UTU News Digest - Friday, December 11, 1998

UTU Daily News Digest

Information of interest to operating railroad and transportation employees

Friday, December 11, 1998

Burlington Northern Santa Fe reorganizes merchandise business unit

FORT WORTH -- The Burlington Northern and Santa Fe Railway Company (BNSF) announced yesterday that its Merchandise Business Unit has been reorganized to streamline the organization and focus more resources on market development and revenue growth.

In the reorganization, the number of business units will be reduced to three from four. The Forest Products and Consumer business units have been combined and renamed the Commercial Products Business Unit. David Garin, who had been vice president, Metals and Minerals, has been named vice president, Commercial Products.

"Dave has demonstrated an ability to lead profitable growth, develop new markets and meet customer expectations," said Doug Babb, senior vice president, Merchandise Business Unit. "I believe Dave's customer commitment and creativity will give BNSF an opportunity to grow our forest products and consumer business." Garin joined BNSF in 1983 and has held a number of positions of increasing responsibility in accounting, finance and marketing.

Succeeding Garin is Tay Lyman, who had been vice president, Customer Service and Business Unit Support. The Metals and Minerals Business Unit has been renamed the Industrial Products Business Unit. BNSF's Customer Service functions will continue to report to Lyman. "Tay has been a leader in our efforts to improve our planning process and yield management functions," said Babb. "With his strong background in marketing and customer service, Tay will be an asset to our metals and minerals customers."

Lyman holds a masters in business administration degree from the University of Chicago and has 24 years of experience in marketing.

George Duggan, vice president, Chemicals, will continue to lead the Chemicals Business Unit. Peter Rickershauser, who had been vice president, Marketing - UP/SP Lines and Mexico, has been named vice president, Business Development, also reporting to Babb. "Consolidating all of our business and market development functions under the coordinated direction of Pete will focus our resources on profitable growth on UP/SP trackage rights lines, the Mexican and Canadian markets, our shortline and interline partners, our distribution services network, and our smaller growth accounts anywhere in the BNSF network," added Babb.

Richard G. Nelson, vice president, Consumer, and William Nordberg, vice president, Forest Products, have both announced plans to retire in mid-January 1999. "Both Rick and Bill have had long and outstanding railroad careers," said Babb. "We appreciate their many contributions to BNSF and the Santa Fe Railway. I know their many friends among customers and in the railroad industry join me in wishing both of them the very best in the future."

Headquartered in Fort Worth, BNSF operates one of the largest rail networks in North America, with 34,000 route miles of track covering 28 states and two Canadian provinces.

STB gives preliminary approval to DM&E for new Powder River rail line

NEW YORK -- The U.S. Surface Transportation Board (STB) has given preliminary approval to the Dakota, Minnesota & Eastern Railroad's (DM&E) proposed $1.2 billion expansion into Wyoming, the board announced Thursday.

The railroad plans a 280-mile extension of its existing tracks from its terminal at Wasta, S.D., to the Powder River coal basin Gillette, Wyo. The Brookings, S.D.-based carrier also proposes to rebuild completely its 598-mile mainline from the Wasta terminal to Winona, Minn.

Citing increasing demand for Powder River Basin coal, the board found that the proposal "satisfies statutory standards required for new rail line construction."

"The project could not be finally approved until an extensive environmental review process required under the law is completed and the Board has the opportunity to assess fully the potential environmental effects and the cost of any environmental mitigation that it might impose on the project," the press release stated Thursday.

The Powder River Basin has become the largest coal-producing region in the U.S., accounting for nearly 30% of total coal production. Consumption of the type of coal produced in the Powder River Basin has doubled in the past decade to 319 million tons last year from 161 million tons in 1987. Demand for this kind of coal has been growing because it is relatively inexpensive to mine, and it has a low sulfur content which helps utilities meet more-stringent air-quality standards.

The environmental analysis mostly covers the expansion's safety and air-quality impact, and it could take several months to a year, the board's chief environmental analyst said last week.

"In reviewing rail line construction proposals, the Board examines whether an applicant is financially fit, whether there is public need for the proposed new service, and whether the project is in the public interest and will not unduly harm existing rail services," the board's press release states.

The Board noted that customers accounting for more than 90% of DM&E's current revenue support the project. Potential customers for the expanded and upgraded carrier, such as electric utilities, coal companies and agricultural concerns also expressed strong support.

The DM&E's major commodity will be coal. The new western terminus will be in Wyoming's Powder River Basin, where more than 25% of U.S. coal is mined. The shipment of that coal to Midwest and Southern electric utilities is now dominated by Burlington Northern Santa Fe Railway (BNSF) and Union Pacific Railroad (UP).

Increased demand for PRB coal, however, is eating away at rail capacity available for farmers in the northern plains, according to the U.S. Dept. of Agriculture. Expanding capacity would ease upward pressure on grain rail tariffs and ease the burden on rural roads by reducing the trucking of grain in the area.

Last week, the USDA filed an opinion in favor of the expansion "because we believe it will increase rail capacity, improve farm income, boost rural economic development, and reduce pressure on the rural road network."

