FILE PHOTO: A CSX freight train travels in Washington, U.S., December 14, 2024. REUTERS/Benoit Tessier/File Photo
FILE PHOTO: Shareholders check out a train display at the BNSF booth as they shop for discounted products at the annual Berkshire Hathaway shareholder meeting in Omaha, Nebraska, U.S., May 4, 2019. REUTERS/Scott Morgan/File Photo

By Sabrina Valle and Nathan Gomes

(Reuters) -CSX and Berkshire Hathaway-owned BNSF on Friday announced new coast-to-coast services, a move that strengthens their freight connectivity but that tempers market expectations of an imminent merger between the two rail giants.

Shares of CSX closed 3.6% lower after the announcement, but are up almost 8% so far this year.

U.S. railroad leader Union Pacific and Norfolk Southern last month announced a surprise $85 billion merger proposal, fueling speculation that CSX and BNSF - the United States' two other major freight railroads - might explore a merger of their own.

"This announcement signals BNSF's low appetite for a merger" in the near term, said BMO Capital Markets transportation analyst Fadi Chamoun. "Perhaps the company is not convinced on the merits of full-on consolidation and will be patient."

If granted regulatory approval – a process that could take more than 18 months – the UP-Norfolk merger would create the first coast-to-coast freight rail operator in the United States.

"We view the announcement today as confirmation that BNSF and CSX will wait to see how the Union Pacific/Norfolk Southern regulatory path unfolds from here," said Evercore Transport analyst Jonathan Chappell.

Friday's announcement stems from ongoing commercial agreements between rail operators and predates last month’s merger announcement, according to a person familiar with the agreement.

The new routes will link Southern California with Charlotte, North Carolina, and Jacksonville, Florida.

Commercial agreements between freight rail operators are common in the industry, allowing companies to expand service offerings without undergoing structural changes.

On July 21, CSX and Canadian Pacific Kansas City launched the Southeast Mexico Express, a new east-west Class 1 corridor that connects shippers across Mexico, Texas and the southeastern United States.

Union Pacific launched a similar domestic intermodal service earlier this month, connecting Southern California's Inland Empire with the Chicago area.

CSX is also under activist pressure from Ancora, which is pushing for a merger or leadership change, and Toms Capital Investment Management's request to meet with the railroad operator's board.

Better intermodal volumes helped CSX top analyst estimates for second-quarter profit in July.

Railroad operators have always eyed linking the U.S. Atlantic and Pacific coasts by rail and this is especially true now, when the industry is struggling with labor constraints and higher operational expenses.

Any merger, however, would require approval from the Surface Transportation Board, which reviews deals for potential impacts on pricing power and industry consolidation.

(Reporting by Sabrina Valle in New York; Additional reporting by Lisa Baertlein in Los Angeles and Nathan Gomes and Abhinav Parmar in Bengaluru, Editing by Dawn Kopecki, Pooja Desai, Anna Driver and Matthew Lewis )