Railway Age, November 1997

CSX-NS-Conrail Deal:
The Buzzer Sounds

By the time you read this, we will have passed the deadline for shortliners to file with the Surface Transportation Board with their concerns about the impact of the acquisition of Conrail lines by CSXT and Norfolk Southern for their railways.

So, how did short lines do as a group with their filings? Did they restrict themselves to addressing issues in which the change of ownership meant potential harm to their operations, or did they look at the filing as an opportunity to reach into the class I goodie bag for new benefits?

Chances are, any in this latter group will be in for some disappointments. By all indications, the primary concern of the STB boils down to adequacy of transportation options to the public, and, increasingly, the environmental and commuter impacts of the proposed transaction. (For more on the environmental side, see the STB's website for its Section of Environmental Analysis, www.conrailmerger.com.) Handing out new marketing and operating advantages to the affected parties has not appeared to be part of the agenda.

So, how did short lines measure up? In many cases, no filings were necessary to address strategic concerns. To give an example, I worked closely with about fifty short lines during the early days of these negotiations on behalf of Norfolk Southern. Most were able to find reasonable accommodation from their new class I partner once they made their desires known, often coming away from the table with some new capabilities. When the desired accommodation was not possible, the short lines were able to work with NS to find alternative solutions.

This doesn't mean that all concerns have been addressed, even now. For several of the short lines I dealt with, there are a number of "small" wrinkles yet to be ironed out: moving an interchange here, adding half a mile of track there, and facilitating interchange between short lines in yet another place. But the key thing to note is that all the major issues were worked out with the class I without resorting to the tedious - and expensive - process of a formal STB filing.

That's the good news. The bad news is the number of shortlines that took the opportunity to ask for favors. A random sampling of the three score short line filings for August 21 carried some real surprises.

For openers, railroad size was no barrier. There were notices from shortlines of all sizes, from tiny Effingham Ry to the NYS&W and the Buffalo & Pittsburgh. There were four in particular that could be seriously hurt by the merger as proposed and without conditions. Yet others just wanted to have their day in court, although their concerns had largely been addressed by NS and CSX. Some simply wanted to remain Parties of Record. A handful got plain greedy.

It was particularly surprising to see how many want trackage rights to address a perceived need to reach a second class I railroad where no such access had existed before the Conrail breakup became a possibility. Four in New England were identical in this respect. The rule has been, and there is every reason to believe it will continue, that if you are worse off as a result of the merger, the STB may possibly agree with you on relief.

On the other hand, if you are not materially harmed by the transaction it is doubtful the STB will agree with you on relief and so agree to help you improve an otherwise unchanged competitive position. Access to a second class I where there is only one today will probably not be perceived as addressing any "harm" by the STB.

These short lines don't have a lot of support from industry experts or associations. The AAR is on record as saying, "The 'access' proposals do not provide for genuine competition. They provide for compulsory rate-making or trackage rights on a subsidized basis that a competitive marketplace would never support." There's no explicit support from the ASLRA, either: their statement indicates that small railroads must have access to the national network through good service, reasonable routes and rates and effective interchanges -- but stops short of mentioning trackage rights.

Another handful of lines in and around the proposed "Conrail Shared Asset Operations" (Northern New Jersey, Philadelphia/South Jersey, Detroit) are clamoring for direct access to yards like Oak Island (Newark) and Pavonia (Camden). These requests are particularly egregious. Under the proposed arrangement, they will already automatically receive direct interchange with two class I lines without lifting a finger. Trackage rights under these circumstances would be an intrusive nuisance in the shared access areas as well as an unnecessary financial burden on those short lines themselves.

Trackage rights are nice, but they cost money in terms of cents per vehicle mile, scheduling track time, and getting in and out of yards. Let's say, for the sake of the argument, that you can field a two-man crew and a locomotive for $500. It's not unheard of for a crew to take the better part of a day to exercise those trackage rights. Thus you're not only out the $500 for that crew but also another $500 to have somebody else do the work your trackage rights crew could have done if they'd stayed home.

The CSAO is an operating entity only. It has no pricing authority, no industrial development arm, no sales force. All of that is handled by the respective class Is. So if you can't get satisfaction from one, you have the other to turn to. So why does anybody want to go to Camden or Newark if they don't have to? I haven't a clue.

By the time you read this, October 21 will be history. The bets now (early October) are that change of control date won't be till this time next year. And the smart money is on the short line operators who can get through the next eleven months with maximum effect and minimum schreck. Return to:

This page maintained by Laura Blanchard