CSX Acquisition of Pan Am Railways

Everyone must remember, these change don't happen overnight. The Port SJ expansion has taken 10 years..... again TEN years to get to the point it is now. The truth is steamship lines want an alternative to CN at Halifax and Canadian ports hold advantages without GST, harbor maint fees, ect. CP was approached by customers the past few years, major ones, asking them to create a new solution in Atlantic Canada. CMQ coming up for sale happened to be great timing.

CSX has said themselves.... a FIVE year plan for Pan Am upgrades. 5 years to get the entire system up to snuff. Surely there will be quick wins and I'm excited to see a real railroad up here (Guilford has never been a real railroad, just a real estate enterprise that happens to operate trains while floating scheme to scheme) but it's going to take a long time for things to change. CP is still very early in their playbook... the Port expansion is hitting major milestones in 2022, and a new domestic intermodal facility... give it some time and maybe get out trackside in the meantime.

The last CP train over the Moosehead for 2021 was more containers than mixed freight, and they've got the two ships you mentioned calling within the next week. Barcelona Express with the Glasgow express right behind it. While Searsport hasn't quite panned out, I'm impressed to see such heavy trains running more consistently, and over faster track this early in the takeover.

Messrs. CN9634 and NHV669, very encouraging reports.

Two parties, Timmy, and Topper, might kick themselves. Timmy for letting his road become a pile of scrap and junk. He could have kept it viable and be profitable by providing transportation, rather than selling off piles of scrap and junk that once was a railroad (and with a cost basis of $0, guess he made some $$$$).

Topper, might think "why did I bolt for the paddock so quickly and let that feline have it unopposed"?

Once again at 80yo, I cannot reasonably expect to see it come to fruition.

Timmy not only made money while operating but is going to make even more on the sale. Add on all of the real estate he's sold off over the years he's not kicking anyone.

To the questions surrounding the strategic chess game, when it comes to traffic flowing over Keag (N. Me Jct) as "the" or "a" primary driver, we're talking about, what, 25,000 annual carloads on the upper end absent a potential grand slam play, with a good chunk of marginal benefit, some new to CSX, perhaps, but impacted to the degree of CSX's aggressiveness and effectiveness of CP/CN's response? I think the case could be made of, at the very least, a similar scale of vulnerability to the Canadians in CSX's Boston market (and Maine and NB), not to mention CSX's important needs in the marketplace for re-organizing their business, which also adds to the vulnerability. So, from where I sit, the "x" factor might be the probability of a "grand slam", and that gets a bit fuzzier given the big picture, the competitive picture amongst the Class 1's, and requirements for such a play.

To those possible grand slams I go to the potential as well as the margin of CSX vs. PAR. I have had the CBR possibility on my radar screen and beyond the important Canadian political and bigger sourcing and transportation mode questions, ask what might be marginally different CSX vs. PAR that precludes participation today when they were able to participate in the past? Did any of the players preclude a PAR routing given risks? In a more robust CBR market how would CSX fare against today's clearly more robust Canadian position even with BNSF-sourced traffic? For the container traffic at best we're talking a Baltimore-like sized port volume, though with larger proportional rail demand but also a sizable capital requirement, that would be considered with a good chunk of marginal benefit and, again, with a Canadian competitive position. Beyond that I think things get a big foggier from this vantage point and we start moving back into singles and doubles territory that does not necessarily require CSX ownership &/or operation, if even the "grand slams" would.

Further, viewing this through the margin of PAR vs. CSX vs. a friendly connection alternative lens, absent any defensive, "grand slam", or hedge element in CSX's play, I think there's a case that CSX's ownership alone on a commercial basis has limitations as a strategic game changer per se. The more recent PAR commercial case study has been growth and investment with CSX benefiting, despite the lack of single-system benefits. So, for example, with that Bangor propane proposition (I believe CSX identifies it as a destination terminal), what's the marginal benefit that would overcome PAR's (or another CSX-friendly replacement's) inability to compete? Other than that, on the margin, it becomes a case for the potential and benefit of shorter-haul traffic.

