• CSX to acquire Pan Am Railways

  • Guilford Rail System changed its name to Pan Am Railways in 2006. Discussion relating to the current operations of the Boston & Maine, the Maine Central, and the Springfield Terminal railroads (as well as the Delaware & Hudson while it was under Guilford control until 1988). Official site can be found here: PANAMRAILWAYS.COM.
Guilford Rail System changed its name to Pan Am Railways in 2006. Discussion relating to the current operations of the Boston & Maine, the Maine Central, and the Springfield Terminal railroads (as well as the Delaware & Hudson while it was under Guilford control until 1988). Official site can be found here: PANAMRAILWAYS.COM.

Moderator: MEC407

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  by CN9634
And just like that the internet is broken.

I remain a skeptic but given the ownership structure and delay of STB filing I could certainly understand the concept and I don’t think it’s a stretch by any means.

My vote for a third party was still GWI but it might be an easier mechanism to use NYSW since it’s all “in house” for the two parties majority ownership and would likely satisfy STB concerns.
  by Shortline614
I think the CMQ and Pan Am acquisitions point towards a larger trend in the North American railroad industry. Mainly the attempt by the Class Is to move away from simply carrying raw materials and carload traffic and more towards integrating themselves with the consumer economy at large. It's a classic example of "This market we serve is becoming less and less relevant by the day. It's time to shed them and find new ones." You see this with CN selling off nearly 1,000 miles of ex-WC lines in Wisconsin, Michigan, and Ontario. CN bought the WC to close the Chicago-Duluth gap in its network. Everything else that came with that acquisition, paper mills, ore mines, etc, was nice but considered extra. Now that the paper mills and ore mines have severely declined, why continue to serve them? (CN though poor service had a part in the decline of the paper mills, but other factors contributed to it too.)

In the 1990s, the Canadian roads made a huge bet on Western Canada which has largely paid off. Now there is very little room to grow out there, which means looking into the East and American Midwest for traffic growth. What the East and American Midwest lack in manufacturing, agriculture, and raw material extraction, it makes up for in millions of consumers. CP said that one of the main reasons why they bought the CMQ was to gain access to the port of Saint John, allowing them to transport containers and loaded autoracks into the American Midwest. Not exactly the main type of traffic you would see out in places like Alberta.

CSX's purchase of Pan Am Railways is also tied to this. We all know that coal is dying, and manufacturing has mostly stalled out. Pan Am offers CSX expanded access into one of the most populated regions in the country, and one with little manufacturing at that (Maine paper mills notwithstanding). Pan Am themselves have moved towards this as well, as indicated by increased intermodal traffic (Poland Spring Water, Eimskip) moving over the railroad in recent years. Pan Am also offers CSX the once in a lifetime chance to increase its length of haul. Western and Canadian railroads are blessed by hauls often 1000-2000 miles long, while Eastern railroads have to deal with hauls often only 500-1000 miles. The east-west hauls over the ex-NYC haven't really changed all that much since that predecessor road made it to Chicago and St. Louis in the first place. When you have this opportunity, why not take it?

To be fair, much of this could also be said about CP's acquisition of the D&H back in 1991. I think we are all hoping this doesn't turn out anywhere near as disappointing due to the price tag involved.
  by roberttosh
What you're saying makes sense but I would still argue that "manufacturing" is indeed at the heart of the acquisition. It's nice to get access to the North side of the Boston market and am sure there are opportunities there (waste?), but keep in mind that CSX already has access to the Boston market from the South and West and had no problem walking away from it's downtown operation, Beacon Park, as less and less traffic is moving inside the 128 and even 495 beltways these days. Remember, the PAR part of the acquisition gives them direct access to 8 large pulp and paper mills, significant and expanding lumber/wallboard production as well as the largest refinery in Canada.
  by Ken Rice
NYS&W operating PAS is a fascinating rumor. Any speculation about wether there might be any tie in somehow with the NYS&W Utica branch?
  by F74265A
If true, isn’t a nysw solution effectively conrail shared assets-lite? I recall that csx and ns jointly control nysw.
  by PBMcGinnis
Ken Rice wrote: Sun Jan 24, 2021 10:50 am NYS&W operating PAS is a fascinating rumor. Any speculation about wether there might be any tie in somehow with the NYS&W Utica branch?
It is a completely unfounded rumor. The Susie Q /NYSW is NOT INVOLVED at all.

