CSX touts Pan Am merger as STB questions competitive aspects of deal
WASHINGTON — CSX Transportation executives touted their plan to acquire Pan Am Railways during a day-long Surface Transportation Board hearing on Thursday, saying their deal to acquire the New England area will significantly improve service. freight and passengers.
But board members questioned several aspects of the merger, including concerns about Pan Am Southern’s and CSX’s projections for anemic traffic growth.
CSX CEO Jim Foote said the merger is good for shippers, passengers and the national transportation system because of the investments CSX will make in Pan Am’s dilapidated physical plant.
“It is well known that this New England rail network was on the brink of bankruptcy not so long ago before it was rescued by the Guilford Group, now Pan Am. viability of the New England network,” Foote said. “And now we have higher aspirations for Pan Am and its customers. We want to bring Pan Am and its customers into a new era, which will start with bringing them into our Class I network.”
Over three years, CSX will spend more than $100 million to improve Pan Am’s track, bridges and yards as well as its fleet of aging and failure-prone locomotives. Jamie Boychuk, CSX’s executive vice president of operations, showed the board a series of photos comparing Pan Am’s deteriorated track to CSX’s modern, well-maintained railroad.
The maximum speed on the Pan Am track is 25 mph outside areas where there is passenger or commuter service. Pan Am has 200 miles of long-term slow orders on its 1,200-mile network, Boychuk says, compared to just 20 miles on CSX’s 20,000-mile system.
Foote says CSX is committed to rebuilding the Pan Am network, including mainlines that are “so overgrown with trees and weeds you don’t even know there’s a railroad there “.
STB Chairman Martin J. Oberman questioned why CSX would pay a large sum to acquire Pan Am and then spend an additional $100 million to rehabilitate the railroad. CSX expects traffic growth of 2.3% in the first three years of the merger and 1.5% in the following two years, he noted.
“I have a hard time understanding how you’re committing $100 million on top of the purchase price to generate virtually no new growth from the merger,” Oberman says. “I don’t understand the economics of this. And that troubles me.
Boychuk says CSX is taking a long-term view of Pan Am by integrating the region into its network. “Investments, no matter who takes over, have to be made…If no one puts that money into that railroad, at some point, I don’t know what type of railroad is going to stay up there “, did he declare. said.
Sean Pelkey, CSX’s acting chief financial officer, said the railroad would “fight vigorously” to win new truck business and added that he was confident that the physical improvements CSX will bring to Pan Am’s network will lead to a more reliable service, which in turn will produce higher-than-expected growth.
Kevin Boone, CSX’s executive vice president of sales and marketing, said the introduction of single-line service in the Pan Am territory will help win business that currently travels by highway. Pan Am currently hauls forest products from Maine to a transshipment terminal in Ayer, Mass., for example, where trucks then take over for the trip to the New York metro market. CSX will make it an all-rail move to northern New Jersey via Selkirk, NY, Boone said.
Board members spent a lot of time probing the structure of the Pan Am Southern deal. CSX will enter Pan Am Railways’ 50% stake in joint venture Pan Am Southern, which provides rival Norfolk Southern with a route to New England. Berkshire & Eastern of Genesee & Wyoming will be the neutral operator for Pan Am Southern, which includes 425 miles of Pan Am track west of Ayer.
The Department of Justice has raised competitive concerns over CSX having a say in its main rail competitor’s route to New England, while Canadian Pacific says the deal could threaten the viability of the old Boston and Maine main line between Mechanicville, NY, and Ayer.
Several board members expressed concerns that CSX would essentially have a veto over maintenance and improvement projects on Pan Am Southern that would benefit Nova Scotia.
Pelkey encouraged the board to reject the Justice Department’s appeal asking CSX to divest its stake in Pan Am Southern. He compared Pan Am Southern’s Berkshire & Eastern operation to Conrail’s shared ownership by CSX and Norfolk Southern, which serves as a neutral switching operator for both railroads in shared asset areas. “We’ve proven it can work,” Pelkey said, noting that CSX, NS and Conrail jointly develop Conrail’s capital budgets.
Board member Michelle Schultz asked what would happen if the board ordered CSX to divest its stake in Pan Am Southern and there was no buyer able to successfully operate the joint venture .
“One of the problems with surrender, one of the big problems, is that there are a lot of unknowns and a great amount of risk that arises if the board were to take this extreme step of ordering the surrender “, says Peter Denton, an attorney for CSX.
CSX should reassess its deal with Norfolk Southern and consider restructuring the deal. “We would have serious concerns about the failure of this transaction,” Denton said, noting that the board never ordered a divestiture without first knowing who the operator would be.
Council members also discussed whether B&M’s old route through the Hoosac Tunnel would remain viable and whether CSX and NS would benefit from maintaining it. Intermodal and automobile traffic from Norfolk Southern will transition to new running rights on CSX’s faster, fully unobstructed Boston and Albany route to reach Ayer, removing a significant amount of traffic from Pan Am Southern.
CSX will continue to send carload traffic to the B&M at Rotterdam Junction, NY, and will need the route, officials said. As a carload, CSX will remain the second largest user of the old B&M.
Nova Scotia has no other way to get freight traffic to and from New England, spent nearly $150 million on the joint venture initially, then spent $215 million to acquire the southern end of the Delaware and the Hudson with the Canadian Pacific in order to take full control of its route. in Pan Am Southern, Nova Scotia, attorney William Mullins said.
So NS, like CSX, has an interest in ensuring the continued viability of Pan Am Southern, he says.
Oberman noted that Nova Scotia is limited to one 9,000-foot intermodal and auto train via CSX track fees per day. What would happen, he asked Mullins, if the volume increased beyond 9,000 feet and NS had to route more traffic down the single-stack route through the Hoosac Tunnel?
Mullins said Nova Scotia could use the current single-pile netting and forelock operation at its Mechanicville terminal, work with CSX and Massachusetts to fund a $300 million tunnel clearing project, or simply buy NOT outright if CSX opposed a proposed clearing.
Several shippers, third-party logistics providers and New England elected officials have expressed support for CSX’s acquisition of Pan Am.
The hearing resumes today, with Amtrak, the Massachusetts Bay Transportation Authority, Canadian Pacific and other shippers and officials on the schedule. It is streamed live, with a link available in the Quick Links section of the STB website.