As I wrote earlier, I find fascinating the element of CSX CEO Foote's position in all of this given his background and possible temperament, and from those, what he sees in this play. I would think he had good understanding of CP's strategic move to beef up their position within Saint John as well as the particulars of the market and a good understanding of at least CN's, probably CP's, outlook on the eastern end of their franchises. And, I wonder how the Massena Line and Huntingdon interchange saga with CN might factor into this one way or the other, if at all.

That's why I remain in "Missouri" when it comes to this move by CSX.

In terms of CBR, post Lac Megantic, I'm not sure any of the shippers want to be moving trains over 5-10 MPH track, so once CSX upgrades the line, that issue is reolved. CSX should also be able to provide more competitive pricing now that it's a one line haul East of Chicago vs 2. BNSF originated CBR was competitive with Canadian product during the boom, so as prices continue to climb, I don't see any reason why it won't be again. As for the LPG, CSX can land product in Bangor out of the Marcellus cheaper than CP can out of Windsor or Alberta, so again, with upgraded track and service, it will be low hanging fruit.

newpylong wrote: ↑Fri Dec 31, 2021 8:43 am IMO that is a good analysis. Only time will tell what their play will be.

Regarding NS, I simply don't think they care. The evidence to me seems fairly clear:

Down to one train pair on the Tier
Continued "rightsizing" on the system due to PSR
Inability to or unwilling to help alleviate the PAS crew shortage to move their traffic, which resulted in the reduction of service
Inability or unwilling to maintain the Patriot Corridor to Class 3 which it was at the outset and was the stated goal
Lack of interest in owning PAS outright
Apathetic stance on selling PAR to CSXT as long as their key pair keep running

Sure there are others.

BINGO!!!! I have been saying this for well over a year. NS doesn't care that much about Pan Am Southern. Other than 22/23K and 11/16R they have thumbed their noses at every new opportunity they were given first dibs on for the past 10 years. They even tried to fight hauling trash out of Ayer to Alabama which was a 100% all NS route.

As for CP playing "White Knight" in regards to securing more traffic from the Irving's and away from Pan Am.....
Wait until they realize 65% of all U.S. traffic originating in Maine and Saint John terminates on CSX served consignees up and down the East Coast. That's going to be the first thing CSX takes right back on a direct route.

Exactly, people don't seem to understand that no matter how hard CP competes, all that CSX traffic they currently handle is going to go up in a puff of smoke in pretty short order. You will be seeing a lot less center beam, boxcar and tankcar traffic on the CP soon after the CSX acquisition, regardless of the track speeds across D-1.

Fir all the talk of cbr, intermodal, and lots of Irving carloads, Before csx can add any large amount of traffic to par system they’ll have to solve the 2 train pairs a day bottleneck at Ayer

I believe that the agreement allows for two 9,000 ft trains in each direction right out of the gate, so if you use an average of 65' per car, that comes out to 277 cars a day in each direction, which they are nowhere near at this point and allows them plenty of room to grow. If they run one CBR Train per week, that only adds 15 cars per day towards the 277 allowed, which is insignificant. In addition, a lot of what moves over the Ayer line now is going to be shifted to Rotterdam, so that will free up even more capacity. If they really needed to, they could also shift Boston/Everett business back to Framingham to free up additional capacity via Ayer. Lastly, I'm sure that at some point, the NS will want to run more than one train over the B&A (especially with all their new auto traffic), so there will undoubtedly be some negotiating in terms of both CSX and NS getting the ability to run more traffic over those respective lines.

roberttosh wrote:In terms of CBR, post Lac Megantic, I'm not sure any of the shippers want to be moving trains over 5-10 MPH track, so once CSX upgrades the line, that issue is reolved. CSX should also be able to provide more competitive pricing now that it's a one line haul East of Chicago vs 2. BNSF originated CBR was competitive with Canadian product during the boom, so as prices continue to climb, I don't see any reason why it won't be again. As for the LPG, CSX can land product in Bangor out of the Marcellus cheaper than CP can out of Windsor or Alberta, so again, with upgraded track and service, it will be low hanging fruit.

