UTU News Digest - Wednesday, February 23, 2000

UTU Daily News Digest

Information of interest to operating railroad and transportation employees

Wednesday, February 23, 2000

NEW YORK: CN plans major rail-transfer terminal in Buffalo

BUFFALO -- Canadian National Railway Co. announced plans Thursday to build a $5 million to $6 million truck-to-train transfer terminal that could make Buffalo a major shipping hub in a pending rail mega-merger, the Buffalo News reported.

But the project faces two serious obstacles: U.S. government approval of the merger and an overloaded railroad bridge across the Buffalo River. CN plans to merge with Burlington Northern Santa Fe, a Texas-based railroad, creating North America's largest railroad. The system would have 50,000 route-miles, 67,000 employees and annual revenue of $12 billion.

The merged company would cover all of Canada and the Western and Midwestern United States, but would have no track running to East Coast ports such as New York, Philadelphia and Baltimore. Buffalo would be the easternmost U.S. port for the rail giant. The intermodal facility - planned for South Buffalo - would be a transfer point for cargo containers designed to fit both trucks and rail cars.

The railroad is still working on details, such as the specific location of the terminal and a construction schedule. If built, the Buffalo terminal would become a strategic port where shippers in the Northeast and mid-Atlantic could send truck cargo to the intermodal terminal and have the cargo containers loaded onto or taken off trains.

"Buffalo would be an important link to the overall success of our merger," said Kay Bryant, director of business development for CN.

Buffalo Niagara Partnership President Andrew Rudnick described CN's plans as a step toward rebuilding the transportation infrastructure that once was the backbone of Buffalo's economy. Buffalo grew to be the eighth-largest U.S. city in the late 1800s mainly because it was a transportation hub between railroads and Great Lakes shipping companies.

A coalition of local elected officials – representing Buffalo, Erie County and Niagara County -- praised Montreal-based CN's announcement as a big step in Western New York's future as an international trade center.

"This is a very significant announcement," Buffalo Mayor Anthony M. Masiello said. "Obviously, transportation infrastructure will be important to our future."

The intermodal terminal would be built if the U.S. Surface Transportation Board approves the merger between CN and Burlington Northern Santa Fe. Some shippers and business organizations oppose the merger, fearing it would reduce rail competition.

"I'm opposed to another rail merger. It would just be another disaster in the making," said one transportation manager for a large area manufacturer, who spoke on condition of anonymity.

Other railroad consolidations, such as the breakup of Conrail by CSX Corp. and Norfolk-Southern Corp., have reduced competition in the Northeast and caused freight logjams and service delays.

Buffalo companies that receive shipments from the Pacific Rim now have east-west competition between CN and BNSF. Shipments can arrive in Vancouver and come east by CN, or they can come into Seattle and travel on BNSF. The proposed merger would eliminate that competition.

"If you eliminate that competition, what do you thinks going to happen to prices? I wouldn't want to wager that my prices are going to go down," the local transportation manager said. "The intermodal terminal might be good for adding jobs and making Buffalo more of a hub. But from a corporate standpoint, I don't think it will benefit us."

But an executive for Sonwil Distribution Centers, a Buffalo-based shipper of food products, automotive parts and consumer goods, said he supports the merger because it would create a seamless shipping route from Buffalo to the West Coast.

"You've got to remember, there's still competition with rubber tires. There's still going to be trucks out there that can provide this service. So CN is going to have to be responsive to the marketplace," said Ray Stoos, vice president of sales for Sonwil.

CN received political support for its proposed merger following Thursday's announcement. Local elected officials and leaders of the Buffalo Niagara Partnership, Western New York's largest business group, said they plan to lobby for the merger in Washington.

Another major obstacle for the intermodal facility is the Buffalo River. The terminal would be built in South Buffalo to link with short-line railroads, such as the South Buffalo and Buffalo & Pittsburgh railroads. CN trains would have to travel from South Buffalo to the International Bridge, owned by CN, which crosses the Niagara River north of the Peace Bridge. To get there, the CN trains would have to cross the Buffalo River on the "CP drawbridge."

CSX Corp. owns and operates the drawbridge. The limited bridge capacity already slows rail service in Buffalo and would become a more congested bottleneck with the Canadian railroad increasing local train traffic. Government leaders have been negotiating with CSX and Norfolk-Southern to either build a new bridge or reopen an old Norfolk-Southern bridge that crosses the river. The cost of opening another Buffalo River bridge crossing has been estimated at $10 million to $30 million.

