CSX Transportation has told federal regulators that its proposed acquisition of regional Pan Am Railways will improve service, capture business from trucks, and boost railroad competition in New England.
CSX’s merger application, posted today on the Surface Transportation Board website, also resolves a thorny issue: Who will operate Pan Am Southern, the joint venture that provides Norfolk Southern access to New England.
Genesee & Wyoming will operate and maintain Pan Am Southern under its Pittsburg & Shawmut subsidiary, which will do business as Berkshire & Eastern. The move is a victory for NS, which had sought a neutral operator for Pan Am Southern. CSX and NS will jointly own Pan Am Southern, with NS retaining its 50% share and CSX acquiring Pan Am Railways’ stake.
“The selection of a G&W affiliate is based upon our desire to maintain competition and enhance rail service in the New England market,” CSX said in a statement. “G&W’s existing presence, relationships, and experience will greatly assist the transition.”
Norfolk Southern also gains trackage rights over CSX, Providence & Worcester, and Pan Am between the Albany, N.Y., area and Ayer, Mass., for intermodal and automotive traffic.
The trackage rights will give NS a faster and fully cleared route for intermodal trains 22K and 23K, which currently run as single-stack trains east of the NS intermodal terminal at Mechanicville, N.Y., due to clearance restrictions in Pan Am Southern’s 4.75-mile Hoosac Tunnel in western Massachusetts.
NS will be limited to one trackage rights train per day in each direction between Voorheesville, N.Y., and Ayer, with train length capped at 9,000 feet due to siding lengths.
The routing, via CSX’s former Water Level Route and Boston & Albany via Worcester, Mass., will cut the NS intermodal trains’ running time by 3 hours and eliminate the time-consuming single-stacking operation now required at Mechanicville.
NS will fund required clearance work between Worcester and Ayer. NS also will rehabilitate its former Delaware & Hudson route from Delanson, N.Y., to Voorheesville, where it will restore a connection to the CSX main line. Short line SMS Rail Lines will lose its lease the Voorheesville Running Track.
A pair of daily NS merchandise trains will continue to run via Pan Am Southern between the Albany, N.Y., area and the Pan Am classification yard at East Deerfield, Mass.
“Norfolk Southern’s goal is to ensure that shipping customers have access to safe, reliable, and competitive rail transportation in the New England and New York markets and beyond,” the railroad said in a statement. “Norfolk Southern has reached an agreement with CSX that benefits shippers, and we support the transaction. We believe the current structure of the transaction will preserve and enhance rail service and competition in the New England and New York markets.”
The Pan Am Southern consists of about 425 miles of rail lines and trackage rights routes, including the B&M main line between Mechanicville and Ayer that provides NS access to the Boston area via its so-called Patriot Corridor.
Pan Am’s Springfield Terminal subsidiary currently operates the Pan Am Southern, which also includes the north-south route Pan Am uses between White River Junction, Vt., and its branches in Connecticut via Springfield, Mass.
Berkshire & Eastern plans to hire 159 Springfield Terminal employees. That’s lower than the current number of employees Springfield Terminal uses to operate the Pan Am Southern, but G&W’s filing did not state by how much.
G&W will expand its footprint in New England, where it already operates three railroads that connect with Pan Am Southern: the New England Central, Providence & Worcester, and Connecticut Southern. “B&E believes that it could expand existing relationships with short line railroads in the PAS service area to enhance regional business for the customers it will serve,” G&W said in its regulatory filing, noting that the railroad will benefit from G&W’s safety and training programs, as well as its marketing and commercial resources in New England.
CSX on Nov. 30 announced that it had reached a deal to acquire privately held Pan Am Railways, which stretches from the Albany area to Maine and totals 1,700 miles when trackage and haulage rights are included. “We look forward to integrating Pan Am into CSX, with substantial benefits to the rail-served industries of the Northeast, and to working in partnership with connecting railroads to provide exceptional supply chain solutions to New England and beyond. We are likewise confident that G&W’s subsidiary will bring similar benefits to PAS customers as the successful operator of PAS,” CSX said in a statement.
In its filing, CSX said having G&W as a neutral operator will “strengthen PAS as an independent rail route for access to rail shippers in New England and enhance rail competition in New England.”
CSX’s merger filing did not project cost savings or revenue gains that would flow from the acquisition of Pan Am Railways. The railroad also did not envision significant traffic growth in the short term. “While CSXT expects rail traffic on the PAR System to grow over time, CSXT does not expect to make any significant changes in traffic routes or traffic volumes in the next few years,” the filing says.
CSX, already the dominant freight railroad in the region, will extend its reach into Vermont, New Hampshire, and Maine, as well as to Saint John, New Brunswick, via Pan Am’s haulage rights agreement with Irving-owned short lines.
“CSXT will bring to New England rail users its best-in-class rail service and its dynamic operating model that has set new standards for safety and service performance with higher velocity, faster equipment turns, and greater consistency,” the railroad told the STB. “CSXT will be able to offer rail customers in New England unprecedented visibility into their supply chain through the easy to use ShipCSX platform that enables them to track and manage their shipments with much greater precision and confidence. Improved service, increased reliability, and highly consistent rail operations will enhance competition, remove truck traffic from congested highways, and provide substantial public benefits to New England.”
CSX said it doesn’t have plans to “change the existing Pan Am Railways routes, patterns, or types of service,” but that it would bring new switching and yard management practices to “achieve ambitious schedules, reduce the variability in rail operations, and increase reliability.”
CSX did say it would upgrade Pan Am’s physical plant and boost track speeds, particularly in Maine, which could lead to the use of fewer but longer trains.
CSX noted that as an end-to-end merger, the transaction will have no adverse effects on competition. Four shippers, who currently have access to both CSX and Pan Am Railways, will have continued access to two railroads through a switching agreement with Pan Am Southern. No short lines will lose competitive access, CSX said in its filing, and Berkshire & Eastern will independently set rates on Pan Am Southern.
“In addition, CSXT is committing to keeping open existing gateways on the PAR System on commercially reasonable terms and to ensuring access to rate regulation remedies if shippers located on the existing PAR System are dissatisfied with rates for connections to other railroads,” CSX said in its filing.
CSX considers the Pan Am acquisition a minor transaction under STB rules and has proposed a review schedule that would have the transaction close in late September. Terms of the deal were not disclosed, although CSX said it would pay for the acquisition through the use of cash and CSX stock. The purchase price was nearly $700 million, according to people familiar with the matter.
CSX’s application included 58 letters of support from shippers, ports, public officials, and a few short lines.