CBR coming via CSX depends entirely on Irving. Recently they moved to receiving virtually all the inbound crude by ship and barge (since they own several maritime shiping companies). I want to say until around the 2018/2019 timeframe they were still getting trains of crude by CN, but that has ceased. Irving will probably be reluctant to crude through the states (Look at the number of protests that occurred when it came via Pan am and when the last batch of BOW coal trains ran). I am not sure if it has a big impact on Irving, but they also had to pay out a large amount for the involvement in the Lac-Megantic tragedy and they were fined for safety violations on EMR and NBSR. That was about the timeframe where Irving got the last oil train by Pan Am (around 2014 or 2015). Atleast in Irving's eyes it is more economical to ship crude by ship and barge due to the increased capacity and they likely ship crude in to Saint John, then reload the same vessel with petroleum products which are sent back to the original port.

https://atlantic.ctvnews.ca/irving-appl ... -1.4914417

CN still brings a significant amount of CBR into SJ for Irving, just not in unit train service. It probably wouldn't sit too well with the locals, but if down the road they had to, CSX could also get around the Ayer cap by running CBR trains into Allston, then over the Grand Junction to the Western Route and up into Maine that way. Again, there would clearly be opposition, but not sure if they could stop it from happening (though CSX would definitely take a big PR hit)

I know I'm a bit late to the "grand strategy" discussion but please allow me to throw in my own two cents.

So far, we have been going mostly off speculation. While I am not from the region, based on what I've seen very little has changed "on the ground" compared to a year ago. (Those of you who are up there feel free to say otherwise.) Aside from what has been said in interviews and Surf Board filings, we don't really don't know what the real motives of each of the players are. Those will be revealed in due time. Here's my current guess:

As many have pointed out here, CSX-PAR will be able to swipe a significant amount of traffic away from CP and CN. CP and CN have been distracted by KCS since the summer of 2020 when this sale was first announced. While I have no doubts that CP and CN looked into PAR/PAS, they quickly lost interest as the prize of KCS lured them away. CSX saw an opportunity to acquire PAR/PAS and poach significant amounts of traffic away from CP and CN while the pair were distracted by other issues.

Early in this process, there were rumors of an NS-backed shortline holding company such as WATCO buying PAR/PAS. There is a significant amount of traffic that originates in Maine and the Maritimes and terminates in the Southeast. Most of this traffic currently flows via a CSX-PAR routing via Worchester. CSX might have seen the threat of an NS-allied PAR/PAS rerouting all that traffic away from Worchester to Rotterdam Junction and cutting CSX out of one the longest hauls in the East entirely. Such a scenario could have put a massive dent in the health of the B&A, which CSX was not going to allow to happen.

Onto the issue of Norfolk Southern. There seems to be a consensus here that NS is no longer interested in their New York-New England properties. Most signs seem to be pointing towards a slow retreat from the region on behalf of NS; however, to play devil's advocate, I doubt NS would be interested in trackage rights over the B&A if they had already made the decision to retreat, so there must be some at 1200 Peachtree who still believe it's a worthwhile market.

What put this process into motion was undoubtedly CSX's victory in the PAR/PAS fight. Did you notice that NS only became serious about downgrading their New York-New England lines after CSX's win? By acquiring PAR/PAS, CSX might have pushed NS out of the region while also snatching traffic off the Canadian railroads, but as Mr. QB 52.32 said, "It's too early to tell."

Back to CSX: You also have to factor in that CSX's overall traffic is down 17% since 2000 compared to only 1.5% for NS. Not to mention both of the Canadian railroads have been growing by leaps and bounds in the past few years. If CSX wants to not just survive, but actually grow its traffic again, it's going to have to get aggressive, perhaps even become outright hostile to the ones around it. The PAR play is equal parts offensive and defensive. You also see this in their acquisition of Quality Carriers. Don't be surprised if CSX plays this same strategy in places other than the Northeast.

I highly, highly doubt cbr will ever move via grand junction. Local service is the most that could be expected

Lmao, WATCO couldn't even handle the switch jobs at Rumford/Old Town, let alone the thought of acquiring parts of the PAR system.