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The Railroad Week in Review 9/13/97
featuring: The Breakup of Conrail

Ready reference: homepages for Conrail | CSX | Norfolk Southern

The dispatching issue has raised some controversy. A friend on BNSF writes, " I have been on both sides of centralized versus division dispatching as a Superintendent and I disagree with idea that central dispatching has inherent flaws and may be contributing to run of incidents UP has been having. With a PROPERLY TRAINED and supervised dispatcher group it makes no difference if a switch is being lined or a track warrant issued from 2 or 2000 miles away."

Back in the east, a reader involved with the commuter aspects of the Conrail merger had this to say: "We are very much worried that with the Conrail acquisition and the move of system dispatching to Jacksonville and Birmingham will cause problems, especially for highly sensitive passenger operations. The point you made in your earlier piece that dispatchers should be required to qualify on the territory they administer is a good one. We'll refine our STB filing matrix to include that specific point." Anybody else?

The Union Pacific safety audit has been getting a significant amount of ink this week. The number of inspectors has risen to as many as 90 from the initial 60, judging from the various reports. What astounds some students of the industry is the fact that there have been several fatal incidents yet according to Thursday's WSJ it appears no fines are to be levied. Yet several shortline have reported fines in the $1,000s for such violations as a loose step bolt or inspection forms left overnight in the track man's truck.

In the same breath it must be said there are glimmerings of the "kinder, gentler" FRA Jolene Molitoris has been promoting. We've seen instances of helpful, constructive advice from FRA inspectors actually preventing violations from occurring. I think the FRA is headed in the right direction here, and your feedback, much as we've had on the dispatching issue, is welcome. You can write the entire list by posting your comments to or write me at

RailTex reported August 1997 carloadings were up 37% from last August. On a "same railroad" basis, carloadings increased just 7% for the month. Year-to-date August 1997 carloadings were up 33% while "same railroad" carloadings were up 4%. All of which is as it should be.

Companies like RTEX, RAIL, GNWR, and WCLX are in existence to build franchises by adding rail lines. It is to be expected that traffic increases will settle down to the averages after the initial bump. The key to exceptional returns will continue to be managing the sales/asset ratio, controlling debt (and the EBIT/interest ratio), minimizing leverage, and maintaining respectable margins.

In other RTEX news, we were all surprised to learn Tuesday of the resignation of Henry Chidgey as President and Chief Operating Officer. Mr. Chidgey has accepted the position of Chief Operating Officer with Ferronorte, a Brazilian railroad concern, and will relocate to Sao Paulo, Brazil. That day trading jumped to 250,000 shares from an average daily volume of under 50,000 shares. RTEX hit a low of $16.25, though by Friday it had recovered to $16.875. Also on Friday RTEX announced formation of a new Office of the President comprised of senior staffers for finance, admin, development, and operations. Flohr and friends are to be complimented for moving so quickly.

I recently had an opportunity to riffle through the merger-related notices of intent to file submitted by Parties of Record to the STB. The notices were to be filed by 8/22 and were to "describe the responsive actions or other relief" that the parties expect to file officially by the October 22 deadline. As one would expect, my focus was on shortlines. More than 50 filed, sizes ranging from the modest Effingham Ry to the NYS&W and GNWR's Buffalo & Pittsburgh.

What was surprising was to see how many want trackage rights to address a perceived need to reach a second class I railroad. 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 and 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.

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." The ASLRA goes a step further for its members, saying small railroads must have access to the national network through good service, reasonable routes and rates and effective interchanges. The next key date for most of us is October 21. In the words of the STB, "Responsive (including inconsistent) applications due. All comments, protests, and requests for conditions, and any other opposition evidence and argument, due. With respect to all related abandonments: opposition submissions, requests for public use conditions, and Trails Act request due."

Last Tuesday Norfolk Southern tapped Craig Lewis to the new position of regional vice president with headquarters in Philadelphia. Lewis, a former Pennsylvania State Senator, will have state and local government responsibilities for Norfolk Southern in Pennsylvania, Delaware, New Jersey and the metropolitan New York City area. He will report to John F. Corcoran, senior vice president-Public Affairs. I've worked closely with Craig Lewis in his role as government affairs attorney for NS on the CR merger and am delighted the appointment has been made. It bodes well for NS, the former CR service area, and Philadelphia. Congratulations all round.

CSX has put down the second main along 42 miles of its Cleveland-Chicago corridor. Rail installation is complete between Stanley and Hamler in Henry County, and will be finished within two weeks between Defiance and Sherwood in Defiance County. More than 21 miles of railroad in the area are being double-tracked, and a new railroad bridge over the Maumee River is set for completion in days. In other news, CSX got downgraded to "negative" from "stable" in response to the $2.5 billion verdict stemming from a 1987 tank car fire in New Orleans, La. While the verdict is not yet a judgment, the award by the jury against CSX represents almost 75% of the total $3.4 billion of punitive damages awarded against five companies involved in the incident. A CSX spokesperson has said the award will have no impact on the ability of CSX to follow through in its $4+ billion bid for its share of Conrail.

And now for dessert: It's been remarked here that there is no coincidence in Conrail's being split up into "NYC Lines" and "Penn Lines" for purposes of the merger. CSX gets NYC, just as C&O/NYC tried in the 1950s; Penn Lines to NS goes back to PRR ownership of N&W at the same time. In other words, maybe the likes of Symes, Perlman, and White weren't far off the mark.

Now it turns out there's nothing new about Burlington Northern. Back at the turn of the century, the Morgan-Hill-Harriman battle for railroad control culminated in a quasi-merger of NP, GN, and CB&Q. In 1901 the three lines were folded into a holding company, Northern Securities Co. As reported by author Ron Chernow in his fascinating history, _The House of Morgan_, the holding company "heightened the alarm that a railroad monopoly had taken hold in the west and that a subsequent eastern rail monopoly was foreseen."

So what else is new? Have a safe week.

--Roy Blanchard

Ready reference: homepages for Conrail | CSX | Norfolk Southern

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