Shippers await Conrail breakup

Today's switch-over may bring lower costs, losses for truckers

Risk of commuter delays


The companies about to divvy up the huge government-run Conrail system have certainly tried to do their homework.

They bought extra locomotives, laid hundreds of miles of new track, tested computer systems and settled with a multitude of unions. They hired thousands of Conrail workers and managers and spent long hours teaching them what the future would hold.

That future arrives today as Norfolk Southern and CSX, which already dominate commercial rail traffic in much of the East, take over chunks of Conrail. The switch-over will herald the most sweeping change in a generation in the Northeast's commercial railroads.

If the transformation goes smoothly, the effects will be felt far and wide. With more competition, shipping costs should fall, a benefit that could ripple throughout the region's economy in the form of lower prices for all manner of goods. Increased rail traffic could take business from truckers, which would have a marked impact on traffic and pollution.

Some of this bonanza, however, could well come at the expense of commuters. Many commuter lines in the Northeast share tracks with Conrail, and increased commercial traffic could put a squeeze on them -- and increase the risk of snags that would delay everyone. Both railroads have had extensive meetings with local transportation authorities to address these concerns.

At the moment, though, the focus is on the long-awaited transition. Shippers, regulators and other railroads will watch closely as CSX Corp. and Norfolk Southern Corp. attempt to redraw the rail map while avoiding the service foul-up that followed the last major rail merger.

After taking over Southern Pacific in 1996, Union Pacific, the nation's largest railroad, was mired in chaos for months, with thousands of rail cars lost or misrouted and its major rail lines clogged with traffic. Shippers faced such frustrating delays that some, in desperation, had to go to Union Pacific's rail yards themselves to search for their goods.

At the height of the debacle, in late 1997, the extra cost to manufacturers, utilities and retailers along the Gulf Coast and on the West Coast ran to an estimated $100 million a month.

Union Pacific did finally manage to restore service to normal, but the experience left many shippers nervous as the joint takeover of Conrail drew near. So a group of companies put pressure on executives of both Norfolk Southern and CSX to meet with Union Pacific executives to try to find out what went wrong and what they could do to avoid a chaotic encore.

"We wanted to make sure they didn't repeat the same mistakes," said Edward H. Rastatter, director of policy at the National Industrial Transportation League, a trade group that represents many of the nation's largest rail shippers.

Norfolk Southern and CSX ended their bidding war for Conrail in 1997, realizing that even if one of them prevailed, it would face major antitrust hurdles.

That April, they agreed to buy Conrail jointly for $10.3 billion, with Norfolk Southern getting 58 percent and CSX 42 percent.

But both railroads bided their time before taking over. They also agreed to spend money to buy new equipment, including locomotives, and to train extra engineers so they would have a reserve if they ran into trouble.

Michael Ward, an executive vice president at CSX Transportation Inc., the railroad subsidiary of CSX, based in Richmond, said Union Pacific's troubles proved to be an advantage in the transition.

"It made us pause and not rush the savings," he said. "It gave us the patience to do this properly."

Pub Date: 6/01/99

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