About the same time CN and BNSF were announcing merger plans in December, CSX and Norfolk Southern cooled on plans for a new bridge crossing. The two railroads want the government to pay for a new bridge.

WASHINGTON: CN-BNSF merger and why the other railroads are balking

WASHINGTON -- Union Pacific, CSX, Norfolk Southern and Canadian Pacific make no secret that they don't want Burlington Northern Santa Fe and Canadian National to merge. It's also no secret that if they can't block the transaction they will do what they can to delay it, the Journal of Commerce said.

UP stands to be the big loser if BNSF and CN combine to form the largest railroad in North America. A lot of southbound traffic that now flows on CN from Canada and the automotive complex in Michigan to UP at Chicago won't any more. It's that simple.

Norfolk Southern and CSX don't stand to lose much traffic as a result of a BNSF-CN combination. Their opposition is based on economic reality.

It is generally believed that the BNSF-CN transaction inexorably will force the rest of the rail industry into defensive strategic moves, and the trend toward two giga-systems (the last merger round produced mega-systems) will accelerate. That's why the Surface Transportation Board is holding four days of hearings next month on the structure of the North American railroad industry.

If BNSF and CN merge, do the others have to merge? Technically, they don't. Practically, they do.

Once it becomes obvious to the others that they cannot kill or substantially delay BNSF and CN, watch for them to do their own deals quickly. And that's what they fear -- having to do deals now.

In the capital-intensive railroad industry, no company can allow its competitor to become significantly larger. Bigger carriers get even bigger because they can offer customers more options and can handle more of their transportation needs.

Failure to respond can condemn a railroad to secondary status. That was the argument UP used in 1982 to acquire Missouri Pacific and Western Pacific after Burlington Northern acquired the St. Louis-San Francisco Railway. It was the argument UP used again to buy Southern Pacific in 1995 after BN merged with the former Santa Fe. We just want to compete, UP said.

That fear motivated Norfolk Southern to fight its ferocious battle for Conrail after CSX announced its intention to buy the Northeast carrier.

That explains UP. What about NS and CSX? Neither is directly threatened by the BNSF-CN combination.

But as CSX chief John Snow said in a January meeting with securities analysts, this is a dreadful time to be forced into a merger. A look at CSX and NS stock prices and market capitalization reveals why.

Just before the Presidents Day weekend, NS was selling for $14.93 a share and had a market capitalization of $5.7 billion. CSX was at $21.69 a share and its market cap was $4.7 billion.

Just think: You could buy NS for less than the $5.8 billion it paid to buy 58% of Conrail -- and you would have the entire railroad. Wall Street values CSX at only slightly more than the $4.2 billion paid for its share of Conrail.

Both railroads are suffering indigestion from the Conrail breakup. Service has not returned to normal, and until it does neither CSX nor NS is able to handle all of the traffic available, a revenue loss. Both still are incurring huge expenses trying to get their railroad operation fixed, and will for much of this year.

CSX and NS have proven earnings capacity. Both should generate greater income when the integration of Conrail is a fait accompli. Rising earnings in the future will lead to higher stock prices -- in the future.

Both companies are so weak right now that they are likely to be acquired rather than be the acquirer. That's a pride and ego issue. What's worse is they would be acquired at a low price. All those stock options granted when times were better would be of no value to NS and CSX executives.

UP, only a little healthier, would have to decide which Eastern railroad to buy. Its market capitalization is $9.4 billion and its stock is at $38 a share, about half what it was selling for when it bought SP in 1996.

Its balance sheet is nothing to write home about. In 1998, UP raised $1.5 billion in a private placement of convertible preferred stock, avoiding further trashing of its balance sheet with debt or having to ask shareholders to approve issuing new stock.

What all this boils down to is the merger that forms the first U.S. transcontinental railroad probably will be an all-stock deal with no premium. Negotiations to determine the value of the stocks and an exchange ratio will be arduous. One Eastern rail system would be left out in the cold with no place to go but BNSF-CN, putting it in an even weaker bargaining position.

That's why UP, CSX and NS "need" delay. They figure to be worth more in a couple of years from now. In the end, it's all about who calls the shots and money.

