little bit of a rumor, when it was more than a rumor, that they were, I think, looking south to Texas to see if there was going to be a move, there was gonna be some activity.
• 24:27
  SPEAKER_01: And um, we we haven't seen anything yet.
• 24:30
  SPEAKER_01: I don't think that one move here means that there will substantially be another move here.
• 24:36
  SPEAKER_01: I do have a ton of questions about a competitive position.
• 24:39
  SPEAKER_01: If two link up and the other two are then kind of left independent, from just like a network reach and a velocity and all the other value props that we've talked about in this merger, I do wonder um what it is like to remain independent and not have as much network reach as you potentially would have in a merger.
• 24:58
  SPEAKER_01: I think the challenge is, as you were just saying, is the second that you create a certain set of rules and a regulatory environment for one, that may potentially just invite another one.
• 25:09
  SPEAKER_01: And so we we may actually be much closer to an interesting end game than we anticipated two weeks ago.
• 25:15
  SPEAKER_00: And in that end game, I think is unclear how helpful it is to anyone but the railroads.
• 25:23
  SPEAKER_00: And I guess I bring that up in the sense that, like, you know, is a potential duopoly better for customers, for shipper customers?
• 25:32
  SPEAKER_00: You know, I think there's you know one school of thought that says, well, yeah, they'll be going head to head.
• 25:36
  SPEAKER_00: And then, you know, that competition will improve service levels and innovation and costs.
• 25:41
  SPEAKER_00: But as I've been thinking about that and looking forward to our conversation, I think a highly um diverse industry, bigger than a duopoly, lots of players, does breed innovation.
• 25:52
  SPEAKER_00: I don't know that a duopoly does.
• 25:54
  SPEAKER_00: I mean, I don't know that Coke and Pepsi are our most innovative beverage brands just because they're going head to head.
• 26:00
  SPEAKER_00: The innovation comes from the smaller players.
• 26:02
  SPEAKER_00: So I'm a little bit in the camp of the notion that having two major players compete head-to-head services customers better.
• 26:10
  SPEAKER_00: I'm not convinced, but I think, you know, there are people who who do see that argument as well.
• 26:14
  SPEAKER_01: Yeah, I I as a as a former railroader, I want to believe that um the potential tie-up and having a duopoly does create very clear um comparables.
• 26:26
  SPEAKER_01: I I think that I I want to believe that that those things are true, but I think you make a really good point, right?
• 26:31
  SPEAKER_01: I think Uber and Lyft were were better and more aggressive in some of their feature rollouts and and and offerings or market expansion when they face competition everywhere, right?
• 26:42
  SPEAKER_01: Um when we think of in going back to your beverage example, the majority of the beverages that are getting acquired by the bigger brands are the beverage organizations that are offering something new, something different, and gaining market share there.
• 26:56
  SPEAKER_01: And so that's where the innovation is actually coming from, not from the dominant, well-established players.
• 27:02
  SPEAKER_01: And I think more often than not, you hear from consumers that they're trying all these other products because their their needs are actually getting met.
• 27:10
  SPEAKER_01: And so I think you you you raise such a good point there.
• 27:13
  SPEAKER_01: I want to be an optimist and believe that I think there there are some there's some good things to to come from it.
• 27:18
  SPEAKER_01: Um, but I I gotta be honest with you, I think that the Olympics tends to have multiple people from multiple nations competing because it tends to produce the best outcome.
• 27:29
  SPEAKER_00: I I I really think so too.
• 27:31
  SPEAKER_00: There's a certain type of complacency that exists in a highly concentrated industry, even if there's multiple players and even if it's short of collusion.
• 27:40
  SPEAKER_00: I just think that that creative fire, for whatever reason, and and and it could just be that people are busy doing other things, isn't there in the same way it is when you have a uh a universe of smaller players, you know, trying to meet the goals, the needs of the same customers.
• 27:55
  SPEAKER_00: I I wonder if you have a thought on thinking through, let's say, through the end of the year.
• 28:00
  SPEAKER_00: So um, and I asked this because we're working on our Q4 market outlook and looking at the data and coming up with predictions.
• 28:06
  SPEAKER_00: And, you know, I I think we'll come up with something that that our models are looking really accurate.
• 28:11
  SPEAKER_00: But the sort of underpinning all of that is I think one has to make a call on what do they think the next half of the year looks like in the freight market?
• 28:20
  SPEAKER_00: Could it turn around?
• 28:22
  SPEAKER_00: Could it, you know, we come out of this now three-year-long freight recession?
• 28:26
  SPEAKER_00: Could, you know, there's actually been some positive economic indicators over the last several months.
• 28:31
  SPEAKER_00: Could those continue to move up?
