Every industry has its nobility. The “PayPal mafia” are sovereign in Silicon Valley. Many Wall Street financiers trace their genealogy back to Julian Robertson or Michael Milken. The equivalent for railroaders is E. Hunter Harrison, who died in 2017. He ran three of the six big “Class I” railways at various times and pioneered “precision railroading”, a scheduling technique that is now the industry standard. His disciples are spread far and high.

Jim Vena, the boss of Union Pacific (UP), is one of them. Together with BNSF, which is owned by Warren Buffett’s Berkshire Hathaway, UP runs the tracks west of Chicago. Norfolk Southern and CSX have a similar duopoly to the east. America’s Class I sextet is completed by two Canadian railways whose networks extend south. CPKC, the bigger one, was formed in 2023 by the merger of Canadian Pacific and Kansas City Southern (KCS).

Since last year many in the industry have been predicting that the big four American firms will become an even bigger two. Mr Vena has recently extolled the virtues of consolidation. His firm is now in talks to merge with Norfolk Southern (rather than CSX, as most expected). If a deal happens, it would probably force a tie-up between BNSF and CSX. Big beautiful deals could revive the industry. But executing them will be a nightmare.

America’s railways have spent a century in decline. Track length peaked in 1916. That year Congress began funding roads from the public purse. Lorries have had the better of trains ever since. Railways can efficiently move commodities such as coal, but have struggled to profit from freight containers, which can also travel via other means. Such “intermodal” goods make up half of Class I railway volume, but a fifth of their revenue.

Precision railroading, where freight trains run on a strict schedule regardless of whether they are near-empty or full, has helped keep the industry’s profit margins padded. But in recent years the gains have run dry. Although the ratio of Class I railroads’ operating expenses to revenues fell from 77% in 2005 to 59% in 2021, it has risen slightly since. Share prices have stagnated in recent years.

Dealmaking offers hope. There were more than 30 Class I railroads when the industry was deregulated in 1980. Furious consolidation ensued. A moratorium was issued—with encouragement, ironically, from UP—after Canadian National tried to combine with BNSF in 1999. The Surface Transportation Board (STB), which regulates the industry, ruled that future deals would have to “enhance” competition, rather than merely preserve it. The CPKc merger avoided this test due to an exemption granted earlier to KCS owing to its small size (the deal still took two years to close). That created the first single rail link from Mexico to Canada.

Going from coast to coast is a greater prize. Avoiding interchanges between networks would mean faster trains and fewer delays. According to Oliver Wyman, a consultancy, the share of intermodal goods in America that travel by rail on journeys longer than 1,500 miles increases from 39% to 65% when served by a direct line. Transcontinental railways would mean fewer lengthy stops in Chicago and may make shorter routes near the Mississippi river more profitable. Allowing goods to flow more speedily and cheaply across America might even help with efforts to revive domestic manufacturing.

Would unions and freight buyers lie on the tracks? Perhaps. Though “in a merger like this you would expect to fire white-collar workers and hire blue-collar workers”, says Anthony Hatch, an industry analyst. Freight buyers could also benefit from efficiencies. What about Mr Buffett? Berkshire is more likely to wait than bid up the price of Norfolk Southern or pounce on CSX—though it has the cash to try.

The biggest obstacles to a deal will be found in Washington. The STB is a uniquely opaque institution. There is little indication of what Patrick Fuchs, its Republican chairman, thinks about transcontinental mergers. Like other federal agencies, its authority to interpret laws is in doubt after a Supreme Court decision last year (an appeals court also recently nixed one of its rules). And the fifth seat on its board is vacant. The president would undoubtedly weigh in on any deal. Like Mr Vena, however, he may well be attracted to the vision of a return to the gilded age of mighty American railroads. ■

Editor’s note (July 24th 2025): This story has been updated.

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