CSX Acquisition of Pan Am Railways

[QB 52.32]

But I guess what I'm most interested to learn from this Forum is there any high value traffic presently moving over Maine "highways"(sorry but, "if you can call 'em that") that could move over the rails (with investment in FRA Class 3 45mph) in a competitive manner to attract shippers like Wally World, Amazon, and the automakers?

Highly-rated New England rail traffic is hubbed through southern New England, primarily in Massachusetts, given regional demand distribution. Maine just does not make sense when New England's population is skewed toward the south and much of what is consumed and moving via rail flows from the west and south. And, if there were demand, Maine track investment is only one capital requirement with restricted overhead clearance the other.

When it comes to NS and PAS, folks need to remember PAR is responsible for carload marketing, including interchange with CSX, while NS only is focused upon autos, intermodal and overhead traffic to the P&W. But, when you evaluate where they are with their franchise at this point, intermodal volume has receded to pre-PAS levels with their auto and P&W business stagnant.

Because railroading is a network business, you have to look at this potential sale through that lens and how each Class 1 fits into the equation. In New England CSX dominates with muscle given their fast, efficient and high-capacity "water level" route accessing a strong east-of-the Mississippi/Western gateway franchise. So, evaluating CN, for example, involves in part how they might stack up against CSX, especially if they want to build new traffic beyond what simply is moving via PAR/PAS today. And, it's not like they haven't considered trying to compete more vigorously with the B&A before --- and walked away.

[johnpbarlow]

Wonder if Reading & Northern has considered making a play for a piece of Pan Am? R&N has done a pretty good job of re-developing carload business on its 400 miles of ex-LV & ex-Reading lines in eastern PA in conjunction with interchange partners NS and CP (via haulage rights). R&N was hoping to expand into central PA with an opportunity to bid on 200 miles of SEDA-COG Joint Rail Authority lines around Williamsport but that got hung up in litigation.

[PBMcGinnis]

To clarify for Mr. Barlow:

1) the LPG business goes out for bid every year. CSXT, NS, CP and CN all compete for the move from the Midwest and Canadian refineries into Chicago and then on to Pan Am at the various interchange points. NS generally loses this bid every year to CSX due to their price for the "bridge move" between Chicago and the NY/New England borders being too expensive.
2) Pan Am manages to win their portion of the bids every year which is from the interchange point to the consignees in CT, VT NH, and ME. The shippers could easily just stop using a Pan Am served LPG terminal and truck from a CSX or P&W, etc. location instead. So Billerica makes sure prices and service stay competitive. Most of the LPG continues to come from CSX via Rotterdam Junction, NY rather than Worcester since most of the consignees are on the west end of the B&M.
3) The trash from the 3 origins (2 in Ayer, 1 in Holyoke) are consistent, daily revenue for Pan Am, but not high margin (revenue-cost) since trash is a low value commodity. Plus as these are all transloads, the shippers could easily just go ramp this traffic on CSX, PW, NECR, etc. if price and service get out of whack on Pan Am.
4) On the trash, NS only handles lanes where NS has a captive audience at the destination landfill. The cars to Alabama can't get there via CSX for example as NS switches the landfill. NS does not handle any trash traffic where they have to compete directly with CSX on equal access to the same landfill, CSX has won all of that so far.

[bostontrainguy]

Mass_Central_1751_at_CP_83-in_Palmer_DSCF2566.jpg (96.78 KiB) Viewed 1400 times

i'm just over here hoping that whoever buys it renames it to B&M again. the pan am name is stupid for a small regional railroad

"Boston and Maine" sounds good but I have to honestly say that the original B&M paint scheme didn't do much for me or the retro Mass Central version. I actually really like the new solid blue color. Add a modern minuteman white & black logo and that would look pretty sharp. Maybe even go with silver trucks? That just might look awesome.

Of course there is value to the Pan Am name and that part could be sold to someone for some additional cash.

[Gilbert B Norman]

Someone asked what routing Ayer originated trash takes to get to Alabama ( a 1,000 mile haul for NS v. 150 miles for PAS): NS/PAS train 11R takes the re-purposed tarp-covered Maersk/Sealand international shipping containers from PAS to Binghamton where it's placed on 11Z to Enola where it's placed on 15T bound for Irondale AL (ie, Birmingham). The trash containers go to Arrowhead landfill at Uniontown AL, about 100 miles SW of Irondale.

The "someone" was me, Mr. Barlow.

Now I've dug out a PRR System Map on Form 1 and it would appear the (historical roads) routing for the noted traffic would be D&H-Bingo-ERIE-Elmira-PRR-Wms'pt/Enola/H'town-N&W. All those roads noted are now NS.

It sounds as if that traffic in itself is sufficient for Topper to do what he must to protect his interest in the B&M E-W route. If he is willing to throw some of his oats into rebuilding it to FRA Class 3 (40 mph), perhaps his Traffic Dept (oh whoops, that's Marketing nowadays) could drum up some high value (containers of merchandise, not trash) traffic.

[newpylong]

Wonder if Reading & Northern has considered making a play for a piece of Pan Am? R&N has done a pretty good job of re-developing carload business on its 400 miles of ex-LV & ex-Reading lines in eastern PA in conjunction with interchange partners NS and CP (via haulage rights). R&N was hoping to expand into central PA with an opportunity to bid on 200 miles of SEDA-COG Joint Rail Authority lines around Williamsport but that got hung up in litigation.

Not a shot - same for any other regional or shortline not-owned by a holding company with existing disparate/disconnected railroads. It's too much to be bitten off.

[Pensyfan19]

Since we're bringing up other regional and shortlines now, what about Vermont Rail System or New England Central?

