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The STB Strikes Back · Talk Track by Telegraph

• 0:01
  SPEAKER_01: I'm Sydney Kryber.
• 0:02
  SPEAKER_00: And I'm Aaron Sligan.
• 0:04
  SPEAKER_00: You're listening to Don't Dwell On It, the podcast where we paused just long enough to figure out what's really moving FreightRail forward.
• 0:12
  SPEAKER_00: Let's get into it.
• 0:15
  SPEAKER_00: Here we are again for this next installment of Talk Track, where we're going to be diving into why oh why might the merger application have been denied?
• 0:27
  SPEAKER_00: And that's what we're going to be jamming through for a little bit.
• 0:30
  SPEAKER_00: So I I I've got to lead off.
• 0:33
  SPEAKER_00: Were you surprised late Friday that all of a sudden the rejection just seemed to come out of nowhere?
• 0:41
  SPEAKER_01: I I think surprised in that it, you know, it came out of nowhere.
• 0:45
  SPEAKER_01: Of course, our team started talking about it right away.
• 0:48
  SPEAKER_01: But I I don't think that I share the same conclusion that it's meaningful that many people do.
• 0:56
  SPEAKER_01: You know, I didn't expect that to come that day, but it doesn't change my overall read of the situation.
• 1:02
  SPEAKER_01: But you know, I think there's room for disagreement there.
• 1:04
  SPEAKER_00: What and your overall read of the situation is what?
• 1:09
  SPEAKER_01: Is that uh this merger will be approved.
• 1:11
  SPEAKER_01: It's already been deeply politicized, I think, at the highest levels of uh the administration.
• 1:18
  SPEAKER_01: You know, so there I'm thinking specifically about you know comments from both the President and the Commerce Secretary sort of endorsing this idea.
• 1:26
  SPEAKER_01: I think that carries a lot of weight, uh more weight than this temporary um rejection of the completeness of the proposal does.
• 1:35
  SPEAKER_01: And and to me, you know, it I think it also sends some signal that it was the the rejection itself didn't say like go away, this is a bad idea.
• 1:43
  SPEAKER_01: I think it essentially said we need a little more data.
• 1:47
  SPEAKER_01: So it it wasn't uh like a rejection with prejudice, it was a a little more due diligence, please, kind of rejection is how I see it.
• 1:56
  SPEAKER_00: You know, it's it's interesting because you're not the first person that I've talked to that has given some sort of indication that this may be a little bit of what is referred to as regulatory theater, that there was some potentially process that is is being followed, and maybe there's no explicit malfeasance, and maybe there's nothing under the surface.
• 2:21
  SPEAKER_00: But I I I found it really odd when um this broadly advertised 6,000-page application comes out, and it's really like only a like maybe a little bit over a quarter of that is actually like material, like uh you can actually like really really sink your teeth into it.
• 2:40
  SPEAKER_00: There were there were a handful of like sections that just kind of felt whisked over.
• 2:46
  SPEAKER_00: And um I think it was section 5.8.
• 2:49
  SPEAKER_00: It was really around um the applicant's assessment of the anti-competitive harms and the risks, and it just it just wasn't there.
• 3:00
  SPEAKER_00: And and so I just I thought that was odd.
• 3:02
  SPEAKER_00: I thought that like there there wasn't a very explicit offer of concessions, which I I tended to historically believe that that was something that I think was you'd kind of always come to the table, expecting that if you want this to get done, you would offer up some some concessions.
• 3:17
  SPEAKER_00: And so um, yeah, I I th those those seemed to this disappear as well.
• 3:23
  SPEAKER_00: And so I I thought that that that was odd.
• 3:26
  SPEAKER_00: How did you read a bit of that?
• 3:27
  SPEAKER_01: I I mean there's I think there's a a couple of first ways to look at it.
• 3:31
  SPEAKER_01: And in one, you know, there was some commentary um that I know we shared internally that basically said we should all keep in mind that this will be the first such application in the AI era, which means everyone who wants to scrutinize it will use their AI tools to read this large document, to summarize this document, to perform you know analyses that may have been out of the grasp of the regular reader five years ago, ten years ago.
