ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Saturday, November 2, 1996 TAG: 9611040028
SECTION: BUSINESS PAGE: A-7 EDITION: METRO
DATELINE: ELIZABETH, N.J.
SOURCE: The New York Times
Derided as ``a basket of basket cases'' when the government created it two decades ago from the ruins of six bankrupt railroads, Conrail Inc. is today a corporate jewel at the heart of the biggest railroad merger battle ever. Conrail has worked hard to modernize, but a visit to Port Elizabeth, N.J., underscores that the railroad is only part of this Cinderella story.
Day after day, Conrail freight trains bring hundreds of truck-size containers filled with products for export to a mammoth dock on Newark Bay. Unloading is so rapid that some are on ships on their way out to the Atlantic within hours. And each day, a similar mountain of containers recently plucked by cranes from ships arriving from Europe, Asia, Africa and Latin America, filled with clothing, beer, electronics, toys and other goods, ride Conrail trains back into the American heartland.
ExpressRail, as the Port Authority of New York and New Jersey calls the transfer service, did not exist at all six years ago. Its rapid growth is a product of railroad deregulation, new technology, and shifting patterns of world trade - the same factors that have made Conrail an increasingly valuable piece of the nation's freight transportation system.
The dollar value of Conrail's near monopoly on freight transport over tracks that run as far west as Chicago and as far south as Maryland is not settled. CSX, the giant rail and shipping company based in Richmond, Va., which recently agreed to merge with Conrail, offered more than $8billion in cash and stock. Meanwhile, Norfolk Southern, which is both wooing and suing to win Conrail, has offered $9billion.
Conrail, formally known as Consolidated Rail Corp., was created by the government in a multibillion-dollar bailout of the bankrupt Penn Central and other Northeastern railroads two decades ago. The Chessie System merged with the Seaboard Coast Line railroad to form CSX.
The contest for Conrail comes on the heels of Union Pacific Railroad's $5.4billion marriage to Southern Pacific, itself a response to the merger of the Burlington Northern and Santa Fe railroads in 1995. The deals are defended as necessary to increase efficiency and profits, but, as ExpressRail shows, railroads have not relied on consolidation alone.
``The railroads have snuck up on people,'' said Ganson Evans, a Conrail marketing executive who courts customers for ExpressRail and other Conrail terminals near the port that also handle container traffic. ``People are surprised at what we are doing today.''
What Conrail and other lines are doing is slowing, and in some cases reversing, a decades-long loss of business to the trucking industry. While the public perception is that railroads are crumbling because passenger service is notoriously bad compared with other countries, freight shippers say the American rail network is the best and most efficient in the world.
Railroads' share of freight traffic, measured by tonnage and distance carried, rose to 40.6 percent last year, from 36.4 percent in 1985, according to Mercer Management, a transportation consulting firm based in Lexington, Mass.
The recovery has its roots in deregulation of the industry in 1980. That allowed railroads to drop costly branch lines that generated little traffic, and to quickly add new services to make better use of main lines like those Conrail uses to move goods from here to Chicago, Detroit and other inland hubs. It also freed them to rapidly change prices to meet competition from the far more flexible and reliable truckers.
Many services like ExpressRail - called intermodal because they use two or more modes of transportation - exploit the huge cost advantage that railroads have over long-distance trucking by carrying truck trailers that can be attached to cabs near their final destination and containers than can go on either ships or trucks.
The railroads' economic revival cost 270,000 railroad employees their jobs from 1980 to 1995, about 60 percent of the total, as lines slashed train crews swollen by union work rules. Conrail's work force was cut from 96,000 to 23,500.
On the other hand, their comeback has revived locomotive and rail car manufacturing, saved shippers billions of dollars a year, stimulated world trade and influenced many domestic activities in ways the average citizen might not realize, such as allowing utilities to meet clean air regulations by switching to low-sulfur Western coal instead of installing expensive scrubbers.
The biggest problem for the railroads may be overcoming their reputation for indifference, even arrogance, in dealing with many customers. Until deregulation, they paid little attention to selling themselves.
Conrail, by virtue of its monopoly position, has generally received lower marks than most lines on that score, but those working with it say the situation has improved. Port Authority executives, for instance, say they had to lobby hard to convince Conrail that ExpressRail would bring new business to both of them. But once Conrail committed, it became a responsive partner, they say.
But many customers say railroads are still run by people who care more about convenient operations than customers. And retailing experts agree.
``I still haven't seen the rail industry come up with clever service ideas,'' said Robert Sabath, a retailing expert in Mercer Management's Chicago office. ``It's been their customers pushing them.''
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