UTU Daily News Digest

Information of interest to operating railroad and transportation employees

Tuesday, February 22, 2000

CANADA: All Aboard for a Big Rail Deal?

MONTREAL -- It is just steel and stone, a rough line scratched across an immense and largely empty landscape, The New York Times reported.

But for much of the last century, as the whistle of Canadian National freight trains pierced the northern night, the ''government railroad,'' as CN was known, helped define Canada.

The grand old railroad ran from east to west, and so did Canadian commerce -- even with American markets lying seductively close to the border. So long as there was a separate Canadian market, and a separate Canadian railway, generations of politicians vowed, there would be a separate Canada.

Now, the current president of the Canadian National Railway Company, Paul M. Tellier, has a different vision of the railroad, of Canada and of the American continent -- a vision that some people on both sides of the border reject. Though his focus remains transcontinental, he is looking south, across the United States border and beyond that into Mexico.

Mr. Tellier wants to merge the Montreal-based CN with a giant American railroad, the Burlington Northern Santa Fe Corporation, and create the most titanic railroad this continent has ever seen. The behemoth would have 50,000 miles of track, combined annual revenue of $12.5 billion, freight service to 32 states and 8 Canadian provinces, and cross-border access from Halifax, Nova Scotia, to Mexico City to Long Beach, Calif.

The proposed $6 billion rail pact is important for what it says about one of America's oldest industries as well as what it shows about how North America is changing. Perhaps more than any other symbol, the alliance would underscore how far the formation of a truly integrated continental economy has developed in the six years since the North American Free Trade Agreement took effect.

''There has been a change in the mind of the peoples of North America,'' said Halina Ostrovski, president of the Canadian Council for the Americas, an economics-oriented research organization in Toronto. ''They now see the three countries as one big market.''

Not everyone is willing to accept the vision of the new railroad or the changes it represents. In the United States, shippers and unions, burned by service disruptions after other big rail mergers, oppose the deal, a cashless transaction that would create a new holding company, North American Railways. Competing railroads have warned that another merger at this time would push the industry into a final round of consolidations that would end with just two enormous networks to serve the entire continent of North America.

In Canada, shippers and farmers are worried that the merger will reduce what little competition exists -- CN's only national rival is the Canadian Pacific Railway Company. And fervent nationalists see the proposed merger as the loss of a revered national symbol and the last spike in the dream of an independent, sovereign Canada.

''We would probably not have the western part of the country in Canada today if not for these railways,'' said David Orchard, a prairie farmer and chairman of a Canadian group called Citizens Concerned About Free Trade. ''This merger would be a betrayal of everything that the founders of the country fought for.''

Both freight lines are led by executives determined to drag American railroads into a new era. Robert D. Krebs of the Fort Worth-based Burlington Northern is a bred-in-the-bone railroad man, with 34 years' experience running American trains. Mr. Tellier, who joined CN eight years ago, is a former civil servant with a passion for Descartes.

The combined railroad, they say, makes perfect economic sense. North-South traffic across the borders is expanding at a rate of 10 percent to 15 percent a year, while east-west traffic is rising no more than 4 percent annually. United States trade with Canada and Mexico has continued to grow even when trade with many other countries flattened out.

''What we're seeing in North America is what you would expect from the development of a free trading zone, but in many ways it goes beyond that,'' said Jorge O. Mariscal, a managing director at Goldman, Sachs. ''It's now engulfing banking, telecommunications and transportation in a quite remarkable way.''

The railroads have taken pains to present the deal as a merger of equals. Burlington Northern and CN would keep their own offices, and their locomotives would continue to be painted with their separate corporate logos.

But the balance of power seems to tip toward the Canadians. The parent company, North American Railways, will be in Montreal, and, by Canadian law, the majority of board members must be Canadian. Mr. Krebs, 66, would become non-executive chairman and Mr. Tellier, 60, chief executive.

The $40 billion North American freight railroad industry has already slimmed down considerably in response to relentless competition from trucking, which began offering transcontinental service a decade ago.

''Truckers have been eating our lunch every day of the week,'' Mr. Tellier said.