"With the ability to ship to three major markets (river, processors, and the Pacific Northwest), the basis price for agricultural producers should rise: some estimates suggest increases as high as 20 cents per bushel for both corn and wheat," the USDA's opinion states.

Utilities complain that some rail coal deliveries in the past year have been late -- sometimes by as much as a week -- and delivery times in general have stretched out. That has caused some power companies to temporarily switch to natural gas or to shut down facilities until coal was delivered. Last year, Entergy Corp., New Orleans, curtailed two power plants in Arkansas because they were running short of coal. "We need better rail service than we are getting," said Charles Linderman, a director of the Edison Electric Institute, which represents 180 investor-owned utilities.

While they didn't formally protest, the incumbent railroads have long maintained that they already compete vigorously for business in the Powder River Basin and are continuing to invest heavily in additional tracks and locomotives to handle more coal. Officials of Union Pacific, based in Dallas, and Burlington Northern Santa Fe, Fort Worth, Texas, declined comment on the decision.

The STB has come under heavy pressure in recent months from rail users to demonstrate its support for competition. Many companies, stung by service problems on Union Pacific, have complained that the board didn't go far enough to address rail service and competition issues in the Gulf Coast region. Rail labor unions have argued that the board has been too lenient in allowing a series of giant rail mergers that are leaving just four megasystems in the U.S.

The decision to back the Dakota project, which won support from coal-burning utilities, could help mollify rail customers, as Congress prepares to vote next year to reauthorize the board, which replaced the old Interstate Commerce Commission. Disgruntled companies have called for legal changes that would give more rights to rail shippers, while railroads would like to maintain the board's current role.

Dakota, Minnesota & Eastern, however, still must nail down funding. The company plans to involve "a strategic partner or partners" including coal producers, coal users and other railroads.

The railroad must secure land for the new right-of-way into the coal fields and overcome objections from current neighbors, including the Mayo Clinic in Rochester, Minn., which is located next to the company's track and worries that more trains could disturb patients and disrupt medical care. The project also faces opposition from cattle ranchers, which in objections filed with the board said the new railroad would interfere with their operations by cutting off cattle grazing areas, scaring livestock and spreading wildfires.

Alameda Corridor groundbreaking draws lots of politicians

SOUTH GATE, Calif.-- Elected officials from across California joined members of the Alameda Corridor Transportation Authority (ACTA) Governing Board on Thursday to kick off construction of the corridor's most critical segment, a 10-mile trench that will eliminate street-level railroad crossings.

Gov. Pete Wilson, U.S. Secretary of Transportation Rodney Slater and Long Beach Mayor Beverly O'Neill were among those who wielded crowbars to lift railroad spikes from an old track during a ceremony celebrating the start of construction of the Mid-Corridor Trench. They were led in the ceremony by ACTA Governing Board Chairman and Los Angeles City Councilman Rudy Svorinich Jr., and other members of the board.

Other officials at the event -- held in South Gate, Calif., along the corridor route -- included L.A. Mayor Richard Riordan and members of the region's congressional and state legislative delegations.

"The Alameda Corridor project now moves one step further from a planning project to a construction project," Svorinich said. "The vital importance of the Alameda Corridor is reflected in the many people here for this ceremony. This project will benefit not only the cities along the route, but the entire region, the state and the nation by generating jobs and accommodating an increase in trade."

ACTA is building a 20-mile railroad freight expressway linking the ports of Long Beach and Los Angeles to the transcontinental rail yards just east of downtown Los Angeles. The project will speed the shipment of cargo and improve the flow of rail and vehicle traffic by consolidating rail lines and eliminating more than 200 street-level railroad crossings.

The Mid-Corridor segment calls for construction of a 33-foot-deep, two-track trench running about 10 miles along Alameda Street between State Route 91 in Compton and 25th Street in Los Angeles. Bridges will be built to carry street traffic over the trench at 29 crossings. The lead contractor for the trench is Tutor-Saliba Corp. of Sylmar, Calif., which has extensive experience with large public works projects. The contract amount is $712 million. The team led by Tutor-Saliba proposed to build the project for the lowest ultimate cost.

The contract includes several provisions intended to keep the project on time and on budget. For example, Tutor-Saliba must pay the first $10 million in any costs for unforeseen conditions and late charges of up to $200,000 a day.

The contract was set up to ensure that residents and businesses along the Corridor route directly benefit from construction. For example, 30 percent of all work on the Mid-Corridor segment must go to local residents. Tutor-Saliba also must set up job-training sites and train at least 1,000 residents for construction-related and other jobs -- a benefit that will extend well beyond work on the Alameda Corridor.

In addition, ACTA has a goal that 22 percent of all work go to Disadvantaged Business Enterprises (DBEs) -- companies owned by a minority or a woman or firms with annual sales below certain levels. So far, 24.5 percent of ACTA work has been performed by DBEs.

