ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Friday, March 28, 1997 TAG: 9703280045
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
DATELINE: WASHINGTON, D.C.
SOURCE: BLOOMBERG NEWS
Operational and competitive issues are a long way from being resolved.
The spate of rail mergers - those pending and others in recent years - won't necessarily lead to the creation of two competing transcontinental railroads, said Surface Transportation Board Chairman Linda Morgan.
That's a possibility many people contemplate with the impending division of Conrail Inc. between CSX Corp. and Norfolk Southern Corp. The transaction would leave just two dominant railroads in the East to match two dominant rail carriers in the West: Burlington Northern Santa Fe Corp. and Union Pacific Corp. It then wouldn't be much of a leap into east-west combinations of those companies to create the first true coast-to-coast railroads in the nation's history.
Yet the Conrail split-up ``doesn't mean we'll automatically see combinations to create two transcontinental railroads,'' Morgan said. ``I think some people are making assumptions that may not be there.''
The assumptions aren't unreasonable, given that many Americans for more than a century have talked of a transcontinental railroad offering seamless service coast-to-coast.
``We'll be looking at a transcontinental railroad within three years,'' said Martin Bercovici, executive director of the Alliance for Rail Competition, which represents shippers. Yet, if the result is just two mega-railroads dominating the nation, ``The question then becomes: Will there still be free and open competition for rail traffic as we know it today?'' Bercovici said.
That's a question Morgan's board would consider in any proposal for a transcontinental railroad. But, she said, ``I think there are financial and operational issues that would need to be addressed first.'' The board will ``review each application on its individual merits,'' she said.
Her three-member board has broad authority to approve, alter, or reject rail mergers. NS and CSX say they hope to submit to the Surface Transportation Board by June a joint application containing their plan to divide Conrail.
Morgan won't rule out two nationwide railroads, nor would she speculate whether the board would approve such combinations if asked.
Shippers have concerns. Consolidation might simplify marketing and billing, Bercovici said, but many of the same difficulties now associated with transporting goods across the country by rail would remain.
``If you are sending a carload of goods from New York to Los Angeles, it is still going to have to cross the Mississippi [River],'' he said. ``Putting things under the same corporate logo doesn't equal seamless surface transportation.''
Said Morgan: ``The marketplace would have to sort itself out'' before such a proposal would even come before the board.
Richard Saunders, a professor of history at Clemson University, said Americans have been dreaming of a coast-to-coast railroad since Jay Gould tried to put one together in the 19th century and missed by 40 miles of track.
``In the competition with trucks for transcontinental traffic, the only way railroads could possibly win is to have one route, where the train will go right through junctions,'' Saunders said. Interchanges, where railroad lines come together, are the railroads' Achilles' heel, he said, because they can mean delay.
Transcontinental rail systems aren't necessarily the answer, according to Saunders. There are, for example, the operational difficulties Morgan mentioned.
Now, railroads from the East and the West come together at neutral gateways such as Chicago, Memphis and New Orleans. There, Saunders said, ``everybody exchanges with everybody.''
If there were two coast-to-coast rail systems, however, a problem could occur if a shipper in the West was on one line and the receiver in the East was on another, Saunders said.
``It may be bad to lose that neutrality in the gateways,'' he added. ``The only way you could remedy problems like that would be to form one massive system, which is an impossibility from a competitive standpoint.''
Morgan and her board also will keep an eye on competitive issues in merger proposals.
Morgan created a controversy this year when she said the board could decide to divide a railroad between competing bidders in the interest of preserving competition.
Critics said her remarks suggested she had prejudged the Conrail case and unfairly influenced the outcome of the takeover battle for Conrail.
CSX and Conrail abandoned plans to merge soon after Morgan's remarks. CSX now plans to buy Philadelphia-based Conrail for $10.5 billion and divide its assets with hostile bidder NS. CSX and NS are still ironing out the details.
Morgan said she was talking in general about railroad mergers and the tools the board has to ensure competition.
``I don't prejudge, and don't comment on pending matters,'' she said.
However, she said she makes no apologies if her remarks caused the chiefs of NS and CSX to sit down and talk. It is simply ``good government'' to encourage businesses to resolve their differences without government intervention, she said.
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