Over the last two decades the number of large, independent -- so-called Class I -- freight lines has declined substantially. In 1980, 26 such freight railroads operated in the United States, according to the Association of American Railroads. Today, just seven are left. While that decline was due in part to changes in the way railroads are categorized, there is no doubt that national railroads have been forced to get bigger to survive.

The outcry over the Burlington Northern-CN alliance has reached the Surface Transportation Board, the United States regulatory agency with the power to review, and possibly block, rail mergers. The board has scheduled an unusual public hearing next month -- before the formal merger application is even filed -- to look at the rail industry's future.

If railroad consolidation ''plays itself out to the endgame that some feel it will,'' Linda J. Morgan, chairwoman of the board, wrote in response to the merger announcement in December, ''this is the final round.''

The most recent consolidations -- CSX and Norfolk Southern's absorption of Conrail, and the Union Pacific's acquisition of the Southern Pacific -- have not gone smoothly. Disgruntled shippers who continue to suffer delays and interruptions caused by the last mergers are in no mood for yet more consolidation. Led by the Chemical Manufacturers Association, they have made their displeasure known to regulators and to important members of Congress.

''This just ensures that politics is going to be the operative word,'' said James M. Higgins, a railroad analyst at Donaldson, Lufkin & Jenrette. ''It has become a political issue, and politics is more about perception than reality.''

The regulatory environment in Canada is quite different. The only significant review will be undertaken by the federal Competition Bureau, which will assess the merger's impact on competition within Canada, where the two railroads' lines overlap just for short stretches in Manitoba and British Columbia.

But Canadian legislators, particularly in the grain-growing west, where farms, mines and manufacturing plants rely on efficient rail service, are concerned that the combined railroad will favor Burlington Northern's more heavily used and profitable western line in the northern United States over Canadian National's parallel route.

''The big issue in western Canada is lack of competition,'' said Reg Alcock, a ruling-party member of Parliament from Winnipeg. ''We don't have many options.''

Even Mr. Tellier of Canadian National acknowledges that support is growing for Canada's House of Commons to use a coming revision of the Canadian Transportation Act to give federal officials new powers to review mergers.

''If I was back in my previous job would I argue that it makes sense for the Government of Canada to bring an amendment to Parliament?'' asked Mr. Tellier, who was clerk of the Privy Council, which made him the top bureaucrat in Canada, before taking control of CN in 1992. ''Sure it makes sense. Do I expect something like this to be passed overnight? The answer is no.''

He accuses Canadian nationalists and the competing railroads of playing on emotions to fight the merger. ''We're not going to get into any kind of emotional debate or confrontation,'' he told analysts at a meeting in New York. ''We're going forward in a very rational, Cartesian fashion to make our case.''

Still, the emotions are real. Perhaps more than any other nation, Canada used the building of the railroad to stitch disparate colonies into a nation. The fledgling federal government used the audacious promise of building a rail line across the empty western prairies to entice the faraway province of British Columbia to enter confederation in 1871.

The building of the Canadian Pacific and what later became the Canadian National were heroic undertakings, spurred more by national pride than economic sense. The cost was sizable, with billions of dollars in subsidies going toward keeping the railroads running.

By 1919, a group of money-losing lines was taken over by the government and combined to form Canadian National. In the early 1990's, CN was privatized. More than 60 percent of the shares are held by American investors.

Mr. Tellier said he had no patience for those who think the alliance represents the Americanization of Canada. Last year, he bought the Illinois Central and it was an open secret that he was shopping for another American line, the Kansas City Southern, which is part owner of the recently privatized line from Mexico City to the border that carries about 40 percent of Mexico's rail traffic.

CN already has a 15-year marketing agreement with the Kansas City Southern that gives it access to the Mexico City line.

''If you look at a map, it would be a logical extension at one point in time,'' Mr. Tellier said, suggesting that CN might go after the Kansas City Southern again. He also said that an alliance with a carrier in the Northeast was inevitable.

Mr. Tellier is sometimes criticized for thinking like a government official and not like the chief executive of a tradition-bound business that he has become. But Mr. Krebs of Burlington Northern, who has spent his whole career in railroading, is also convinced that running the trains on a continental basis is not only logical but inevitable.

