The Modern Saga of Chessie and Topper

With apologies to Mr. Norman concerning the thread title.

These last few years have felt like a few additional chapters in Rush Loving Jr.'s classic book, The Men Who Loved Trains. Norfolk Southern, a railroad that historically has been considered the better-run of the two, has suffered strategic stumbles in the face of an emboldened CSX.

CSX, a railroad whose name was barely mentioned at the start of the "Pan Am sale saga," ultimately ended up the winner. NS settled for token concessions in the form of trackage rights for intermodal/automotive traffic, locking itself out of much of New England's carload traffic.

Down in Alabama, history isn't repeating itself, but it sure is rhyming. CSX and CPKC are forming a new Mexico-Southeast corridor by directly linking their networks via the Meridian & Bigbee. While CSX and NS aim to serve different markets, one cannot deny that CSX will benefit from the hundreds of millions of dollars NS has plowed into the Speedway.

Of course, there is East Palestine.

This got me thinking about what makes these railroads grand strategic minds tick. NS has had plenty of opportunities to buy up its close regional connections (PAR, FEC, KCS); however, has always settled for small-scale joint ventures. NS's few major acquisitions (Conrail, D&H-South) were largely defensive. CSX, meanwhile, has never been afraid to pursue often disruptive offensive acquisitions in pursuit of its goals.

I think that NS's "relative" stability means it doesn't seek to rock the boat as much as CSX, which has always been considered the far more "chaotic" of the two. We can only guess what this means for the future.

I leave it to the forum.

"Apology accepted", Mr. Shortline

I've read "The Men Who Loved Trains" several times. One point which was made several times was about CSX. NS tried to make several strategic moves to avoid being left out in the cold by CSX. The thought process seems to have been that NS knew that they were better managed than CSX, but the big what if was if CSX ever got themselves better organized.

We all know the big changes which PSR has brought to the industry. Unfortunately for NS, CSX seemed to trim the fat (and some meat too, most would argue), but has resumed a growth position. NS seemed to hang onto the cutting for far too long, in my opinion. I agree with Mr. Norman that NS was wound around the axle with closing yards, selling assets, and furloughing employees, while CSX was grabbing opportunities. NS could have even joined the fight for KCS. This would have put them right in the backyard of uncles Pete and Warren. It is sort of like the plan which Contrail had tried, upon the threat of takeover. They had proposed to take over parts of the SSW from cash poor SP.

Mr. Spike, I'm with you all the way regarding "The Men Who Loved Trains".

It's not about fandom, or restoring a 1950 level of passenger trains, in fact it points out that Conrail's (as a Class I) CEO loved motorcycles, as well as being part of taking an economic basket case and making it the subject of a "good old fashioned Wall Street Bidding War".

Gilbert B Norman wrote: ↑Sat Oct 28, 2023 6:51 am Mr. Spike, I'm with you all the way regarding "The Men Who Loved Trains".

It's not about fandom, or restoring a 1950 level of passenger trains, in fact it points out that Conrail's (as a Class I) CEO loved motorcycles, as well as being part of taking an economic basket case and making it the subject of a "good old fashioned Wall Street Bidding War".

I don't recall now whether Rush Loving specifically credited Dave LeVan for breathing life into the basket case, but having been there I can attest that the credit for that belongs to L. Stanley Crane, who, besides handing LeVan a going concern, held Elizabeth Dole at bay (twice) when she tried to award Conrail to N&W. Understand, I'm not complaining; LeVan goaded N&W into bidding the st9ck up to improbable heights, greatly to the benefit of shareholders.

It's been a few years since I read the book, but if my memory serves me right, Loving portrayed LeVan as well-meaning, but naive, and politically clueless.

I will point out Norfolk Southern's attempted purchase of Conrail in the 1980s, (one of Norfolk Southern's few large-scale offensive acquisition attempts in its history), was horribly botched. Norfolk Southern itself has heavily divided on whether the entire ordeal with worth it. Its strategy was weak at best, largely hinging on Dole being able to brute-force the deal through Congress, and expanding Guilford into a New-England-to-Mississippi River railroad. (McClellan has plenty on it in his own book.) Opposition from Dole, CSX, and Conrail itself didn't help.

Throughout the entire story preceding, during, and after the chapters covered by The Men Who Loved Trains, including this thread, runs the essential railroad characteristic of networks not just competing, but also cooperating amongst themselves within a challenging industry landscape to reverse long decline. It's a competitive disadvantage acted upon in the pursuit of productivity and service improvement within that on-going struggle, including network rationalization and Class 1 consolidation, spinoffs and acquisitions, refereed by government overseers.

This elemental characteristic dominates within strategy and the long-run over tactics and the shorter-run; management behavior and cultures, including within the story perhaps generalized, somewhat blurrily, as "progressive" at CSX and "conservative" at NS; and, Loving's good read, that despite showing shading in human behavior even amongst the protagonists and the role of chance despite good intentions, leans towards a fan read in its black-and-white thesis of "love over greed" and "(underdog) NS over (advantaged yet hapless) CSX."

