The Blanchard Company

Marketing and Management Support
for Feeder Railroads

The Railroad Week in Review 6/14/97
featuring: The Breakup of Conrail

Ready reference: homepages for Conrail | CSX | Norfolk Southern


Shortline-cum-carfloat New York Cross Harbor has brought a $900 MM lawsuit against CR, the only class I interchange for NYCH. The complaint charges Conrail with antitrust violations partly because it alleges CR ran cars around NYCH via Selkirk and to its own LIRR interchange at Fresh Pond, cut through rates to discourage using NYCH, told shippers NYCH was going out of business, and dropped the route from its computer system.

Wisconsin Central has closed a $7 MM deal with Greenbrier for 100 new boxcars for paper service. The 100-ton cars will be 50' 6" long and 13' high inside and will be equipped with extra-larger plug doors 12" 4" high and 10' wide for faster loading and unloading. paper manufacturers are moving to three-meter rolls which require the extra height. Smaller rolls can be double-tiered. WC serves 48 pulp and last year handled about 123,000 carloads of paper and related products. To put this in perspective, that kind of volume is more than 1,000 truckloads a day and accounted for about half of all WC revenues. One remarkable feature of WC's paper service is that, according to VP Marketing Bill Schauer, less than 0.5% of the 27,000 cars placed for loading were rejected. Moreover, L&D experience on paper has been half the national average.

On Wednesday CSX Vice President Randy Evans told a Philadelphia area shippers group that the upcoming merger will restore competitive rail freight service "for all the customers and all the short-line railroads'' in the Philadelphia region. There had been some concern that the track ownership provisions in the Philadelphia/NJ "Shared Area" post-merger could inhibit full access to both carriers. As reported by Henry Holcomb of the Inquirer, Evans said "shippers in the region would be served by a local switching rail company that would be jointly owned by CSX and Norfolk Southern and that the cost of operating the switching railroad would be split between CSX and Norfolk Southern based on the percentage of business each generated."

Regional railroad Dakota, Minnesota & Eastern, based in Brookings, SD, has announced plans to build a 250-mile extension into Wyoming's Powder River Basin plus upgrade another 650 miles of existing route miles. The expansion could push DM&Es revenue base above the $256 MM threshold, making it the country's newest class I railroad. The project is estimated at $1.2 billion, will take 5 years to complete, and is believed to be the largest privately financed public infrastructure project in the history of South Dakota.

Regarding the CR derailment on the Lehigh line in NJ, a friend writes, "The fork lift was 19' 2" high, bridge 18' 3". Load tripped over-height detector at Manville, but dispatcher told crew to continue west and put the car in the cripple track at Clinton, which is just east of the tunnel, but well west of the demolished bridge."

It looks like Tropicana's famed "OJ-1" juice train is about to get some company in the form of a train to the midwest. This new service will deliver 135, 000 chilled cases of product - more than 500,000 gallons of juice - to a distribution center in Cincinnati that was opened May 6. The new center comes as the result of extensive review and revamping of the customer service process which targets delivery to major customers with 24 hours of order placement. The 90,000-square-foot center capable of holding 1.8 mm gallons of juice will be operated by third-party logistics provider Exel Logistics. It is basically a cross-dock facility where unit trains are unloaded and product distributed to key markets as far away as Chicago. Tropicana acquired an additional 110 refrigerated box cars for its second Unit Train and the new Midwest service means the proportion of product moved by rail has increased from around half to nearly three quarters.

The results are in South of the Border and the TMM-KCS consortium was the successful bidder in the Mexican rail privatization process for operation of the Northeast Rail Lines. This important corridor carries more than 40% of all Mexican rail freight and is the busiest rail corridor in the country. It is Mexico's line to Nuevo Laredo which is the largest rail freight between Mexico and the US with about half all cross-border traffic.

Reader Steve Eisenach gently chided me last week for not mentioning the fact that Conrail ceased to exist as a New York Stock Exchange company. The joint NS-CSX press release dated June 3 says simply, "A jointly controlled company has been merged with and into Conrail Inc. The merger was effective June 2. Pursuant to the merger, all Conrail shares not owned by CSX, Norfolk Southern, Conrail or their respective affiliates were converted into the right to receive $115 cash per share, and the remaining Conrail shares were cancelled. Transmittal documents will be mailed promptly to shareholders entitled to receive the merger payment. Following the merger, CSX and Norfolk Southern indirectly own all the shares of the surviving corporation (named Conrail Inc.) which will be held in a joint voting trust pending federal regulatory approval."

Signal equipment maker Harmon Industries (Nasdaq: HRMN) has acquired its Canadian affiliate, Vale-Harmon Enterprises, Ltd. The Quebec-based affiliate is a sales and service supplier of Harmon Industries and other manufacturers' products to the rail industry and has been a Harmon affiliate for 14 years. Harmon said in a press release that it acquired Vale-Harmon "to offer a broader range of services to the Canadian rail market and to enable the sales and engineering departments of Harmon Industries to interface directly with the company's customers. Vale-Harmon will continue to operate from its existing facilities."

I received more financial information from RailTex regarding the quarter ended March 30. Net income was 17 cents a share vs. 24 cents a year ago, off 29%, primarily due to the previously announced coal mine wall collapse on one of its lines. Revenues were up 19% on 27% more carloads including five new railroads added since 3/31/96. Same railroad carloads were up 1% and revenues were up 2% as operating ratios improved to 76.3 from 76.9 in 1Q1996. One would hope yields on the new properties will improve as well as start-up costs are fully realized.

From the California Northern (CFNR) comes word that carloads for the year-to-date through April are about even with the same period in 1996, about 10,000 cars. Business is expected to pick up with the new tomato product pack and the July-August sugar beet season. Lumber volume remains heavy duty in part to higher prices and increased housing starts. CFNR also won the Jake Jacobson Shortline Safety Award for 1996. Started in 1994 by Copper Basin RR's Jake Jacobson to recognize safety-conscious railroads too small to win the Harriman, it is presented to the seven shortlines with the most man hours and zero-lost time injuries.

Rail stocks last week rose selectively along with the major markets. KCS and BNSF were the big gainers, up 8.9% and 6.5% respectively. Absent the penny stocks, P&W and RTEX took the big hits, down 8.6% and 9.5% respectively.

The NS-CSX-CR merger filing goes to the STB this week. Expect an interesting time.

--Roy Blanchard

Ready reference: homepages for Conrail | CSX | Norfolk Southern

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