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The Railroad Week in Review 8/16/97
featuring: The Breakup of Conrail

Ready reference: homepages for Conrail | CSX | Norfolk Southern

Reports from all over indicate the strike against United Parcel Service is taking its toll on the class Is. Some carriers say UPS business is off by as much as 90%. BNSF, for example, says its usual daily volume of 1,000 UPS boxes is down to just 50 loads. UP's usual 600 boxes a day has dropped to 70. CSX is down to 60 from 200 boxes a day and NS has been losing 150 loads a day. Conrail isn't saying, though, if the averages seen by other roads were applied to CR, the cost wold be in the 300-box range.

Revenue-wise, NS says it won't take that big a hit. But the biggest UPS carriers -- Conrail and BNSF -- could between them take a bath to the tune of a $billion-plus. Some watchers on Wall Street aren't really alarmed, seeing this as a short-term wobble, and expecting the parcel business to bounce back over time. Said one observer, "Packages move best on the ground." Moreover, the US Postal Service rail business is up ten to 15%. In other words, as UPS' share declines, some other surface carrier will fill the void and the capacity once committed to UPS will be freed up for the newcomers.

It finally looks like Washington is going to take some action on trespassing and vandalism. The FRA has crafted what it calls "model legislation" to help states curb the problem. According to a news article, train-hoppers could be fined $1,000, go to jail for six months, or both. Vandals could be found guilty of a misdemeanor and be subject to a $500 fine and/or 120 hours of community service or six months in the jug if nobody gets hurt or the damage is less than $500 worth. Do more than $500 damage and get somebody hurt and it'll cost the perpetrator up to $10,000 and/or ten years. Kill someone and it goes to $20,000 and 20 years.

August 9 was not a good day on Conrail's Lehigh line in New Jersey. A Selkirk-Allentown train put 30 cars on the ground at Plainfield causing other trains to be detoured around using NJT's Raritan Valley (ex-CNJ) line and Amtrak's northeast corridor. Meanwhile, CSX's problems in Virginia are having some fallout among riders of the Virginia Railway Express (VRE) commuter line. Last month's freight train accident on tracks used by VRE caused some passenger train cancellations, forcing riders to seek other means to achieve their destinations. July's AM rush was off a third from the ridership levels posted in July 1996.

Webmaster magazine has cited the UP Railroad web site ( among the elite of its Top 100 Internet sites. The press release states, "The WebMaster 50/50 awards program recognizes innovative World Wide Web corporate intranet development efforts that use the 'Net to meet overall business objectives." The UP site has been up since December, 1995 and contains more than 1,600 pages of material, and averages some 1,600 "hits" a month. It loads fast, is intuitive to navigate, and is extremely helpful. It's well worth a few minutes to visit.

Regional Providence and Worcester (AMEX: PWX) has reported excellent results for the quarter and half ending 6/30/97. For the quarter, revenues were up 14% and earnings were up 28%. For the half, revenues were up 13% and earnings more than doubled, to more than a $million from $459,000. Some have pooh-poohed PWX's recent stock run-up as being in sympathy to Delaware Otsego's (Nasdaq: DOCP) NYS&W being in play. With numbers like these, PWX can surely stand on its own.

Speaking of DOCP, the week's announcement that NS, CSX, and majority shareholder Walter Rich have entered into an agreement to buy all DOCP's outstanding stock for $19 was more or less expected. It's the mechanics of the deal that are still not too well understood. When one looks at DOCP from an investment standpoint, one finds a book value of $19 and a price sales ratio of 1.19, so it the $19 number is a good start. A report in the Wall Street Journal said CP wasn't interested, leaving CN as a potential wild card. (Later: conclusion of a deal at $22 has just been announced. Film at 11.)

From York, PA, comes word that long-time shortline champion and Emons President Al Smith is leaving the fold for an assignment in "a senior management position with a major Class I Railroad." Chairman Bob Grossman isn't in a rush to replace Al, saying, "We have built a very strong management and employee team in recent years. While I will be more involved in some of the operating responsibilities, the plans now call for dividing most of those among other key officers in line with our decentralization and realignment of certain functions over the past couple of years."

RailAmerica (Nasdaq: RAIL) had a great second quarter with operating revenues up 39% and earnings from continuing operations up 60%. For the half, sales were up 35% and earnings saw a 50% increase. Carloads more than doubled in the quarter to 16,705 and were up 166% to 30,657 for the half. According to a company press release, " The growth in carloadings and rail revenues were attributable to the inclusion of the Company's new railroads acquired in the latter half of 1996, including railroads in Washington, Pennsylvania, Minnesota and Chile." Kalyn/Siebert, Inc., a heavy-duty truck trailer maker wholly owned by RAIL, continues to contribute more than half the revenue and earnings.

--Roy Blanchard

Ready reference: homepages for Conrail | CSX | Norfolk Southern

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