• 3:59
  SPEAKER_01: So part of it, I think, could just be, you know, this STB, even if they are you know deeply politicized, as I've asserted, um, knows that they are also under a different level of scrutiny than they would have been ten years ago.
• 4:13
  SPEAKER_01: And so leaving this kind of thing out, everyone would have seen it.
• 4:17
  SPEAKER_01: I I think that could be part of it.
• 4:19
  SPEAKER_01: The other thing, you know, I think well well, why was it left out?
• 4:23
  SPEAKER_01: You know, I mean, I I align with the school of thought that has sort of analyzed particularly recent trade deals to see a strategic pattern was which is you don't come in with concessions, you come in really strong and let the other side of the table tell you what concessions they're gonna demand.
• 4:41
  SPEAKER_01: And I think that may have been the approach.
• 4:43
  SPEAKER_00: Yeah, no, no.
• 4:44
  SPEAKER_00: I mean that that I mean from a negotiating strategy makes a ton of sense.
• 4:50
  SPEAKER_00: I thought one of the very interesting points of many that were made at Mars last week, uh, which by the way, just another really good conference.
• 4:59
  SPEAKER_00: Um Jim Venna stood up on stage and he said a lot of things over like 50 minutes.
• 5:07
  SPEAKER_00: And it's it was really hard to kind of like distill this down.
• 5:10
  SPEAKER_00: But one of the things that actually came out, and he was it was I praise to him for just coming right out and saying, hey, UP historically, when the CPKC merger was was ongoing, UP raised its hand multiple times about um the legality, the rules that were applied, a lot of things, right?
• 5:29
  SPEAKER_00: They they kind of stood in the way, and Jim very, very in a jovial manner, in a very laughing manner, um, you know, partly this into a kind of a um a knock against the attorneys and that.
• 5:40
  SPEAKER_00: I mean, I think he said like this this is nuts, like what are we doing?
• 5:43
  SPEAKER_00: Um it it is it is interesting that now the situation is reversed where CPKC is looking down from from Calgary and you know, you know, having just gotten through a merger process with a different set of rules is now saying that you know that this the 2001 needs to be applied in the appropriate manner.
• 6:01
  SPEAKER_00: Um, and so I I I thought that was a really interesting way to to set up the conversation around what might be good for you today might not be good for you tomorrow.
• 6:16
  SPEAKER_00: Or the inverse is is what is not good for the industry today all of a sudden needs to happen.
• 6:20
  SPEAKER_00: So, for example, if the merger were to go through, and so then are we gonna have three railroads on the monopoly board?
• 6:28
  SPEAKER_00: Does does that does that still play?
• 6:31
  SPEAKER_00: And so I think I this is an area where I would really encourage, not encourage, but I I think there's some caution.
• 6:36
  SPEAKER_00: If you got two other railroads hanging out saying that merger shouldn't happen, what happens if one does?
• 6:42
  SPEAKER_01: Yeah.
• 6:43
  SPEAKER_01: But the the the other angle I would put on it is that that asked the question what's good for those railroads, and you know, sort of the implication is, well, maybe it's good for you to be open to merging in the the environment too.
• 6:57
  SPEAKER_01: There's also the question of you know what's good for shippers, and it sounds like that was part of the conversation.
• 7:03
  SPEAKER_01: But the one of the other places my mind goes, and you know, this is perhaps a little more cynical, but just to think it through, is but what's good for the SDB and what's good for the government.
• 7:16
  SPEAKER_01: And in that case, that's why this doesn't change my position, because doing this was great for them in which ways?
• 7:25
  SPEAKER_01: One, there's the regulatory theater component, and not to say that's for sure what's happening, but you certainly, as the SDB, want to have the public impression that you are thorough, and this buys you that.
• 7:39
  SPEAKER_01: Secondly, uh, if you know one contribution to the ballroom from UP wasn't enough, this is a way to open that book up for more contributions from other players who thought that they were going to change the decision through white papers.
• 7:57
  SPEAKER_00: Or strongly worded letters.
• 7:59
  SPEAKER_01: Or strongly worded letters, this kind of says, well, actually, we're you know taking more solicitations.
