The Railroad Week in Review:
Quotable Quotes: "Railroading is fun again. We've still got some challenges and we're nowhere where we want to be yet, but with the people we've got and the excitement, there's a lot of potential.'' -- Jeff Verhaal, vice president of UP's western region.
Growing pains department. It seems that some years ago CSX Intermodal (CSXI, a CSX affiliate) entered into contracts with CR and NS for moves between Chicago and North Jersey via Buffalo over the Southern Tier line (which will go to NS post-merger). These contracts have volume and trainset requirements which, if not met, provide for liquidated damages.
STB Decision 106 dated 12/7 notes, "The CSX vs. NS competition that would otherwise exist on Day One will be thwarted, CSX claims, by the continued existence of these contracts. [They] will require CSXI to ship most of its Chicago-Northern New Jersey intermodal movements on NS (under the NS contract) or under a 50-50 pooling arrangement with NS (under the Conrail contract, as modified by the terms of the CSX/NS/CR Transaction Agreement)."
CSX obviously wants these provisions voided, conceding that nothing has been said about these contracts until now, assuming they would not be enforced after split date. NS evidently disagrees, so CSX petitioned the STB to require NS to respond within 12 days as to why CSX should not be granted its request. NS countered that "CSX has not explained adequately why it waited until December 2nd to bring this matter to our attention [and] that, if there is indeed any need for expedited action, it is entirely the result of CSX's failure to raise this matter sooner. CSX's inaction provides no basis for reducing the time available to NS to address the substantial issues raised by the CSX petition."
The STB, while agreeing NS has made a point, maintains pro-competitive issues will not be served by delaying the process and has ordered NS to respond by 12/17. The Decision concludes, "The Board as always would hope that NS and CSX could settle this matter privately. Perhaps the future handling of this matter could reflect the way it might have been handled if these contracts had been "on the table" [earlier in the merger process] and had been subject to the general give-and-take that accompanied the [merger] negotiation."
This last is heartening, and a clear message to those who would take future disputes before the Board without a good effort to resolve short of the Board. I am thinking specifically of the recently signed -- and widely hailed -- Rail Industry Agreement between shortlines and the class 1s re access and barriers. End of lesson.
BNSF has reorganized its Merchandise Business Unit "to streamline the organization and focus more resources on market development and revenue growth." The separate Forest Products and Consumer groups have been combined as the "Commercial Products Business Unit" under David Garin. The Metals and Minerals Business Unit has been renamed the Industrial Products Business Unit.
Peter Rickershauser moves to VP Business Development to build profitable traffic on UP/SP trackage rights lines, the Mexican and Canadian markets, shortline and interline partners, and the distribution services network. Henry Lampe, former AVP Shortline Business Development, moves to AVP Interline Business Development. Jerry Johnson will succeed Lampe and was instrumental in creating many BNSF shortline spin-offs.
Meanwhile, BNSF announced it will begin an $11 million track and bridge maintenance project on its main line between Bakersfield and Fresno, Calif., 1/18/99. To minimize the impact on customers and communities, work that could have been spread across many months will be completed in a two-week period. Recall last summer BNSF successfully completed a 15-day track maintenance blitz project from Springfield, Mo., to Memphis, Tenn.
The Bakersfield Blitz includes replacement of six track miles of steel rail using five welding gangs to create continuous welded rail. Approximately 76,000 wood cross ties will be installed. Surfacing work is planned for 100 track miles, and ballast cleaning and undercutting is planned for 70 track miles. The total project is about 120 miles long.
Lastly, word comes via one of the rail investment message boards that BNSF is following UP's lead and de-centralizing dispatching functions. Says the writer, "It's now official. The [BNSF] NOC, Network Operations Center is being busted up.. Job placement bulletins were placed on bulletin boards in the office for moving 29 people ( 6 desk ) to San Bernadino California to handle traffic across the busy I 5 corridor of the BNSF. " Comment, anyone?
Regional carrier Dakota, Minnesota & Eastern (DME) got the STB's blessing on its controversial $1.4 bn plan to build a 262-mile extension into Wyoming's coal fields. The railroad claims it could carry as much as 100 mm tons a year by 2007, and even turn a profit in '04. But DME also will have to completely rehab its 650-mile main line between South Dakota and Minnesota.
Consider the economics. A 900-mile railroad needs something like $4.5 mm a year just to keep class 2 track up to par. They really need class 3 if they are to run 35 trains a day at 40 mph, however a railroad with revenues in the $55 mm range is hard-pressed to come up with this kind of cash. With an operating ratio of 85, the operating budget would be in the range of $47 mm with a nominal 5% budget for track running $2.4 mm.
As if that weren't enough, given the public alarm about the heavy coal traffic the project would bring, the requisite environmental review will be a bear. Doubt if BNSF and UP are too pleased, either. I seem to recall switching in and around the mines is handled by a terminal switching provider paid for by BNSF and UP on a pro-rata basis. It would be helpful to know just how DME plans to get around once in the PRB. Anybody?
RailTex came out with November carloadings this week, up 15% over Nov 97 and up 12% YTD including both the Guelph Line in Canada and Central Properties in Indiana. On a "same railroad" basis, carloads were up 12% for the month and 11% YTD. The company does not release revenue figures for these monthly reports. Elsewhere on RTEX, Mike Brigham has left his VP Marketing post in San Antonio to take over as interim GM for the New England Central, St Albans VT, replacing Dale Carlstrom.
Greenbrier announced a new order for 1,000 double-stack intermodal platforms valued at $50 million from BNSF. The order extends the total production run of this railcar type for BNSF and TTX Company to over 2,500 platforms. The cars have been and are currently being built at Greenbrier's Gunderson manufacturing facility in Portland, Oregon.
Note to readers: Effective this week, we will discontinue the use of stock ticker symbols. Readers have responded they value Week in Review more as an industry newsletter - albeit with a shortline slant - than as an investment letter. Fine with me.
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