WASHINGTON: Expecting a crowd, STB extends hearing on rail industry's future

WASHINGTON -- One of the hottest shows in Washington next month could be a hearing before the Surface Transportation Board that will look into railroad mergers and the future structure of the North American rail industry, the Journal of Commerce reported.

It's so hot, in fact, that the STB has extended the hearing, originally scheduled for March 7-8, to four days.

The hearing now will begin on March 7 and continue through March 10. The STB received more than 150 requests to appear before the hearing. More than half of the scheduled witnesses will represent freight shippers. Members of Congress, state and local governments and railroad executives will make up most of the other witnesses.

The hearing comes less than two weeks before the STB is expected to receive a merger filing from Burlington Northern Santa Fe Corp. and Canadian National Railway Co. that, if approved, would create North America's largest railroad.

BNSF and CN have said they plan to file their application on or around March 20.

Other major railroads and some shippers, primarily chemical manufacturers, already have said they will oppose or seek a delay in the BNSF-CN transaction.

Rail opponents say they cannot allow a competitor to become disproportionately larger without taking strategic steps themselves, but that this is a bad time to be forced into further mergers. Those opponents still are recovering from their own recent mergers and have weakened balance sheets.

Shipper opposition stems from the severe delays and congestion that followed Union Pacific's 1996 purchase of Southern Pacific, and the more recent breakup of Conrail by Norfolk Southern and CSX Corp.

"There has been a great deal of speculation that the strategic responses of the remaining North American rail carriers to the proposed transaction will lead to a new round of major railroad consolidations, ultimately resulting in the formation of two North American transcontinental railroad systems," STB Chairman Linda Morgan said in announcing the hearing on Jan. 24.

While there is no direct connection between the hearing and the merger proceeding, there is the possibility that the STB could use the record from the hearing as the basis for changing the requirements that merging railroads must meet in making the case that their proposal is in the public interest.

In issuing rules for participation, and in anticipation of overflow crowds wanting to attend, the STB said that "line sitters" are permitted, but will not be issued badges. Public seating for each of the four days is on a first-come, first-seated basis.

In addition to seating in its hearing room, the board is providing a video and audio feed into an overflow room in its Washington office building.

Speakers have been told to emphasize the key points of their presentation, rather than read from statements or summaries. This will allow more time for dialogue and questions from the three members of the STB.

CALIFORNIA: MTA Can Do Little to Boost Crossing Safety, Study Finds

LOS ANGELES -- If anyone should know the dangers of the Metro Blue Line inside and out, it would be Los Angeles County Supervisor Yvonne Brathwaite Burke, the Los Angeles Times reported.

As head of the powerful Metropolitan Transportation Authority, Burke plays a leading role in setting policy for operating the Blue Line, whose trains operate along city streets and have killed 53 people since it opened in 1990. That is by far the most deaths for any light rail line in the state and is believed to be the most in the nation.

And, as someone who lives and works in the area served by the Blue Line, Burke regularly experiences the anxiety motorists face when crossing the tracks. Getting caught inside the gates when a train comes is a constant fear.

"I have not actually been stuck [inside the gates], but I have been concerned about getting stuck," she said. "If there is any traffic ahead of you as you start going across, there is a tremendous potential of getting caught. So, I tell you . . . I fly across the tracks."

Burke's comments are informative because the MTA, after a two-month in-house safety analysis, is essentially moving forward with its current Blue Line policy, which she indicates will not make her feel much safer.

Burke and others on the MTA's board of directors are finding that there are few dramatic moves they can make to improve safety on the heavily used rail line, which provides riders with as many as 57,000 trips a day on the 22-mile run between downtown Los Angeles and Long Beach.

The analysis, prompted by the deaths of six people Nov. 27 and Times stories exploring safety issues on the Blue Line, included an estimate that creating a grade separation--in effect, moving the tracks off the street--would cost as much as $1.6 billion. That is far more than the district can afford, and represents roughly twice the Blue Line's original construction cost.

That leaves MTA managers with a game plan that involves continuing the same policies that they have been following for years, with some tweaking here and there.

In an effort to reduce the number of so-called "S" turns, in which motorists use open traffic lanes to drive around closed traffic gates, the MTA plans to install four gates, rather than the conventional two, at as many as two crossings a year. Traffic signals also will be upgraded. And a stepped-up program of televised, public safety announcements, movie trailers, radio messages, billboards and school safety programs will be implemented.

