Railway Age, July 1997

CSX-NS-Conrail Deal:
120 Days and Counting

As I write this column in early June, the Surface Transportation Board has just released its "final procedural schedule" in the proposed CSX-NS-Conrail merger. Although the parties had requested an abbreviated 255-day schedule, the STB chose a longer time frame. So there's still time for shortliners to get in line to make your concerns known.

According to the STB's press release, "A 350-day schedule will ensure that all parties are accorded due process and will allow the board time to consider fully all the issues and to reach a timely resolution of these matters." Environmental issues will weigh particularly heavily. In fact, the STB said the 350-day schedule is needed "to take a hard look the these issues as required by national environmental policy."

There's precedent for this cautionary approach. In his remarks at the Eastern Region meeting of the American Short Line Railroad Assn., Norfolk Southern Vice President Don Seale noted that one reason for the longer schedule may be due to a desire to avoid reopening the case later on environmental issues. This is evidently what's happened on UP-SP and the Board does not want a repeat. Seale also noted that shipper response had been generally in favor of the 255-day expedited process; however, the STB took the longer route anyway.

The STB schedule gives those who wish to participate in the filing 45 days after the merger application is filed (set for June 16, 1997) to send in their notice of intent. Comments, requests for conditions, etc., are due within 120 days. Orals will come on or about Day 290. So although there is still time, there is not much of it.

And, although there is an opportunity for shortliners to air their concerns, this doesn't mean they've been given a hunting license to bag all the benefits they've ever wanted from a Class 1 partner with the clout of the STB to back them up. Readers who may be considering becoming part of the process would do well to heed what former ICC General Counsel Fritz Kahn told a New Jersey audience in late May. The setting was the monthly meeting of the New Jersey Shortline Railroad Association, and Mr. Kahn had been invited to offer some thoughts and observations on dealing with the STB and the merger process.

In nutshell, Mr., Kahn told the group the primary concern of the STB boils down to adequacy of transportation options to the public, e.g., single line service, car supply, etc. And although the STB may have unlimited discretion to apply conditions like haulage, trackage rights, fixing 2:1 situations, etc., the burden of proof for the application of conditions is on the opponents.

Shortlines considering opposing or asking for conditions must speak with a single voice. Said Kahn, "Don't ask for the moon," reiterating that the STB will not use its powers to "improve a situation," only to fix adverse effects. Shortlines considering requests for conditions or other modifications to the filing must do so in the context of STB criteria and their own commercial relationships going forward.

See how closely your areas of concern match the following four examples. If they're close cousins to #1 and #2, you may have a case. If they're closer to #3 and #4, think them through carefully before taking them to the STB.

  1. Where NS and CSX depend on the present relationship to compete in Conrail territory, the whole purpose of the shortline disappears when NS or CSX get direct access. For example, the shortline is the number two line into a feed mill after CR. It is the mill's way out to NS. In the merger, NS gets the CR line, leaving the shortline out of business. This is clearly an issue of harm.

  2. Where there is a commodity/OD pair that could be at risk from single line class I hauls becoming two-class I hauls or where the shortline connects with CR today and much of the traffic goes to CSX destinations, but NS will be getting the CR line (or vice versa). A customer on a Pennsylvania shortline off Conrail ships pet food to a CSX point near Jacksonville, Florida. Conrail had no choice but to take the short haul to the CSX junction. Will NS be as accommodating when it gets the CR line serving this shortline? Or will NS go for the long haul and attempt to short-haul CSX? The astute reader will detect a potential for harm if rates go up and the move goes to the highways.

  3. Where shortlines and commodity/OD pairs will not be affected one way or another. Most shortline traffic falls here and no further action with respect to the merger is required.

  4. Where shortlines use the merger event to trigger new requests for line acquisitions, trackage rights, alternate class I connections, etc. These smack of "last chance" opportunities to expand one's market reach, and regardless of motives, the STB has traditionally taken a dim view of such attempts. As Fritz Kahn noted in NJ, the STB sees no mandate to "make things better," and is not likely to change. Requests for "open access," line acquisitions, and so forth clearly fall here.

The role of the STB in shortline issues is to minimize potential harm to present lanes of traffic. The intelligent shortline operator will use the merger an opportunity to strengthen what works and build up what could work with a little help. The STB is at best a last resort, however, and looks to the parties to work things out between them. Merging class Is and their shortlines would do well to keep this fact of life firmly in mind.

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