[ccutler]

PanAm is an "infrastructure" investment, an attractive long-term opportunity for large pension plans and sovereign wealth funds. I doubt the Mellons will have trouble finding attractive offers for their property, and if they do have trouble, they should call me because their investment bankers are playing too closely inside their circle of conflicted interests. I am sure GNWR and many other large short line operators are pouring through Pan Am's financials right now, and figuring out what to offer.

[MEC407]

...what about Vermont Rail System or New England Central?

VRS doesn't have the money or the resources to make an acquisition of this size. NECR is a subsidiary of GWI, which does have the money and resources, but they would probably run into obstacles with the STB because they already own four other railroads in New England (CSOR, NECR, P&W, SLR).

One theoretical way around that would be for GWI to sell one or more of their existing New England railroads. For example, let's say they offered to sell NECR and SLR. STB might consider that sufficient to avoid GWI having a monopoly in New England. And you might see VRS buy NECR.

[johnpbarlow]

PBMcGinnis - I learned a lot from reading your post re: operational insights as to how NS, Pan Am, et al pursue the trash and LPG businesses. Very informative!

Clearly CSX enjoys an east-west traffic advantage with the double track water level route between Buffalo and Albany area that requires a single crew v. NS's 50 mile longer single track hill and dale route via Binghamton that requires 2 crews. So it's easy to see how CSX might be able to under bid NS for midwestern LPG (and grain?) business to/from PAS.

But even with the double digit decline in revenues during the pandemic, NS continues to invest in the D&H track with new stone being dropped, new ties being installed around Schenevus, and selected sections of curve rail being replaced. I'm thinking NS has a long term reason for spending this capital while traffic ebbs. What do you think?

[Gilbert B Norman]

Volks, you all don't know what I am learning through participation at this topic; thanks, everyone.

First Mr. Barlow, 294 miles Albany-Buffalo seems a mite bit risky. Someone could die in ,say, Lyons, and you've got the railroad tied up. But no question CSX traffic routed over the NYC represents a faster haul than the NS can enjoy over its D&H-Bingo-ERIE routing. If we are addressing traffic consigned further into the Midwest, NYC-Greenwich-B&O is still more advantageous (why they ever had to chop up the traditional NYC Water Level Route escapes me) than ERIE-Buffalo-NKP-Cleveland (historic roads noted as that is what this 79yo knows).

Secondly, as Pat notes from The Pokey on his purloined Laptop, that NS continues to spend on the D&H, it figures that Topper will do so to whatever he gets of the B&M. Will that be only to Ayer forgoing any new potential high value traffic originating/consigned to the North onward to Rigby?

[B&M 1227]

whoever the buyer is, it is unlikely to be ns. yes, ns has been heavily involved in grs/par for decades, but this dates even farther back to dereco and the el-dh-bm alphabet route trackage.

take a look at the current industry trends. ns is in the throes of its precision scheduled railroading blitz. while they haven't yet made any moves to sell of low volume lines like csx did, their motivations right now are on spiking their stock price and reducing their operating ratio... "less is more."

i'd speculate with 98% certainty that no part of the par system will wind up in the hands of a class 1. the most likely scenarios are either
a) an investment group i.e. fortress steps in and purchases the system as a whole. this would likely be the best case scenario seeing as what they did to the cmq and fec. then again fortress is more interested in properties they can fix up and flip. while they'd get a consistent profit from par, it's a gamble with current industry trends, providing their motivations are to find a buyer in the future.
b) a shortline holding company steps up to the plate. watco or gnwr come to mind. at the same time watco just splurged big on petroleum shortline contracts. gnwr is also questionable, where following their recent sale, they have not made any moves to expand.
c) the system gets carved up. dividing lines would likely be drawn d3, d2, d1, plus the conn river/connecticut trackage. mec is the bread and butter in terms of online industry. watcos presence in maine already makes them a good candidate. unless slr or nbsr want in on a few sections, everything east of rigby would probably go to one owner. rigby-ayer, could go to the same buyer to protect competitive interchange between csx and ns. the value of this section is likely the lowest, given the smaller amount of online and originating traffic. d3 would be interesting, as ns would likely have a say in who gets the par side of pan am southern. it's likely the conn river/connecticut trackage would also go to this buyer, unless pw, csor, or hrrc wanted to splurge on it.

it will be interesting to see whether the system remains intact or is carved up, however i am fairly confident we will not see a class 1 player in the mix.

in short, the whole things getting bought by the batten kill.

[Gilbert B Norman]

Great analysis, Mr. B&M 1227.

It will be interesting to see if the end-of-month announcement of a buyer noted at topic's outset will come to pass.

Considering the number of "raiders" that have wormed into the railroad industry of late (did Mellon have any kind of railroad background?), it would be nice if one of them had producing efficient railroad transportation on the plate.

Say what you wish about EHH and Precision Railroading, but he was a railroad man who wanted the industry's full potential be realized, and not just a property to be flipped.

[MEC407]

...did Mellon have any kind of railroad background?

Not that I'm aware of, but he's famously private about his life. When he bought the Maine Central in 1981, he brought in David Fink Sr. to run the show. Fink was a Penn Central man. And the rest, as they say, is history.

Worth watching: a 1983 news story from the NBC Nightly News about the very early days of Guilford Transportation Industries, which at that time had owned the Maine Central for two years and had just recently purchased the Boston & Maine and was already working toward acquiring the D&H: https://youtu.be/tmoH1uZaBb8

[PBMcGinnis]

As for the Wal-Mart DC inbound traffic, they have 2 Distribution Centers: Lewiston, ME and Raymond, NH. My trucking company, New England Transportation, can confirm that the longest length of haul into either is around 400 miles. The farthest point being western Pennsylvania. So not very conducive to boxcar.