''Market forces are demanding a transcontinental system,'' he said. ''It's just a matter of time.''

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WASHINGTON: Truckers To Protest Fuel Prices

WASHINGTON -- Organizers of a trucking protest say a demonstration today in the nation's capital against soaring diesel fuel prices is a part of a fight to save their livelihoods, wire services reported.

"Hopefully, Congress is going to come out and not ignore us,'' Bill Dickens, Jr., an owner-operator from Baltimore, said Monday.

Organizers in New Jersey and Pennsylvania said from 300 to as many as 500 trucks might participate.

A convoy of 60 rigs could stretch as long as a mile in length, but police and protest organizers said attempts would be made to avoid traffic disruptions.

Police in the District of Columbia have arranged parking for most of the rigs as some of the truckers visit the Capitol. But many lawmakers will not be in town. Although the Senate returns from its President's Day recess on Tuesday, the House was not returning until Feb. 29.

The truckers are frustrated by soaring fuel prices in recent weeks that have added to long-standing disenchantment among truckers over low freight rates and the condition of cargo equipment provided by freight companies.

State police in New Jersey and Maryland have agreed to escort convoys through their states. The main group of protesting drivers was heading out from New Jersey today at dawn.

Diesel prices in the central Atlantic and New England regions have risen 43 percent and 55 percent respectively in the past six weeks, according to the American Trucking Association, the freight hauler trade group. The high prices have forced many independent owner-operators to park their rigs.

The trade group has taken no position on the demonstration.

"It used to cost an owner operator $220 to go a distance, now it costs $500,'' said Jackquie Medaglia, whose husband is a second-generation owner-operator.

Despite trucker assurances that they have no interest in disrupting Washington traffic, some motorists feared the worst.

"We could be in a situation where we're at complete gridlock,'' said Mantill Williams, a spokesman for Mid-Atlantic Region of the American Automobile Association.

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UTAH: Commuter Train Derails

SALT LAKE CITY -- A light rail train jumped the tracks in the center of a downtown street, crashed into a utility pole and skidded into the roadway Monday afternoon, wire services reported.

About two dozen people on board suffered bumps and bruises, but no serious injuries were reported.

Because Monday was a holiday, few vehicles were on the street and none was hit by the skidding train cars.

Passengers on the light rail TRAX train said they heard scraping on the rails and then a bang when the train hit the pole, throwing riders from their seats.

"You just heard a crash, then you're down on the floor and people are piling on top of you," said passenger Susan Brown.

"It was chaos," said passenger Radell Donel.

Utah Transit Authority officials believed the accident was caused by a malfunctioning switch. The train's wheels apparently caught on the switch after coming around a curve, jarring the third car off the tracks. The train then slid across the pavement, slammed sideways into a utility pole and bounced into the street.

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WASHINGTON: Maryland's Rail Service Rocky Compared With Virginia's Smooth Ride

WASHINGTON -- It was still dark when John Hansen, 49, boarded a Virginia Railway Express train in Fairfax County and settled into a seat and the sports pages for a 50-minute cruise to his federal job in Washington. "The service is excellent, I love it," he said, in a story by the Washington Post.

Around the same time, Michael Hughes, 49, stood at a MARC rail station in Howard County, checking his watch and trying to stay warm. Hughes also has a federal job in Washington. But his southbound train was late. Again. "It's definitely the worst in the 10 years I've been riding," he said.

The steel rails that stretch from Virginia to Washington's Union Station and into Maryland are owned by the same company, CSX Corp. But the commuter train experience on each side of the Potomac River is completely different. And it has plenty to do with the changing political landscape along the tracks as they run from Virginia to Maryland.

As both states negotiate new commuter rail contracts with CSX, the distinctions between Virginia and Maryland are as clear as a red signal.

Virginia has warm relations with CSX, thanks in part to the state's hefty investments in upgrading the tracks owned by the private railroad. The Richmond-based company has been a longtime political backer of Gov. James S. Gilmore III (R), pouring more than $92,000 into his campaigns since 1993. VRE, the state's young commuter rail line, is 95 percent on time and is the second fastest-growing commuter railroad in the country.

