A New Transcontinental Railroad

The ‘transcontinental railroad’ has long been a symbol of Manifest Destiny and American exceptionalism. America may soon be able to celebrate a “true” transcontinental railroad. If it happens, it will not be a feat of mere engineering, but a result of mergers, a major theme of American railroad history.

In July 2025, Union Pacific railroad agreed to acquire Norfolk Southern Railway, proposing to combine two of the nation’s largest freight rail networks. With Union Pacific predominantly serving the western half of the continental United States, and Norfolk Southern serving throughout the eastern half, a merger would connect the lines and cover America from coast to coast. The proposal is now undergoing an extensive review by the Surface Transportation Board. The proposed merger will face a complicated and difficult process to complete, but a final decision is not expected until 2027. The famed “Transcontinental Railroad” ran only from Iowa to California, and was transcontinental in the sense that it connected Eastern rail lines to the Pacific. The proposed merger line would allow for the first coast-to-coast transcontinental freight transport without switching railroad lines or companies. While America has had transcontinental rail service since 1869, this would be the first single, coast-to-coast railroad. 

This merger between two of America’s six Class I freight railroads continues a theme of consolidation through American rail mergers. A Class I railroad is currently defined as a railroad with operating revenues exceeding $1.09 billion, although that number is indexed to inflation. The ICC established the Railroad classification system in 1911, with a railroad needing $1 million in annual revenue to qualify. When the Class I designation was established, there were well over 100 Class I railroads. However, a century of consolidation has reduced the number of the largest and most influential railroads to fewer than ten.

Railroad mergers have tended to occur in three circumstances: Firstly, when railroads grow extremely profitable and successful, they seek to expand and have the capital to do so. Secondly, railroads often sell when they are suffering declining profits or get bought out upon becoming insolvent. Thirdly, railroads have merged at times in response to market conditions which they perceive to threaten their present profit model.

The first American railroads were opened in the 1820s. Most were small, local enterprises which existed to serve local purposes, such as transporting coal between a mine and a local town. 2026 also marks the 200th anniversary of American commercial freight rail, with the Granite Railway beginning operations in 1826.

The Interstate Commerce Act of 1887 established the Interstate Commerce Commission (ICC), charged with regulation of the railroad industry and dealing with monopolies. In 1920 the ICC was granted the power to regulate railroad mergers and acquisitions under the Esch-Cummins Act. In 1995 the ICC was dissolved and was subsequently replaced by the Surface Transportation Board.

The era of railroad consolidation was initiated by the Panic of 1893. American railroads expanded immensely during the previous decade, but often lacked secure financial backing. Thousands of miles of track were built in the Midwest and West without immediate profitable uses. Myriad issues such as foreign financial crises, monetary uncertainty, and deflation led to an American financial crisis which exposed the overbuilt railroads. Around 30 percent of American railroads went insolvent, and were often bought up by larger, companies. Similarly, a period of consolidation occurred during the Great Depression, with around 30 percent of railroads/miles failing or going insolvent.

In the era following World War II, the railroad industry dealt with challenges such as the unprofitability of passenger rail and labor disputes. Collective bargaining agreements and labor regulations made it difficult for railroads to cut wages and staff during downturns. Furthermore, the railroad industry faced increased competition from highway transport. More Americans traveled by car and more freight was transported by truck. Regulations by the ICC on setting freight rates made it difficult for railroads to profit, and the ICC simultaneously inhibited railroads from discontinuing unprofitable train lines. These challenges encouraged railroad companies to consider mergers as a defensive mechanism to prevent insolvency, as they could theoretically cut costs through economies of scale.

One of the biggest railroad mergers in US history was the 1968 merger of the Pennsylvania Railroad and the New York Central Railroad, the two biggest railroads in the United States. Despite their size, they were both struggling due to these market conditions. While they planned to create a dominant railroad, the new railroad would instead demonstrate the challenges of mergers in a heavy regulatory environment. Redundant union employees and incompatible computer systems turned the mass merger into a disaster. The merged railroad, the Penn Central, would suffer further financial mismanagement and declare bankruptcy in 1970, surviving only a few more years. In 1976 the federal government created Conrail to take over financially viable lines of the Penn Central and other failed northeastern railroads.

However, other mergers from the era saw more success. Burlington Northern was formed in 1970 as the result of four railroads merging, allowing freight to be transported across the Midwest and Northwest more efficiently.

In 1980 the Staggers Rail Act was passed, deregulating the industry and giving = railroads more freedom to set their own freight rates and change their prices without regulatory approval. This greatly increased the profitability of the rail industry. This incentivized mergers by allowing successful railroads the capital to purchase other railroads. The Act reduced restrictions on abandoning unprofitable lines. Before the passage of the act in 1980, there were 39 Class I railroads. By 1987 there were only 17. In 1980, the CSX corporation was established as a merger of two major railroad holding companies. This merger integrated railroads across the Eastern U.S. and CSX has become one of the two major Class I Eastern railroads along with Norfolk Southern (itself a merger of Norfolk, Western Railway, and Southern Railway). Conrail was privatized in 1987 and has become profitable following the Staggers Act.

Consolidation continued rapidly during the 1990s, with the number of Class I railroads reduced to eight by 2000. In 1995 Burlington Northern merged with Atchison, Topeka, and Santa Fe Railway, creating the modern BNSF Railway competing with Union Pacific across the western half of the United States. These mergers were planned carefully and took advantage of geographic opportunity. Conrail was bought out by Norfolk Southern and CSX in the late 1990s and now exists as a joint subsidiary of the two companies.

This consolidation has largely continued up to today. The recent 2023 merger of Kansas City Southern and Canadian Pacific lowered the number of Class I freight railways to six. This merger created the first single-line North American railway running from Canada to Mexico.

The history of the American railroad industry has been one of expansion and consolidation, of ambition and regulation. Throughout rail’s 200-year history, the United States has changed a great deal, and yet the railroad’s keep moving.  The proposed Union Pacific-Norfolk Southern merger may seem extraordinary, but it fits squarely within this history.  In 2027, if the Union Pacific-Norfolk Southern merger goes through, America could have single-company, coast-to-coast transcontinental rail. This would be both an unprecedented moment in history, and a natural continuation of an economically crucial industry.

Written by Vincent Stone, Public Policy Intern