• 8:05
  SPEAKER_01: And you know, thirdly, I think this when I think about the people who reached the impressive career point of being on the STB, these are people who have navigated the halls of government well and amassed power successfully.
• 8:24
  SPEAKER_01: One way to amass power here would be to assert your power with something like this to basically show I can change the world too.
• 8:34
  SPEAKER_01: It's not just the White House and it's not just UP.
• 8:36
  SPEAKER_01: And this move essentially displays and exercise that power.
• 8:42
  SPEAKER_00: When you said you were skeptical, you really you really made that known there.
• 8:47
  SPEAKER_00: And like I I think you and I are articulating many things that have been shared and said to us and the halls of conferences and calls.
• 8:56
  SPEAKER_00: Yeah, there's there's like I think we're we're mainly bringing to the surface a lot of concern that folks just tend to have.
• 9:03
  SPEAKER_00: And I think we we spend a lot of time talking about the railroad's perspectives and what's good for the railroad.
• 9:08
  SPEAKER_00: I think when I really come down, and I and I and I I just think like I think about the SP merger and I think about kind of what happened after after that, and then I think more recently around Conrail and how many cars seem to be missing months later after that.
• 9:27
  SPEAKER_00: And then you know the the CPKC merger was was better, it was smaller, it was better, and but there were still hiccups there.
• 9:34
  SPEAKER_00: I think that the idea and this um and this belief that there is going to be efficiency, I 100% sign up for.
• 10:14
  SPEAKER_00: I think the reality is that we're not 100% sure that that is the way that this is being modeled up and offered.
• 10:20
  SPEAKER_00: Where it's being modeled up and offered is it's gonna be more efficient, but efficiency comes in many different ways in this industry, and I think with CSX's earnings that came out yesterday and the uncertainty about the macroeconomic conditions, they're not committing to a growth strategy.
• 10:33
  SPEAKER_00: They spent many minutes talking about how they're going to reduce costs, and so I think that's uh that that is a big question for me around that.
• 10:41
  SPEAKER_00: And then I think if you take all of this consolidation that's happened, why has rail lost share in the past decade?
• 10:51
  SPEAKER_00: So if the cost if the consolidation actually drove efficiency, if the consolidation actually brought true benefits of the shippers, then the shippers would would recognize that benefit and he should send more to rail.
• 11:01
  SPEAKER_00: So I think that is a giant unanswered question.
• 11:04
  SPEAKER_00: Um, that unfortunately, with the way the merger was rejected, I don't think anyone has challenged the applicants to respond in that way.
• 11:15
  SPEAKER_01: That's really interesting.
• 11:16
  SPEAKER_01: Yeah, gosh.
• 11:18
  SPEAKER_01: You know, it it makes me think, and this will be a a a sunnier angle than the than my previous one that was more sort of driven by uh probably, you know, um strategies of personal power.
• 11:32
  SPEAKER_01: I do very much believe that America is unique in freight railroading in several ways.
• 11:39
  SPEAKER_01: You know, and one is that we don't really have national champions.
• 11:43
  SPEAKER_01: Like all great components of American ingenuity, we have a bunch of self-interested actors who find clever ways to work together and get things done cheaper, better, faster.
• 11:54
  SPEAKER_01: And we've always done that in railroading and in all forms of industry.
• 11:58
  SPEAKER_01: And so, you know, if I get particularly skeptical of the regulatory side of the picture, I think in the end, you know, you might be right that this merger does get things done quicker, better, faster.
• 12:13
  SPEAKER_01: And if it does, the market will reward it, and that's what will succeed.
• 12:17
  SPEAKER_01: And if it doesn't, because we don't have national champions, we don't have, you know, an American government-owned freight railroad, the more competitive option will be the one that wins the day.
• 12:29
  SPEAKER_01: And so there's some optimism to my mind that you know there's a lot of ways for railroads to solve the problem of I need to get something from A to B, but I don't have the track that connects those two.
• 12:40
  SPEAKER_01: Maybe owning the other railroad is the solution, as is asserted here in the UPNNS merger.
• 12:46
  SPEAKER_01: I think they'll have the opportunity and the burden of market competition to show if that's the case.
