Norfolk, CSX seem back on track

Both rail companies have much improved on-time performance

Lost customers return

But port and shippers still await benefits of painful Conrail merger

May 27, 2001|By Paul Adams | Paul Adams,SUN STAFF

Expectations were high when Norfolk Southern and CSX Corp. agreed in 1997 to divide Conrail Inc. in what has been described as the most complex railroad merger in history.

In an effort to win political support for the $10.3 billion deal, the railroads pledged to spend millions on long-awaited infrastructure improvements in Maryland, inject new competition into the transportation system, aggressively market the port of Baltimore and lower rates to entice shippers to take cargo off crowded highways and put it on rail cars.

But within hours of the changeover June 1, 1999, it was clear that the much-anticipated benefits of the merger could be months -- or perhaps years -- away as a series of technical and logistical foul-ups sent rail cars to the wrong locations, backed up traffic for days on crowded tracks and caused shippers to abandon railroads in favor of trucks.

Two years later, Norfolk Southern and CSX have resolved most of the logistical problems associated with their purchase of Conrail.

But many shippers -- some of whom lost millions as a result of train delays in the year after the merger -- say they are still waiting for lower rates, increased competition and other expected benefits of the merger.

And while the railroads have made good on many key promises to the state, some multimillion-dollar infrastructure improvements have yet to be addressed and probably won't be in the timeline originally spelled out in a three-year agreement with state and federal regulators.

For now, state transportation officials are willing to give the railroads more time, but their patience could run out over the next few years if more progress isn't made.

"I think the way you have to look at it is that the system overall is working fairly decently, but there are parts of it that still aren't working correctly," said Jack Prugh, manager of distribution for Millennium Chemicals Inc. in Hunt Valley and chairman of a council of shippers and rail executives established by federal regulators to monitor the merger.

Executives of both railroads note their improving records and the millions spent on track and rail yard improvements in the past two years as evidence that they have largely made good on their service and spending promises.

While agreeing there is still work to do, both said they are making further progress and spending money where it makes sense.

"Are there going to be some customers out there who are going to have problems and are going to be frustrated with service? Absolutely," said Bill Schafer, director of corporate affairs for Norfolk Southern. "But that is something that has existed since the 1830s when railroads first were born."

State officials are mostly pleased with the progress being made, but say more needs to be done. Setting a timeline for completion is complicated by market conditions and the financial challenges both railroads have incurred since the merger.

"A lot of the big-ticket items are not moving forward as quickly as we would have liked to have seen them," said David L. Ganovski, director of rail freight services for the Maryland Department of Transportation and one of the lead negotiators for the state. The railroads still have a year to make good on commitments made in the merger agreement.

"We've tried to be understanding, but we're also trying to be firm," he said. "As we look through the next 12 months, we'll have to start seriously looking at [their progress]."

As part of its agreement with Maryland, Norfolk Southern pledged, among other things, to build a new automobile-distribution facility in the Baltimore area, raise clearances on the Conrail line so that double-stacked containers can move in and out of Baltimore's port, and construct a new rail yard at the Dundalk Marine Terminal. At the time, those improvements were estimated to cost $40 million.

Railroad and port officials have yet to find a customer to justify building a new auto facility in eastern Baltimore, and state officials aren't likely to press the issue until one is identified.

"We don't expect them to build a white elephant," Ganovski said.

But Norfolk Southern has made improvements aimed at increasing service to the city that go beyond its merger agreement.

Those include new rail connections into the Detroit area, expected new service to Cleveland and a new rail hub near Atlanta that will allow shippers in Baltimore to reach additional markets in the Southeast.

Raising tunnel clearances to allow the movement of double-stacked containers is under study by both railroads and the state.

But the improvements would require a large investment -- perhaps in the billions of dollars -- and would take at least three years to complete. However, state officials concede they probably won't need double-stack capability until 2005 to 2007, which gives the railroad more time to come up with a solution.

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