Why would CSX and NS let a minor player into the mix?? As I have said many times before....the more parties involved in the sale, the more complex, and thus the less likely it would work.

If I wasn't already in the Danbury "Club Fed" I would be tempted to dope slap someone.
  by CN9634
Why not introduce a minor or third party player with some stake in from both companies? Maybe CSX had the strategy going into it this would become a Conrail property and things ended up changing.

We all know that CSX doesn't has a lot of material gain having a half stake in PAS, and especially with an unwilling partner who has already pre-warned the STB of some objections to the transaction. And what would CSX do if they did have some or all of the responsibility to operate it? Run 22k/23k until it hits NS territory? There's no benefit or advantage to that.. surely from a stockholder standpoint too that's a tough one to explain

To CSX its a duplicate line, the introduction of a "minor player' (or we'll say third party) resolves the STB issues before they crop up and lets them focus on the key corridor they are looking to pickup from Worcester to Keag. And I'm sure that Mellon wanted to sell the line as a whole, so CSX must have had a strategy in pocket to move forward clearly.

Not sure its an unfound rumor, I did hear in talking with a few people that this prospect is actually a few weeks old now and that it's just surfacing here now. Given the timeline thus far of the STB filing delay, its makes sense that something is being discussed to remedy the PAS complexities. And who knows, talk is talk, NYSW may have been approached and decided to walk away or conversely take a hard look (which would take time of course).

We'll know the story by the time the ground thaws (surely sooner....)!
  by newpylong
PBMcGinnis wrote: Sun Jan 24, 2021 5:50 pm It is a completely unfounded rumor. The Susie Q /NYSW is NOT INVOLVED at all.
CSX buying the property used to be a rumor as well. You have no idea who is and who isn't involved, like anyone else not at the table.

I also think it is unlikely however a move like this in actuality could shorten the regulatory process vs lengthen.
  by Gilbert B Norman
Mr. Newpy, considering that the Pan Am branding rights will in all likelihood stay with Timmy or otherwise go elsewhere, what more could Susie "bring to the table" than some paint spray guns to obliterate any Pan Am markings on equipment and structures.

The capital needed to better the lot of Northern New England's railroad transportation? Uh, hello.

So maybe such could be a vehicle for "Susie Shared Assets" to keep the Surf Board and shippers that like competitive rail happy, but that in itself does not provide the capital to have an FRA Class 3 system throughout as well as digging out the clearance restrictions (mainly Hoosac) to handle the cars shippers, as in the maritime companies, expect and can have at any another East Coast port. In a shared asset arrangement, considering that Chessie and Topper both serve any other East Coast port, directly or through Conrail Shared Assets, what incentive have they got to fix up somebody else's property?

One might ask, "in the now almost twenty year existence of CRSA, why hasn't that gone to pot?" I think the answer to that is many fewer route miles and much more traffic. In each CRSA region - New York, Philly, and Detroit - the traffic was already there and was not about to pick up stakes and go elsewhere. In the case of the existing Pan Am, we're talking about a "rinky dink road" to start with and having to develop the traffic from essentially nothing at present.

Chessie, and Topper if somehow he hasn't "scratched", have the capital and the salesforces, to place their bets that one, or both, could make it happen.

