The Blanchard Company

Burlington Northern Santa Fe has a Service Update page at its website, www.bnsf.com. This week, for example, carries notes on service issues and new Customer Service organization. As to the former, "All main lines are open and operating normally, however, Main Track II between Seattle and Everett, Wash., is still experiencing mudslides. The track is scheduled to open Wednesday, March 26. The main line at Rosby, Minn., that was closed Sunday, March 23, due to a derailment on the Grand Forks subdivision, is now open. Some train delays may occur between Kansas City and Lincoln, Neb., due to undercutting on the St. Joseph subdivision."

As to the latter, "Last Sunday [3/23], BNSF began its cutover of customer-service activities to the BNSF Customer Service Center in Topeka, Kansas. The startup resulted in more than 5,700 calls on Monday compared to a normal level of 3,800 calls. Startup issues faced included telecommunications linkages to appropriate service teams and adequate staffing for peak periods. As of Tuesday, March 25, call levels have come down closer to normal, response time has improved and the abandonment rate has declined. For your tracing needs, please continue to use the new Voice Response Unit (VRU) at 1-800-809-2673." Shortlines take note, both for your own use and that of your customers.

Union Pacific and BNSF have reached an agreement on the I-5 Corridor. According to the UP release (www.uprr.com), the companies "have agreed to a proportional rate arrangement which will allow the Union Pacific to quote single line rates in the I-5 corridor. This agreement will give shippers a new UP competitive option to BNSF on traffic moving north and south in this important corridor and to Canadian and Mexican interchanges." And to shortlines like the Arizona & California which have several traffic lanes in and out of the Pacific Northwest.

The CSX homepage (www.csx.com) has changed the link to the merger page to "Bringing Balance to the East." Interesting. That was the opening NS in its response to the CSX-CR merger in October and roundly criticized by the latter. Yet the CSX presentations at hearings in New York City and Harrisburg have emphasized the public benefit of "two class I railroads in major markets, vigorous competition between equal competitors, and a well-balanced freight railroad system." Now let's see how NS and CSX emerge in terms of market share in an environment where poor service has driven off much of the business.

New Jersey financial analyst Paul Reiss offered up this observation on AOL's "Motley Fool" investment center: "I did a quick look at Pennsylvania power plant customers to see how demand looks in terms of unit trains and meaningful competition. Pennsylvania's major utilities are GPU (PennElec, MetEd, Jersey Central), PECO (Phil Elec), PP&L, Duquesne Power, and Allegheny Power / West Penn Power.

"GPU has 9 coal fired plants in PA including three giants burning 15,000 tons of coal per day at peak and four with burns from three to five thousand tons/day. The giants are jointly owned with other utilities. PP&L has two giant plants (Montour and Brunner), two smaller plants (Sunbury and Martins Creek). PECO has two medium sized plants (Eddystone and Phoenixville) and owns a piece of several GPU plants.

"Each of these plants will be served by a single rail line following the carve, except maybe Sunbury, Eddystone, and Phoenixville. With fewer than twenty miles of access GPU Portland, Seward, and Homer City could be shared by two railroads. Pennsylvania is currently implementing price competition so there is considerable pressure to reduce costs at all stages of the power line. It will be interesting to see what requirements STB will place on the merger participants." In the light of power deregulation, the right rail strategy could well be to focus on plants that will be net generators of power.

I didn't get the Greenbrier (GBX) story exactly right. In last week's Review I wrote that Greenbrier's leasing and services segment has filed for protection under Chapter Eleven. Wrong. It was the Dutra Group, a customer of the GBX marine business segment, that has filed for Chapter 11, and that could have effect on GBX marine results.

Providence & Worcester (now AMEX: PWX) appears to be ripe for acquisition once the current owner retires. The railroad has been very conservative in its marketing and customer outreach program and has a rather unique club of former employees who tried to do things in that realm. The stock trades by appointment and, even though the numbers look good, you can't make a market in a stock that doesn't trade. Even so, PWX continues to trade at elevated levels. Moreover, DOCP which continues to trade in the mid teens, averaging 4-9,000 shares a day. The question becomes whether somebody is trying to acquire one or the other or both or if the trading is un-related speculation driven by somebody looking at the map.

"Everybody" knows the Florida East Coast is in play. The subject came up at a shippers' meeting in Atlantic City last week where I was representing NS. It's on record that NS and FEC have a very cozy operating and marketing relationship, and if you look at the current NS map you'll see the same red line used to denote NS properties runs Jax-Miami via Vero Beach. As for the recent run-up in stock price, a recent 10-Q from majority owner St Joe Paper is instructive: "Rail traffic continued to decline on both the Company's rail subsidiaries. The lower operating revenues are primarily attributable to a decline in rail traffic of 0.5% on FEC and 3.7% on ANRR [Apalachicola & Northern, a 100 mile shortline connecting with CSX at Chattahoochie]."

For an update on Canadian National's thinking re northeastern railroad restructuring, a visit to the CN website (www.cn.ca) speaks volumes. There are two position papers which provide the NYC and Harrisburg testimony along with press releases and maps. The feeling among several observers is that the move is somewhat opportunistic. One might even say the Yiddish word "chutzpah" would be appropriate.

An associate who was with the USRA in the 1970s writes, "A bit of history may be in order. After the Final System Plan which created CR was implemented in 1976, the Canadian government made it clear that US law did not allow Conrail to assume it had clear rights to own and operate the Canada Southern properties (Detroit - Windsor - Niagara Falls ). Conrail was then "nudged" into a forced sale of the Canada Southern by the Canadian government."

In a nutshell, the smart money appears to be on CN capitalizing on its monopoly positions and looking to make forays as they can, which sounds suspiciously like CR's biting the NY hand that fed it while it made a run at the Cotton Belt. Rail economics being what they are, I see it mostly as noise. As for CP, actions are directed by the holding company, and the focus there is on returns. The Northwest is more lucrative (why else did they relocate everybody to Calgary?) and everything else by CP Rail has been an exit strategy."

--Roy Blanchard