• 28:32
  SPEAKER_00: Or there's a school of thought that says this trade war stuff is going to finally hit its head and we're going to hit real economic decline.
• 28:41
  SPEAKER_00: Let's say, you know, it's it's either very rosy or very pessimistic.
• 28:46
  SPEAKER_00: Do you think those paths influence the potential for approval of the merger or potential for the second merger happening?
• 28:54
  SPEAKER_00: If things are going gangbusters, does that mean it's more likely we're going to be approved and we're going to get that second merger?
• 29:00
  SPEAKER_00: Or if things are falling apart economically, does that speed things up or slow things down?
• 29:05
  SPEAKER_01: Yeah, this is uh it it brings up a lot of the conversations that you and I have been having recently about um historically where we've seen inflection points on intermodal volume and car load volume.
• 29:17
  SPEAKER_01: Yeah.
• 29:17
  SPEAKER_01: And I think you you and I, as we've discussed, right, train speeds, dwell volume, they they have been kind of in a somewhat of a seasonal trend for the past two years at least, right?
• 29:29
  SPEAKER_01: And so I've often wondered if a part of the merger discussion, and maybe the reason why it gets approved, and maybe why maybe a part of the reason that shippers might shrug a little bit more than they would have in a in a prior state, is this may be about as good as it's gonna get.
• 29:47
  SPEAKER_01: This may be about as good as intermodal availability is is today.
• 29:51
  SPEAKER_01: This might be about as good as carload transits are gonna be.
• 29:54
  SPEAKER_01: And so um, to to to that respect, irrespective of the economic activity, that there may just be some support there that of all the things, of all the levers that we've run out to pull, this may be the last one that that we can.
• 30:06
  SPEAKER_01: From uh from an economic standpoint, I don't think there is going to be much one way or the other.
• 30:13
  SPEAKER_01: If things begin to really pull out and things are looking optimistic, I don't think the competitive forces either way are going to support or disprove any regulatory activity.
• 30:23
  SPEAKER_01: I think, if anything, the real concern is are railroads inching closer towards just simply being a utility versus a competitive option in the transportation space?
• 30:34
  SPEAKER_01: And that that's that's my only cautionary, non-optimistic take that I've got.
• 30:40
  SPEAKER_00: No, that that's a brilliant way to say it.
• 30:42
  SPEAKER_00: And I think that really frames up the notion of what are, if we look way out there and sort of open our lens very wide to the realm of possibilities.
• 30:54
  SPEAKER_00: One of the things we started thinking about was to me, this merger suggests a different way of railroads interacting with the US government.
• 31:02
  SPEAKER_00: And, you know, to go back to the recent U.S.
• 31:05
  SPEAKER_00: steel example, when that was merged with the golden share reserved for the U.S.
• 31:09
  SPEAKER_00: government, uh, you know, there was some clamor that, okay, great, the steel industry has been nationalized.
• 31:14
  SPEAKER_00: And people who don't like that were pretty vocal about not liking that, not liking the idea of nationalized uh U.S.
• 31:20
  SPEAKER_00: industries.
• 31:20
  SPEAKER_00: But it was interesting as an observer of economic trends and economic policy.
• 31:26
  SPEAKER_00: I I like how you said does the railroad become a utility because it sort of offers a middle ground, but a move in that direction.
• 31:32
  SPEAKER_00: Maybe it's not a nationalized system, but it is potentially more of a regulated utility than it's been even in the past as a component of approval of the merger.
• 31:44
  SPEAKER_01: Right.
• 31:45
  SPEAKER_01: I mean, yeah, there's there's a there's a lot more to come here.
• 31:50
  SPEAKER_01: I'm really excited that we got together to to be able to talk about it.
• 31:54
  SPEAKER_01: Um, if you had to say your one big takeaway, what do you what do you think it is about the Union Pacific Norfolk Southern merger?
• 32:02
  SPEAKER_00: That the rails are set in place, but the industry is still very dynamic.
• 32:07
  SPEAKER_00: This is the most exciting change happening in logistics right now.
• 32:11
  SPEAKER_00: And to me, that just proves that you know it's an old industry.
• 32:15
  SPEAKER_00: The railroad network is not moving, but the dynamics of the industry itself are are very interesting and perhaps more dramatic than people realized until this happened.
• 32:27
  SPEAKER_01: Yeah, rail has always been considered a sleepy sector, and I think uh some folks have finally woken up to see that it is uh it's a great place to be.
• 32:37
  SPEAKER_01: David, thank you for for the time.
• 32:39
  SPEAKER_01: Really excited we we got together, excited about the the the market report that we're gonna be publishing in uh in Q4 and all the great work that you're doing.
• 32:48
  SPEAKER_01: Thank you.
• 32:50
  SPEAKER_00: Hey, thank you.