Finally, if I'm out of line to refer to Pan Am as a "rinky dink road", please accept my apologies. Possibly I'm "guilty" from living along the BNSF Chicago Sub with its Class 4 road and its 60mph freight, 70mph passenger MAS, but I have not seen one posting here suggesting that any part of the Pan Am system, away from the publicly funded Class 4 to handle NNEPRA or MBTA passenger trains, described otherwise. That the track to Mattawamkeag - the interchange with EMRY through which the Port of Saint John would be accessed is reportedly FRA Class 1 (10mph), means "a long way to go" until this property can be considered "competitive".
  by Backshophoss
Could we see a new CRSA region be setup for Boston Regional freight service?
The other option would be contract service by G&U or Mass Central.
  by newpylong
Slim to no chance. That's all gravy. No trackage or maintenace fees.
  by troffey
I think some people forget that PAS doesn't actually operate the trains on the route-operations are contracted out to Springfield Terminal. Presumably, any other third party, such as NYSW would inherit that role as contract operator. If NS wanted to run the trains, they certainly could be by now.
  by codasd
"If NS wanted to run the trains, they certainly could be by now." That is not the case, both PAR & NS have an equal vote in the operating and management committee's of PAS. Any vote needs to be unanimous. Only upon the sale of PAR does NS pickup an additional vote. Then all votes are decided by a majority. So after a PAR sale NS will have a controlling say on how PAS is managed. That being the case I do not see why another entity (NYSW) or even CSX would want to maintain the partnership. Does CSX want or need haulage or some other rights west of Ayer? Does NS pay CSX to gain access to any existing or new customers on the line? Does NS take 100% of PAS after the sale?
CSX didn't go into this blind so they have some end game planned. We will not know that plan until the STB filing. I would guess that the legal departments of both CSX and NS have been putting in a lot of hours negotiating legal documents that will satisfy the STB. I would also have to think CSX has talked with Class III railroads about interchange and PAR customers about service and routing options.
Finally for the State of Massachusetts' laundry list of requirements I'm hard pressed to see what standing they have in an interstate commerce activity. I think they would be hard pressed to get anything beyond what they have already negotiated with CSX. As for all the bullets in their letter I'll quote Jerry Maguire, 'show me the money'.
  by johnpbarlow
At CN's Q4 2020 earnings conference call with analysts on Tuesday 1/26/21, Credit Suisse analyst Allison Landry asked the assembled CN execs:
Good afternoon. So, I just wanted to ask about the potential for M&A in the short lived space. We have obviously seen some activity there recently and historically CN has been relatively active. So, if you can maybe speak to any opportunities that might be a strategic fit for CN that you see and then sort of specifically as we think about the growth potential at Halifax and in Eastern Canada and perhaps if you could comment on the CFX’s [sic - transcript should say CSX] acquisition of the PanAm and if they are seeing commercial opportunities there that you could benefit from? Thank you.
The reply from CN Exec VP/CFO Ghislan Houle was:
I can talk to overall, Allison, thanks for the question of M&A. I mean, I am – as you know, we are always on the lookout to do M&A. I mean, it needs to fit our network. We are not – we don’t want to diversify for the pleasure of diversification, that’s not our game, for whatever can add to our network, either extending our reach or that we can put more business on our network, we’re always on the lookout. And I mean, we have a list that we’re following up and nothing, nothing really, that is really hot right now. But it’s certainly on our radar screen, that we want that I mean, part of our strategy is on a inorganic growth. So that’s, we’re following-up on that for sure. And it allows us to get to markets that today we can’t get, because of our reach. And obviously, it makes a lot of sense, hence why we also want to keep a strong balance sheet, we want to keep a strong balance sheet, because not only it was we saw the value of it during the pandemic in 2020. But also because if there’s a deal coming in, we can act very, very quickly and do it on an all cash basis and be successful. So, I mean, we’re on the lookout, I mean, if something makes sense and fit our network and fit our strategy, it needs to fit our strategy long-term, then obviously we can move very quickly on it.
And CN CEO JJ Ruest further added:
Yes, so we have a small team that look at that all the time. And we don’t wait for phone calls to come in. We also make some outbound call and we will see what does the future hold through. Thank you, Allison.
My takeaway from this vague exchange is CN is interested in what is going on between CSX and PAR but isn't hell-bent on acquiring any part of PAR. I guess we already knew that. But at least, unlike with the CSX earnings call, the PAR acquisition was touched on.

This evening (1/27/21) after the market closes, CP will announce its Q4 earnings - perhaps the PAR topic will come up again.

Sidebar: no analyst asked how CN's publicly announced intent to sell secondary lines in Wisconsin, Michigan, and Ontario was progressing.
  by CN9634
Pretty sure that means they have a team that considers mergers and acquisitions but also they haven’t really concerned them self with the CSX-Pan Am deal. Same question was asked of CP and basically same answer given “we will look at it”
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