At Imperial Highway, where there have been a number of accidents involving Blue Line trains, the city of Los Angeles, county, MTA and Caltrans are jointly financing construction of a $20-million bridge for motor vehicle traffic over the railroad tracks.

The MTA's safety program also would apply to the first phase of the 13.7-mile Pasadena light rail line. The Pasadena line is being built at street level, so will face similar traffic problems during its run through Lincoln Heights, Highland Park, South Pasadena and Pasadena. The line is being built by the Pasadena Blue Line Construction Authority, but is being financed and will be operated by the MTA.

During a hearing on Blue Line issues before the MTA's operations committee last week, Burke made a point of saying that the best chance of paying for grade separations comes during construction, because once a system is built the costs become prohibitive. Still, although she made it clear that she thinks grade separations would save lives, she said the MTA doesn't have money for grade separations on that system.

Residents along the proposed Pasadena route are becoming increasingly restive. Jim Leong, a retired businessman representing the Mount Washington Assn., pleaded for a grade separation during the operations committee hearing, although the Pasadena Blue Line Construction Authority has rejected the possibility of major changes to the project.

The Mount Washington Assn. is reconsidering its conditional support for the Pasadena rail line, in large part because of the Los Angeles line's safety record, Leong said. "When the Pasadena line was planned, we didn't have the experience of the Los Angeles Blue Line. Now we have 53 deaths. That is scaring some people," Leong said.

Richard Thorpe, chief executive officer of the Pasadena Blue Line Construction Authority, said he believes conditions on the Eastside are different from those on the Los Angeles-to-Long Beach line.

For one thing, the Pasadena line will not have freight trains running alongside its own trains, as does the Los Angeles line, Thorpe said. Nor will there be streets running parallel to the trains. Some of those who have studied the Los Angeles line believe the slowness of the Union Pacific freight trains frustrates motorists and causes them to take risks they might not ordinarily take. Left turns in front of trains are a leading contributor to Los Angeles Blue Line accidents.

MTA authorities have consistently argued that they believe the large number of deaths and injuries on the Los Angeles Blue Line is caused by risky behavior by pedestrians and motorists, who flout traffic laws and warning signals as they cross in front of trains.

An analysis of Blue Line accident records by The Times indicated that speed may be a contributor. It found that 85% of the deaths have occurred in the high-speed corridor, where trains go through intersections at 55 mph. An analysis comparing the Blue Line with light rail systems across the country found that the MTA trains operate at one of the highest average rates of speed. The Times also found that the last 18 deaths have all involved trains traveling south, whose speed tends to be higher through intersections.

MTA safety chief Paul Lennon, who put together the in-house analysis, said after the operations committee hearing that he is not recommending any changes in the speed of trains. He made it clear he still believes the main problem is that people go around closed crossing gates or ignore warning signals and horns. MTA investigations have held victims to have been at fault in all cases.

PENNSYLVANIA: Federal Court denies appeal against commuter tabloid

PHILADELPHIA -- A federal appeals court on Tuesday denied a temporary injunction sought by four major newspapers to keep a free tabloid out of areas of the city's subway, bus and trolley systems where other newspapers are not allowed to be sold, a wire service reported.

Attorneys for The Philadelphia Inquirer, the Philadelphia Daily News, The New York Times and USA Today had sought to block the distribution of the free paper, called Metro, while they challenge the new publication's relationship with a state transit agency.

"We consider it a victory, no question about it," Metro attorney William H. Roberts said about Tuesday's ruling by the 3rd U.S. Circuit Court of Appeals.

"We still intend to pursue this," said Michael Schwartz, an attorney for the publishers. "We still believe this scheme was a violation of the First Amendment."

The newspapers argue that Metro's contract with the Southeastern Pennsylvania Transportation Authority is unconstitutional because it allows a government agency to assert control over a newspaper and allows the tabloid to be distributed free on buses and subway platforms where other publications cannot be sold.

A U.S. district judge last month denied publishers for the competing newspapers a temporary restraining order. Schwartz asked the appeals court on Feb. 7 to issue a preliminary injunction while that decision is being appealed.

Metro is owned by Stockholm, Sweden-based Metro International, which publishes free daily papers in 13 European cities and Santiago, Chile. The Philadelphia publication, launched Jan. 24, is the company's first in the United States.