The Railroad Week in Review:
February 19, 2000

"Today I had three eastbounds to meet one westbound freight at the first siding on the subdivision where the westbound would fit. Behind him were three more westbounds. One of these could fit on the run-around in the middle of the subdivision and no place else. The second train had local work to do and the third train could make the meet only if I stuck him on more than one track at the siding. But that would mean braking the train in two and creating still more delay. Snowing like hell over most of the territory when I left."

When the Philadelphia Inquirer devotes its entire editorial space to the perceived perils of the BNSF+CN merger, it's time to pay attention. Recall the Inquirer's Henry Holcomb has done a terrific job covering the Contrail transaction from the outset and continuing through the recent NIT League meeting on that subject held here recently.

Philadelphia rail customers have reason to be concerned that yet another merger could prolong the service disruptions experienced since June One. CSXT has suffered a spate of derailments in suburban Darby where the mayor used her car and a police car to block the tracks for more than 12 hours. NS car supply problems in the Shared Area and elsewhere in Penna have sent previously pro-rail shippers scurrying for trucks, making the term "Schuylkill Expressway" a true oxymoron.

In an editorial titled "Don't Punch that Ticket," the Inquirer maintains "there should be no more rail mergers at this time. Federal officials ought to consider the radical idea of maintaining the six major surviving railroads and the already limited competition they provide. As with many other mergers, the elimination of competitors threatens to restrict options that come with competition. The risk is even starker with railroads, because they are essentially a fixed quantity. No one is likely to lay new track and start up a freight railroad. It is not inconceivable that this latest merger, which would likely lead to more mergers, could result in shippers of products from dresses to baked goods to cars to feed corn eventually being forced to choose between only two major freight railroads in the United States."

Reg Alcock, Co-chair of Canada's Parliamentary Transport Committee, was miffed by merger remarks made by CN's Paul Tellier according to an account the Globe and Mail. Alcock said he took Tellier's comments to mean the merger was a done deal in the railroads' opinion. He was not amused, saying, "These rails run under Transport Canada Legislation that's passed by the House of Commons. This is a huge deal [and] does tend to reduce the very limited options that exist in the West. We're going to look at this in some detail."

For their own part, BNSF and CN issued a joint press release saying they will "guarantee shippers existing or better rail service over their railroads after they are combined. In addition, CN and BNSF will guarantee more route options for shippers. This means existing gateways will remain open after the proposed combination is effective, and a rail alternative will be assured for the very few shippers who would otherwise have one rather than two railroads to use after the combination takes effect."

Service continuity is a prime concern among rail customers who've been buffeted by disruptions first in the west as UP sought to bring SP to heel and now in the east as NS and CSXT try to make their respective parts of Conrail behave. The present protagonists have to be complemented for addressing service guarantees up front. Especially since a main topic of the upcoming STB hearings will be exactly that.

Speaking of which, the STB's Jan 24 Ex Parte 582 decision makes for excellent reading. It's available on-line at http://www.stb.dot.gov/decisions and says, among other things, "The STB will hold a public hearing beginning on Wednesday, March 8, 2000, at its offices in Washington, DC, to provide interested persons an opportunity to express their views on the subject of major railroad consolidations and the present and future structure of the North American railroad industry."

The hearing has clearly been triggered by the proposed BNSF+CN deal, however the Board is emphatic that this hearing "will be conducted separate and apart from" the transaction hearing process. Concerns to be addressed include possible strategic responses to the deal, the impact of the last five years' changes in the rail industry, and the downstream effects of further mergers.

Writ large throughout will be "the effects of railroad consolidations financial condition of the railroad industry and the industry's ability to provide responsive service at reasonable prices. In this regard, [the Board seeks] comments on whether the railroad industry has and will have the necessary infrastructure, capacity and configuration to meet expected demand for freight service now and in the future." Be there.

Linda Morgan, STB Chairman, had several choice words to say to those attending this week's Freight Car Forum sponsored by the Shortline Assn. and Railway Progress Institute. In her half-hour address she most effectively worked through the STB processes and thoughts behind Ex Parte 582 leaving little doubt as to what she aims to accomplish.

The STB wants to know five things. Whether further rail consolidation is necessarily good or bad and, if good, on what schedule; the impact of further consolidation on rates, service, capacity, infrastructure, and finance; possible changes needed in the current regulatory process; and what more mergers mean to the future of the North American rail network.

About 160 parties have requested time to address the Board, said Morgan. Speakers have been asked to be prepared to discuss whether they even want more mergers, and, if so, under what circumstances and processes. Morgan said she is concerned about what appears to be instability within the rail industry. Specifically she mentioned even application of the Rail Industry Agreement regarding shortline partnerships, car hire issues, and the effect of falling railroad stock prices on future funding options.

In conclusion the Chairman laid out these "guiding principles" for the upcoming hearings. First, the preservation of a rail system responsive to all users. Second, sustaining capital investment to insure uninterrupted service. Third, minimizing downstream effects of any mergers that do take place, and fourth, restoring financial stability which will enhance rail service and bring more freight, not less, to the rails.

The standing ovation was warranted.

Please note: There was a lot of thoughtful commentary on last week's remarks about organizational change. Look for them in next week's Review. Also next week we'll pick up on earnings announcements such as GNWR's encouraging story, plus the latest from Wabtec, the company formed by the MPO-WABCO merger.

--Roy Blanchard

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