• 12:51
  SPEAKER_01: And if it's not, we'll all know.
• 12:54
  SPEAKER_00: Yeah, that is uh that's a that's a pretty salient point.
• 12:57
  SPEAKER_00: I think one of one of the things that I continue to come back to is that if if the merger were to were to act in the way that was universally, yes, beneficial to the companies and the shareholders, but ultimately the shippers who then pay the bills, which reward the shareholders, right?
• 13:13
  SPEAKER_00: Um this all makes sense and in fact probably should be approved.
• 13:17
  SPEAKER_00: And I and I think like if it does all the things that it purports to do, man, like we it probably can't happen fast enough, especially if you're a shipper that is currently being served by Unit Pacific or North Norfolk Southern.
• 13:27
  SPEAKER_00: I think one of the really interesting counterpoints that I heard once, and it was one voice out of many that were um that were very much against the idea of of what is happening, was there there was a shipper that said, look, I've got facilities that are served by Uni Pacific, one served by Norfolk Southern, one served by CSX, and one and a couple served by BNSF.
• 13:50
  SPEAKER_00: I'm I'm fine with it because I'm already getting treated in a way that I I don't love my my rates continue to go up, and there's a CEO who stood up on stage and said, Yeah, maybe rates actually haven't gone up fast enough.
• 14:01
  SPEAKER_00: Maybe they're they're actually not high enough relative to inflation.
• 14:04
  SPEAKER_00: And so even after that, the shipper comes out and and says, like, I mean, there are not a lot of things I can personally control.
• 14:12
  SPEAKER_00: What I what I would expect is that if this is a path to give me better service, if this is a path to give me something more reliable, I'm absolutely all for it.
• 14:21
  SPEAKER_00: And it was just really that was a very counterintuitive lens with which to to think about it.
• 14:26
  SPEAKER_00: And um, I I think that's probably something you you and I are echoing as well.
• 14:30
  SPEAKER_00: It's like if that's the end result, and it does have benefits from for shippers, let it shine.
• 14:37
  SPEAKER_00: Let it let it all come down.
• 14:38
  SPEAKER_00: And I think kind of kind of going backwards to some of the conversation about like the watershed and um you know all of those other things.
• 14:46
  SPEAKER_00: I I think there was some analysis that um like some of these gateways and everything that you know we're talking about getting some reach into, it's such a small fraction of business today that it's hard to say that is like statistically significant that it's gonna change the competitive landscape.
• 14:59
  SPEAKER_00: So I I think um all of these things are gonna be hopefully coming out sooner rather than later.
• 15:05
  SPEAKER_00: I I do think that they will refile soon.
• 15:09
  SPEAKER_00: I don't think they're gonna they're gonna wait around much longer because I I think this is gonna get adjudicated and rolled upon and there will be multiple cycles.
• 15:17
  SPEAKER_00: So it's it doesn't benefit them to wait three months to do like additional analyses.
• 15:21
  SPEAKER_00: They just need to do enough to get a refile.
• 15:23
  SPEAKER_00: That that's my perspective.
• 15:24
  SPEAKER_00: How about you?
• 15:25
  SPEAKER_01: No, and and and I I think for sure they will refile and everything we said about, which I do think played a role here, that you know, every person's access to computing tools that they didn't have in the last merger applications exists on the other side too.
• 15:39
  SPEAKER_01: That the ability to run some of the analyses that they need to do to make this more complete, uh those things are much more attainable in a shorter time frame than I think they were before.
• 15:47
  SPEAKER_01: So I think this thing comes back fast.
• 15:50
  SPEAKER_00: So, David, to kind of wrap this up, let's break this up in kind of three things.
• 15:55
  SPEAKER_00: What do we think will happen?
• 15:58
  SPEAKER_00: What do we maybe want to happen for personal or professional or like on behalf of shippers?
• 16:04
  SPEAKER_00: And then finally, what is something that the audience probably might be a little curious or concerned with that they should not be concerned about?
• 16:12
  SPEAKER_00: I I'll lead it off.
• 16:13
  SPEAKER_00: What what do I what do I think is gonna happen?