The Mid-Corridor Design-Build Contract differs from a traditional public works contract in that the contractor is responsible for both designing and building the project. This has the advantage of allowing several steps to proceed concurrently, thereby saving time and money.

After a bypass track and other preparatory work is completed, actual excavation of the trench is expected to begin in mid-1999. Smaller-scale work began along portions of the Corridor route in April 1997.

Studies on the need for the corridor were first prepared in the early 1980s. ACTA, a joint powers authority between the cities and ports of Long Beach and Los Angeles, was formed in 1989 to build the project.

With an estimated cost of $2.4 billion, the Alameda Corridor is among the largest public works projects in the nation. It is scheduled to open in early 2002.

Via Rail, Canada's passenger service, may sell shares

TORONTO -- Via Rail Canada Inc., Canada's passenger rail system, hired a subsidiary of the U.K.'s Hambros Bank Ltd. to advise it on the possible sale of a public stake, a move that could raise money to improve service.

Via Rail, which had 1997 revenue of C$190.5 million, could also split into franchised regional operations, said Peter Gregg, a spokesman for Transport Canada. The proposals were first reported in the National Post.

A public stock offering would bring in money to help improve service at Via Rail, which carried 3.8 million passengers last year. While traffic has risen in Canada, trains at government-subsidized Via Rail have aged and become less reliable.

"We're exploring any kind of alternative financing arrangement," Gregg said. "That could include franchising, partial franchising, public-private arrangements or selling shares to the public."

Via Rail spokesman Malcolm Andrews declined to say when a decision will be made on whether to issue public shares or create franchise operations, or how much revenue either move could bring in to the railway.

However, officials at a conference on the future of Canada's passenger railway, VIA Rail Canada, said a federal plan to split VIA into private franchises would doom the railway, the Edmonton Sun reported. Politicians and researchers said the plan, being studied by a cabinet committee, would spell the end of VIA, which has seen its budget slashed in recent years. Under one proposal, VIA would be divided into regions, with different companies operating the railway in each. Transport Minister David Collenette wants the plan in place by 2000.

Bloc Quebecois member Michel Guimond sits on a Commons transport committee studying ways to improve the railway. He told the conference the franchising plan will threaten jobs at VIA, which employs 3000 people across the country.

Via Rail would have trouble adding more service or faster trains because Canadian National Railway Co., the nation's largest, and Calgary-based Canadian Pacific Ltd. own the lines, said Terrence Fisher, a transportation analyst with HSBC Securities in Toronto.

"Also, the history of profitability in rail isn't particularly exciting -- it'll be a tough road," Fisher said.

Still, Via Rail and Canadian National are in talks about expanding service in the corridor that serves Windsor, Ontario; Toronto; Montreal; and Quebec City, said Mark Hallman, a spokesman for Canadian National.

Via Rail is considering a split into three franchised operations, a move that Via Rail's Andrews said could generate more revenue. The franchises would include Western Canada, Atlantic Canada and the Windsor, Ontario-Quebec City corridor.

The Ontario-based National Post identified three possible bidders to control the regional operations: Richard Branson's Virgin Rail Group Ltd.; Perth, Scotland-based Stagecoach Holdings Plc; and Montreal-based Bombardier Inc., which makes airplanes, rail cars and snowmobiles.

"We don't comment on market speculation," said John Kiely, a spokesman for Stagecoach, who added the company has no investments or business operations in North America.

Bombardier spokeswoman Linda Coates said that while the company does provide rail cars to Via Rail, it hasn't been contacted by the railway to possibly operate a regional franchise. Hambros, now a unit of France's Societe Generale SA, helped privatize parts of British Rail Via Rail and Amtrak, the only U.S. national passenger-rail service, both receive government subsidies. Last year, Via Rail received C$170 million from the Canadian government.

Canadian Pacific’s 4^th quarter operating income to be "off a little"

MONTREAL -- Canadian Pacific Railway's fourth-quarter operating income, excluding unusual items, "could be a little off" the year-earlier level, said Rob Ritchie, president and chief executive of the Canadian Pacific Ltd. (CP) unit.

For the full year, however, operating income before unusual items should still be above the 1997 level, Ritchie told reporters following a speech to a rail group here. He declined to be more specific.

Looking ahead to 1999, grain and coal traffic present "tough challenges," while the outlook for automotive and intermodal traffic remains bright, Ritchie said. Intermodal traffic in the third quarter was up 11% from the year-earlier level, he noted.

CP Railway expects strategic investments in fleet renewal, track and facilities, and information systems to help shave about C$100 million from operating expenses in 1998, Ritchie said in his speech.

The railway should continue to grow faster than Canadian gross domestic product, he added. The "top-line impact" of the company's growth strategies could reach C$250 million, he said.

Rulings by the U.S. Surface Transportation Board on conditions for CP Rail service into New York City, following the breakup of Conrail, are expected by year-end, Ritchie said.

Jacques Cote, chief executive of the company's St. Lawrence & Hudson Railway unit, which operates in eastern Canada and the U.S., said taking advantage of improved access into the New York area will be a major priority in 1999.