Shortline614 wrote: ↑Mon Oct 16, 2023 9:22 pm These last few years have felt like a few additional chapters in Rush Loving Jr.'s classic book, The Men Who Loved Trains. Norfolk Southern, a railroad that historically has been considered the better-run of the two, has suffered strategic stumbles in the face of an emboldened CSX.

"Emboldened" by playing out operating-genius Hunter Harrison's beneficial PSR strategy of "worst-to-first" transformation in pursuit of growth, including through mergers and acquisitions, as has been the case at CN and CP. Meanwhile, NS' defensive response has struggled without his direct involvement and in attempting slower transformation despite relatively similar requirements, though, perhaps, of the two railroads' networks, providing more relative challenge where intermodal holds ~20% more volume and ~40% more revenue relevance.

CSX, a railroad whose name was barely mentioned at the start of the "Pan Am sale saga," ultimately ended up the winner. NS settled for token concessions in the form of trackage rights for intermodal/automotive traffic, locking itself out of much of New England's carload traffic.

See above. The quick strategic transformation at CSX allowed surprising transformation of CSX New England strategy to an "all in" building upon their network dominance. In contrast, NS could never financially justify the costs v. benefits because of their network's serious competitive disadvantages up against CSX's. However, I wouldn't characterize NS' strategy as "settling for token concessions" when they negotiated pivotal intermodal domestic doublestack clearance capability to a long-haul market nor as now "locked out of much of New England's carload traffic," evident in recent growth and market share advantage within growing municipal solid waste traffic.

Down in Alabama, history isn't repeating itself, but it sure is rhyming. CSX and CPKC are forming a new Mexico-Southeast corridor by directly linking their networks via the Meridian & Bigbee. While CSX and NS aim to serve different markets, one cannot deny that CSX will benefit from the hundreds of millions of dollars NS has plowed into the Speedway.

From that framework of networks came NS' ability to thread the needle into Dallas but inability to pursue KCS and CSX's unwillingness to build connectivity with an independent KCS contrasting with the necessity for themselves and need for CPKC within this latest Class 1 consolidation.

This got me thinking about what makes these railroads grand strategic minds tick. NS has had plenty of opportunities to buy up its close regional connections (PAR, FEC, KCS); however, has always settled for small-scale joint ventures. NS's few major acquisitions (Conrail, D&H-South) were largely defensive. CSX, meanwhile, has never been afraid to pursue often disruptive offensive acquisitions in pursuit of its goals.

I think that NS's "relative" stability means it doesn't seek to rock the boat as much as CSX, which has always been considered the far more "chaotic" of the two. We can only guess what this means for the future.

Within the reality of railroad networks, comes individual strength and weakness and management actions driven by cost v. benefit. Like NS' inability to pursue KCS because of the costs of alienating the dominating 2 big western US Class 1's or their inability to financially justify the full costs of a PAR acquisition to the benefits limited by a weaker competitive network, they haven't moved for FEC because of CSX's dominant network position in FL. Across the entirety of the story that's the biggest driver.

Looking forward, I expect in this next chapter NS will regain its legs as both pursue traffic growth after the major impact of an unplanned-for pandemic. We're already seeing new developments as the story continues to play out with NS bolstering cooperative intermodal connectivity with FEC and CN, CSX CEO Hinrichs' call for necessary improved cooperation amongst players within a "complicated business", good probability both will pursue north/south New England domestic intermodal growth while CSX also pursues new Port Saint John east/west international intermodal traffic and NS east/west domestic intermodal traffic growth, and with BNSF/Hunt's brand new truck-conversion intermodal initiative not yet directly including the 2 eastern Class 1's.

Looking backwards, I can't help but consider the significance of that juncture foreclosing a NYC/C&O/B&O and PRR/N&W network structure within the story, and especially including where we ended up and what it took to ultimately get there.

Mr. QB, I note with great interest what appears to be your implied thought that either Chessie or Topper will make a play to acquire the FEC from the Mexican interests (Groupo; which holds a majority interest in Ferromex) that currently own it.

We must acknowledge that the FEC's former owner FECI had more interest in real estate development than running a railroad. To me, the party in interest that had the most to lose should another railroad acquire the FEC was the State, considering how they invested "Bigbux" in maritime port development beyond their berthing of Love Tubs.

Now I don't claim to be a "know all" of maritime affairs, but I do read the articles regarding the industry that appear in both The Times and Journal. I was certain, but evidently mistaken, that the AAF/Brightline passenger train initiative was simply a ploy to "fatten the steer" to sell the railroad to the State.

The maritime industry likes to have two competitive roads making rates out of the ports at which they call. They have such at any US port of consequence other than those in Florida, with Tampa belonging to Chessie and the others to the FEC.