• 16:16
  SPEAKER_00: I I think this is all going to get approved.
• 16:19
  SPEAKER_00: I I think maybe the timeline doesn't really feel like a 2027 implementation.
• 16:26
  SPEAKER_00: I I think I think that we we gotta we're gonna have to go through a few more cycles.
• 16:28
  SPEAKER_00: I think it's gonna it's just gonna take longer than what we anticipate.
• 16:31
  SPEAKER_00: What what do I want to happen?
• 16:33
  SPEAKER_00: I I just want anything that happens within the rail industry to get a true and fair examination from the perspective of the rules as they are written today.
• 16:44
  SPEAKER_00: I I really like if we're gonna write things down and we're gonna hold ourselves to them.
• 16:48
  SPEAKER_00: I I I like actually that bit of accountability.
• 16:51
  SPEAKER_00: And so if the the the measure is preserve and enhance competition, which really is rail to rail, I I just want us to evaluate things against that.
• 17:03
  SPEAKER_00: So that that's what I'm I'm desiring.
• 17:04
  SPEAKER_00: What do I what do I not what what what I believe shippers probably shouldn't worry about too much?
• 17:10
  SPEAKER_00: Look, folks, I I don't think any of these companies that have seen their volumes declining year over year, I don't think any of them are gonna begin to to rip up these um you know short lines or I I I think they're gonna find a way to to maintain service and continue to to reach new markets.
• 17:28
  SPEAKER_00: I I think it is important for them to thrive.
• 17:31
  SPEAKER_00: And so I think in doing that, they're they're gonna want to figure that.
• 17:34
  SPEAKER_00: So I think this is like a midterm bump in the road to figuring out how to get back to growth.
• 17:39
  SPEAKER_00: And I think this is like one of the things that we just gotta navigate through.
• 17:42
  SPEAKER_00: David, how about you?
• 17:43
  SPEAKER_01: Gosh, yeah, what an excellent way to sum it up.
• 17:45
  SPEAKER_01: Uh, I agree with you on will happen, um, will be approved this year or early next.
• 17:52
  SPEAKER_01: Want to happen.
• 17:54
  SPEAKER_01: In my perfect world, some of the bipartisan scrutiny of this will just become a bridge for more bipartisanship going forward.
• 18:04
  SPEAKER_01: You know, I've been very encouraged to see um uh Congresspeople on both the left and the right, you know, raise concerns about how this will affect their constituents, particularly in agriculture.
• 18:15
  SPEAKER_01: And just seeing people come together like that is encouraging, and I hope that this is just another avenue for the the two parties to find common ground.
• 18:23
  SPEAKER_01: What do I think people might be unduly afraid of?
• 18:27
  SPEAKER_01: I think it's the crowding out potential of a transcontinental railroad.
• 18:33
  SPEAKER_01: Yes, there will be some things that a transcon could do that other partners can't, but there are a lot of other ways that railroads and other class ones can work with each other to move things across networks.
• 18:45
  SPEAKER_01: And I don't think they will necessarily be crowded out by the emergence of this transcon and maybe even another one.
• 18:51
  SPEAKER_00: Yeah.
• 18:52
  SPEAKER_00: Yeah, I think there's a this is gonna be a very interesting year.
• 18:57
  SPEAKER_00: I I think there will be more headlines, probably in the Wall Street Journal this year about railroads than there have been, and and and hopefully for better reasons than there were in the in the past.
• 19:07
  SPEAKER_00: Um look, folks, appreciate you definitely joining for another very impromptu episode of Talk Track.
• 19:13
  SPEAKER_00: Again, my name's Harris Liggan, uh CEO here at Telegraph, joined by David Corell, who heads up our freight market intelligence uh section.
• 19:21
  SPEAKER_00: Hopefully you found this interesting.
• 19:22
  SPEAKER_00: And if you have any questions that David or I or anybody else on the team could help answer, please reach out.
• 19:27
  SPEAKER_00: Thanks for listening.
• 19:28
  SPEAKER_00: Stay tuned for more.
• 19:30
  SPEAKER_00: Follow the show wherever you listen to podcasts and find us on LinkedIn to keep up with what we're building.