The Railroad Week in Review:
Week Ending December 5, 1998

Old business first. Continuing the thread begun by Bill Vantuono of Railway Age, a correspondent and long-term industry watcher writes, "Railroads do not explain that they are relevant to the average voter (or anyone else for that matter). Folks do not have a clue about how freight railroads relate to their welfare as life [has become more] complicated and freight railroads have faded from view. If we do not explain how what we do is relevant, we cannot expect much support from those in charge of public policy."

Recall Ohio shortline operator Fred Stout who wrote about transit time and consistency. A former Conrail marketing executive adds that irregular transit times wreak havoc with car utilization. He knows well of what he speaks as his most recent assignment was on the aggregates desk where cycle time can make or break a move. A shortline client of mine once blew a chance at a nice piece of aggregates traffic with Conrail because they couldn't get cars back to interchange in less than five days. The truck-competitive rate could not support this kind of delay. My correspondent correctly notes "Shortlines can't force the [car supply] issue by encouraging business that cannot move efficiently."

JOC's Rip Watson notes that the STB will rule shortly on Canadian Pacific's drive to access New York City over the former New York Central Hudson River line which will go to CSX. In early November the roads told the STB they couldn't agree on terms. According to Watson, CP's argument is that it has the more direct route for the roughly 75,000 annual containerized shipments plus carloads of paper, chemicals and other commodities being trucked between New York and eastern Canada. The shortest CSX route is via Syracuse and Watertown.

Philadelphia's Park Junction interchange point may be a thing of the past. CSX has completed construction of its new Grey's Ferry Connection, putting trains directly up on the highline past 30th Street Station. Evidently CSX has worked out a bypass agreement with NS so it can run trains north to the Allentown Lehigh Valley line and into NYC while the CSX line is being cleared for double-stack. With split date only three months away it's good to see the operational changes taking place now to ease the transition later.

According to a release from NS, split date has been set at March 1, subject to a number of contingencies. After the close Conrail will continue as a rail carrier operating the Shared Assets Areas (SAAs) for the benefit of NS and CSX. Conrail will no longer appear in waybill routing and all traffic will be waybilled by either NS or CSX. Also on split date NS will begin to roll out its operating systems on PRR-allocated territory and all new NS (ex-CR) employees will on the NS payroll.

Subscribers to Barron's On Line this week were treated to a nice write-up on Union Pacific. Says Barron's, "Union Pacific stock has come back nicely from its lows, which it hit when its merger with rival Southern Pacific ran into some snags. Yet the shares are still far below their highs. More and more investors are saying that won't be true a year from now."

Recall UP hit its all-time low of $37.31 on August 18th. Since then it's come back a whopping 31% closing Friday at $48.75, this over a time period when the other major rails have hardly moved. Recall also the UP all-time high was nearly $73 just five quarters ago. Driving the stock price rebound is a string of operational improvements since summer's end and the faithful look for increases of 15% to 25% in the next 12-24 months, say to the $55-range near term and $72 further out.

A consortium of Wisconsin Central and two partners -- a division of Raytheon and a Jordanian investors group -- was named as the preferred bidder for a 25-year contract to operate the Aqaba Railway Company (ARC), currently owned by the Jordanian government.. The ARC system includes approximately 180 track- miles serving primarily the Jordan Phosphate Mines Company, the largest company and exporter in Jordan. It produces phosphate, sulfur and phosphoric acid.

As part of the contract to operate the rail system the consortium will be responsible for the construction of two line extensions of ten and 14 miles to serve a new mine and an industrial complex near Aqaba. Construction of these extensions, which are scheduled to be completed by mid 2001, will allow for a tripling of present rail volumes to nearly 12 mm tons by 2002. WC's investment will come to about $9 mm over two years.

--Roy Blanchard

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