THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Friday, May 31, 1996 TAG: 9605310469
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: By DANIEL MACHALABA, DOW JONES NEWS SERVICE
LENGTH: 66 lines
Norfolk Southern Corp. is invading the Northeast heartland of competitor Conrail Inc. in a move that threatens to put price and earnings pressure on Conrail.
The action - which began earlier this month when Norfolk Southern extended its container-shipping service into northeastern Pennsylvania - comes after months of rumors that Norfolk-based Norfolk Southern wanted to acquire Conrail in a friendly transaction. But such speculation dimmed recently with Conrail reiterating its desire to remain independent and Norfolk Southern apparently looking elsewhere.
Norfolk Southern said it is considering plans to thrust further east into upstate New York, Massachusetts and Maine. Although its own tracks extend into the Northeast only as far Buffalo, N.Y., Norfolk Southern said it is able to provide the new service using trackage rights on other railroads.
Officials of Conrail, based in Philadelphia, dismissed a Norfolk Southern threat. ``We feel our transportation network can compete with anyone, including Norfolk Southern,'' said Craig MacQueen, Conrail's vice president, corporate communications.
In announcing its plans, Norfolk Southern said it is merely trying to respond to customer demand and win a share of the Northeast truck market, the largest in the country. But analysts say Norfolk Southern could also be maneuvering to undermine Conrail, which earlier this year announced plans to grow its franchise as an independent carrier.
``It looks to be close to a win-win tactic by Norfolk Southern,'' said Anthony Hatch, an analyst at NatWest Securities Corp. ``They could continue to build business outside of their borders and pressure Conrail to rethink consolidation issues.''
So far, Norfolk Southern's thrust into the Northeast has been modest with a single train each way a day connecting Chicago and a terminal outside Scranton, Pa. The new service seems designed to fill a gap left when Canadian Pacific Ltd. earlier this year abandoned its Midwest-Northeast intermodal operations - freight that moves by a combination of road and rail. But Norfolk Southern says its service promises to be more competitive because it uses highly efficient trains of double-stacked containers.
``From a shipper's perspective Norfolk Southern's initial move is very positive,'' said Thomas Brown, president of Riss Intemodal Corp., an Orinda, Calif., transportation broker. ``It has reduced rates and provides a second carrier in a one-carrier market.''
Thomas Finkbiner, Norfolk Southern's chief intermodal official, said the company is meeting with shippers to determine demand to extend its service to Albany, N.Y.; Boston; and Bangor, Maine. By capturing just a small portion of the truck traffic in these markets, Norfolk Southern could generate $100 million or more a year in additional revenue in the next two or three years, said Finkbiner. Intermodal shipments, a fast-growing business for Norfolk Southern, represents about $500 million, or 11 percent, of its annual revenue, more than double the amount seven years ago.
For their part, Conrail officials say they already face fierce competition from trucks and aren't worried about another railroad. ``Unlike any other railroad, Conrail has had to cut its teeth in some of the most competitive transportation markets in the world,'' said MacQueen, the Conrail spokesman. What's more, Conrail lately has been expanding its intermodal services with new trains between the Midwest and Philadelphia and Detroit and New York. And earlier this year Conrail started intermodal train service to the Kansas City area, beyond its traditional borders and directly into Norfolk Southern's territory.
KEYWORDS: NORFOLK SOUTHERN by CNB