Union Pacific turns fuel surcharges into profit as Iran war lifts diesel prices

The $91.1 million surplus

Union Pacific collected $91.1 million more in fuel surcharges than it spent on fuel during the second quarter of 2026, a gap that lifted the railroad's earnings and was first reported by Reuters from a filing with the U.S. Surface Transportation Board. In a statement, the company said its year-over-year percentage fuel surcharge increase is in line with the rest of the rail industry, adding that the surcharge terms are negotiated within its overall customer pricing. The railroad separately told investors last month that surcharges added 14 cents per share to second-quarter earnings, a figure Reuters converts to roughly $83.2 million based on shares outstanding.

Rival railroads reported far smaller gaps

Class I peers CSX and Norfolk Southern also reported second-quarter fuel surcharge surpluses to the STB, but on a much smaller scale: $8.4 million and $3.6 million respectively. The disparity underscores that, within an industry-wide pattern of rising surcharges, Union Pacific's margin between surcharges collected and fuel paid is an outlier rather than the norm. Norfolk Southern's parallel reporting nonetheless confirms a sector-wide pricing dynamic tied to higher diesel costs.

How the surcharge mechanic works

Rail fuel surcharges are tied to benchmarks such as the U.S. Department of Energy's On-Highway Diesel Fuel price, adjusted by a proprietary formula known as a "trade factor," and there is typically a lag of up to two months between diesel price moves and the surcharge applied. That lag means March surcharges, for example, were still based on January diesel prices before the U.S. and Israeli war on Iran began. Industry data cited by Ship.com president Kyle Henzel shows rail fuel surcharges are up 43 cents a mile since March and now sit above the previous record from September 2008.

Revenue and earnings backdrop

Union Pacific posted $6.9 billion in operating revenue for the second quarter, a 12% jump year-over-year, and credited a combination of elevated fuel surcharges, higher freight volumes, and improved pricing. Earlier reporting cited $6.2 billion in operating revenue for the first quarter, a 3% year-over-year increase, with net income of $1.70 billion, or $2.87 per share, and a 4% rise in freight revenue. Surcharges have drawn periodic scrutiny from the Surface Transportation Board, which regulates rail pricing and has examined whether they function as disguised rate increases; those reviews have not produced structural changes.

Pending merger with Norfolk Southern

Union Pacific is awaiting regulatory approval for an $85 billion acquisition of Norfolk Southern that would create the first U.S. transcontinental railroad. The company estimates the combined entity would hold 36% market share by carloads, excluding interline double-counting. Opponents, including a six-state-attorney-general-led coalition and BNSF, argue the deal would push domestic rail freight market share toward 50% and let Union Pacific extend its pricing model nationally. BNSF told the STB this month that only Union Pacific and Norfolk Southern would benefit from the combination.

Next milestone

The Surface Transportation Board's review of the proposed $85 billion Union Pacific–Norfolk Southern merger remains the next major verifiable event, with shipper and competitor filings on surcharges and competition likely to continue feeding into that proceeding.