Across the river, both Maryland officials and CSX executives describe their relationship as "difficult." During heavy traffic, CSX dispatchers often idle MARC trains while allowing more profitable freight trains to roll through--a pattern that has drawn criticism from Maryland's two U.S. senators, Paul S. Sarbanes (D) and Barbara A. Mikulski (D). That complaint is rarely heard in Virginia.

MARC trains are on schedule an average of 83 percent of the time, but riders say the record some days is much worse. Maryland has been resisting CSX's clamor for additional track investment, saying the company must first improve MARC passenger service.

CSX officials say their dispatchers aren't making decisions based on geography. In both states, dispatchers decide on a case-by-case basis whether a freight or a passenger train has priority, said Paul Reistrup, a CSX vice president. The difference is that the Maryland tracks have more choke points and heavier freight traffic than the Virginia tracks, making it harder to weave passenger and freight trains together in a smooth flow, he said.

Maryland's commuter service would be better if the state spent money to increase capacity in its rail corridor, CSX officials argue. "Clearly, there's a difference here," said Robert W. Shinn, another CSX vice president. "There's been more investment from the Commonwealth [of Virginia] than from the State of Maryland."

CSX gets a fee from both Maryland and Virginia for sharing its rails with commuter trains. Maryland pays the company $17.8 million a year to run the MARC trains. Each year, Virginia pays $2.9 million to CSX for use of the Fredericksburg line, $1.75 million to the Norfolk Southern Railroad for use of the Manassas line and $11.2 million to Amtrak to run the VRE trains on both lines.

CSX has long been a presence in Virginia politics, spending more than $400,000 since 1993 on campaigns of various state lawmakers, most of them Republicans. The company's president and chief executive officer, John W. Snow, is a major GOP donor and worked in both the Nixon and Ford administrations.

Gilmore and the state legislature, now under Republican control, have been good to the railroad. In his next budget, Gilmore has committed $100 million toward a project to use state and federal dollars to build a $350 million third track for CSX between Richmond and Washington. A third track would permit VRE to add trains, including four express trains it plans to launch as soon as Gilmore's budget is approved. And it would be a first step toward creating high-speed rail between Richmond and Washington, a goal the federal government supports.

The third track would also allow CSX to expand its freight business, although the railroad's executives say they can't estimate the size of the increase.

The deal, which must be approved by the Virginia legislature and the federal government, is being questioned by some who think CSX is getting a free ride.

"Any investment in track upgrade is of benefit to CSX as well," said Fairfax County Board of Supervisors Chairman Katherine K. Hanley (D). "They get to move more freight. So I would hope CSX would be a partner in investing."

CSX executives say they shouldn't be expected to chip in for a third track because it wouldn't be needed if not for VRE. "We would be improved by a third track, yes, but we wouldn't need to do any of these improvements if it wasn't for passenger rail in the corridor," Shinn said.

VRE's relationship with CSX hasn't always been smooth. In 1997, after a CSX train derailed in Virginia and sideswiped an Amtrak train, the freight railroad wrecked VRE's timeliness by repairing tracks in the middle of peak commuter hours, day after day. Passengers started fleeing, and the local communities that help fund VRE debated about whether to scrap it.

Shortly after Gilmore was elected governor, VRE began turning around. "The railroads listen only to the governor or God," said Fairfax Supervisor T. Dana Kauffman (D-Lee), a VRE operations board member who pushed to keep the railroad running during its dark days. "We get out of them what we can negotiate and the governor is the winning hand. . . . If it means we have to give a little more, well, the state and local jurisdictions benefit by every person we pull off the interstate."

Virginia has paid for track upgrades and new rail crossovers and junctions to improve the flow of both passenger and freight trains on the CSX track. Today, the eight-year-old VRE is enjoying wild success. It carries about 9,000 daily trips and is adding riders at the pace of one train car a month. Three weeks ago, it began rolling out 13 new bi-level rail cars that allow trains to carry more passengers.

Maryland is another story entirely.

In Democrat-controlled Annapolis, CSX has a much lower political profile. Records show that the railroad has made only two contributions to Maryland gubernatorial candidates since 1996: $2,000 to Gov. Parris N. Glendening's 1998 reelection campaign and $100 to his Republican challenger, Ellen R. Sauerbrey.