This is why the State is the party in interest assuring that the FEC stays independent and that the JAX Gateway remains open and, further, that both roads, CSX and NS make rates with the FEC without prejudice.

Mr. Norman, my thinking given CSX's elemental network dominance in the Florida market is that CSX can' t and NS won't independently pursue FEC as has been the case over time.

To the point of South Florida's ports in the light of an NS move to acquire FEC, I don't see that as the non-starter given that CSX does have the capability to serve the market and did into the 1980's as well as the potential to condition their access via an open gateway. Instead, what likely remains at play for NS is the cost vs. benefit in light of CSX's better network and market dominance as well including the role they play in FEC's business that could be put at risk, making for an unattractive case.

Mr. QB, I hope it is understood how deeply I respect your thoughts on this instant matter as well as any other topics around here at which you participate.

Now with that being said, I am unaware of any initiative on the part of Topper to acquire from the Mexican interests ownership of the FEC. If such is moving forth, it is without the knowledge of The Times, Journal, or TRAINS.

Now what IS moving forth is a joint marketing and operational coordination between FEC and NS to handle Container traffic between the FEC served maritime ports and points where Topper has a competitive advantage over "that darned cat".

Further, I totally acknowledge that Chessie has a competitive advantage in handling FEC originated traffic along the East Coast, considering she has both the ACL and what has not been chopped up of the SAL. By contrast, though, Topper has the advantage for traffic moving to the Midwest and beyond to the extent that it becomes more economical to ship through a West Coast port. However, with the array of East Coast ports (I mentally count some eight that can handle anything afloat), the maritime companies will simply sail to whichever one is most convenient to move their container cargo forward to destination.

Finally, let us not forget that the halcyon days for the maritime companies are now "back burnered". At present, they are laying up vessels account diminished traffic and for the ports on both coasts, it's at present no longer "where can we find a berth; ANY berth".

One final thought (Mr. Cowford, might you care to comment?), PANAMAX is confronted with an operational issue, from which Uncles Pete and Warren - and maybe even CPKC - will benefit. Central America is presenlty experiencing a relative drought. Remember that every time a vessel passes through the locks, that results in a "gone forever" discharge of water from the Gatun Lake into either ocean.

Thank you and allow me to return your kind generosity, Mr. Norman.

With that being said, I'll reiterate that throughout the saga, including within the first paragraphs of this next chapter in which the Class 1 flock very much needs to sustainably grow volume under the watchfulness of the clear-eyed wolves, the essential elemental characteristic of networks informs management decision-making within the pen created by government overseers, not only when there's strength but also weakness as well.

So, it's no surprise strategically resulting from a failed first attempt for the whole of Conrail and then overall competitive parity demanded by STB Chair Linda Morgan and delivered by CSX's John Snow in the Conrail breakup, that more-intermodal-reliant NS is improving South Florida intermodal service cooperatively with independent FEC in the attractive Florida longer-haul, more-truck-imbalanced, growing marketplace to/from long-distance points, but hasn't, isn't and probably won't move to acquire the railroad because of CSX's fundamental Florida network advantage (including in the Midwest lane).

Similarly, NS deftly negotiated pivotal productivity-improving domestic doublestack capability to the attractive longer-haul, more-truck-imbalanced, population-dense southern New England marketplace where they could not financially justify pursuing and acquiring Pan Am, but network-advantaged CSX could.

Conversely, more-carload-dependent CSX has in the past weaved their way into network-dominant NS intermodal territory, like in Harrisburg, and does seek to grow intermodal volume, including filling up unused capacity and as a part of the Pan Am acquisition. As the more-challenged of the 2 eastern Class 1's within the intermodal market, generally offering more volume growth opportunity but lower financial contribution than carload or coal, it will be interesting to see how CSX management behaves. Included within that will be how they might use upcoming new full domestic doublestack FL-MA I-95 corridor clearance not only in north/south lanes, but potentially within attractive NS-advantaged east/west lanes as well.

As an aside, interesting Bill Stephens article in this month's Trains about Hunter Harrison's strategic network EJ&E acquisition toward growth while he was CN CEO, presaging similar beneficial PSR growth strategy not only at CP, but in the saga, CSX as well, and in the consequential light of his inability to initiate a growth-oriented final round of N. American Class 1 consolidation against leading US Class 1 industry opposition. And, interesting to see CN's very recent acquisition moves in Nova Scotia and Iowa as well as improved intermodal connectivity with UP and NS (supported by Harrison's EJ&E acquisition) on the heels of failing to acquire KCS or conditionally mitigate CP's success.

Among the many railroad pursuits, strategic planning is one of the most interesting and important, including as seen in this saga.

Thank you Mr. QB for your insightful thoughts. For the record, it should be noted that the article regarding CN's acquisition of the EJ&E appears in January '24 TRAINS, which is, or should be, in the hands of subscribers now.