Maryland officials are taking a tough line as they gear up for their talks with CSX on a new contract. For the first time, they are insisting that the discussions cover all CSX operations--freight service, commuter rail and business with the Port of Baltimore--instead of negotiating each service separately as was done in the past. And they want a two-year contract instead of a five-year deal, so they will have flexibility if they remain unhappy with CSX.

Maryland plans to spend $300 million in the next six years to improve its commuter rail service. But most of that investment--including a $56 million extension to Frederick, $83 million for new bi-level cars and $44 million for new locomotives--won't especially help CSX in its freight operations.

State officials are still smarting from their 1992 decision to pay for a new $17 million signal system along the CSX track. After they told CSX they would pay for new signals if it meant they could add passenger trains, CSX selected and installed a system that was designed mainly to increase the capacity for freight traffic. The state eventually got its extra passenger trains, but the signal system is still being "tweaked" to better handle passenger trains, said Kathryn Waters, manager and chief operating officer for MARC.

Service on the MARC system has been rocky since June, when CSX absorbed 42 percent of Conrail's freight operations in one of the nation's largest railroad mergers. Dispatchers were overwhelmed, trying to weave the longer, slower freight trains into the heavy traffic flow between Baltimore and Washington.

Last summer, monthly on-time arrivals fell from 90 percent or better to as low as 73 percent on MARC's Camden line between Baltimore and Washington.

Some of the difference between the quality of service on VRE and MARC trains has to do with the management of the two commuter lines.

VRE, the young and hungry railroad, places a premium on customer service. It has free parking that is constantly expanding, cafe cars and an e-mail service that alerts riders of any service problems or changes. VRE reimburses riders for day-care fees if their trains are late and issues a free ticket to any commuter whose train is delayed at least 30 minutes.

MARC, on the other hand, offers none of those services except free parking at most stations. "It's like VRE is saying, 'We care about you Virginia riders,' but MARC is saying, 'We don't really care about you whether you ride the trains or not,' " said Patricia Valentino, a MARC rider and administrative secretary from Laurel who has tried unsuccessfully to get MARC to adopt VRE's customer practices.

The track MARC uses poses challenges because it is a winding "ancient railroad" dating from 1827, said Reistrup of CSX. "It's a challenge, but it's not that it can't be addressed and worked out," he said.

Maryland officials say they are willing to invest in capital improvements, but not until CSX improves MARC's on-time performance.

"We are committed to doubling transit ridership throughout the state by 2020," said John D. Porcari, Maryland's transportation secretary. "And we will make major investments where it's in the interest of our citizens. But it's clear that CSX needs to make our passengers a priority if we're going to have any discussion about state investment."

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ENGLAND: Railtrack Set To Retain Partial Control Over Rail Safety

LONDON -- Railtrack PLC's (U.RTK) responsibility for regulating train operating companies is to be transferred to the U.K. Health and Safety Executive, but the company is set to retain control over the regulation of rail tracks and signals, a Downing Street spokesman indicated Tuesday, a wire service reported.

The decision will likely prompt accusations of a U-turn by the government, which had said it was "minded" to strip Railtrack of its safety function following the Paddington rail crash.

Deputy Prime Minister John Prescott will say later Tuesday that "the Health and Safety Executive are taking over completely from Railtrack the safety regulation of the rolling stock," the Downing Street spokesman said.

When asked whether Railtrack would continue to be responsible for safety of the tracks and signals, the spokesman said: "Should that be the case, we are looking at a wholly insulated subsidiary."

Prescott is expected to confirm in a speech to the House of Commons later that Railtrack will be asked to set up a subsidiary to fulfill this role.

The recommendations for Railtrack's safety role are made in a report from the Department of the Environment, Transport and the Regions, which is one of three reports relating the Paddington rail disaster being published Tuesday.

The report will also look at ways in which train protection warning systems can be installed to help prevent further crashes.

"You will see a very significant announcement on improving safety today," the Downing Street spokesman said.

He insisted that the government was not making a U-turn on policy since he said Railtrack's main safety function will now be lodged with the Health and Safety Executive.