Rail Merger Could Ease Truck Traffic on Roads
But Conrail marriage needs government approval
Given Conrail's stranglehold on the freight lines of the Northeast, it's easy to see why the railroad last week became the object of desire in a bidding war between two rival suitors: Norfolk Southern Corp. and CSX Corp.
The two bidders are major freight haulers in the Southeast, so winning Conrail would give either one a dominant position east of the Mississippi.
Last Wednesday, Norfolk Southern offered $9.1 billion for Philadelphia-based Conrail. That hostile bid came a week after Conrail had accepted an $8.4 billion offer from CSX. Conrail's board of directors is reviewing the new offer, and observers say a counter offer from CSX is likely.
In the short term, the bidding war will be of more interest to Wall Street than Main Street. But the long-term implications will likely resonate throughout the transportation industry - and far beyond.
Whether Conrail marries CSX or Norfolk-Southern, a dominant East Coast rail company is expected to compete more aggressively with the trucking companies that now dominate the shipping and delivery of goods.
Boon for shipping ports?
A Conrail merger could also be an economic boon for shipping ports - such as Port Newark and Port Elizabeth in New Jersey. By giving overseas shipping companies access to a larger and more-efficient rail operation, the merger could spur economic activity around harborside shipping terminals. That, in turn, could create jobs.
"Overall, I think the impact is going to be positive,'' says Lazar Spasovic, an associate professor of transportation at the New Jersey Institute of Transportation.
Conrail currently controls rail access around the New York City metropolitan area, along the coastal corridor between Washington and Boston, and throughout the triangle between those two cities and Chicago.
CSX and Norfolk Southern, though larger than Conrail, have for years longed to break into the lucrative freight markets that Conrail dominates. The merger will create the second- or third-largest freight company in the nation.
With access to more routes and destinations, a large rail company could provide a wider range of shipping options than can Conrail, CSX, or Norfolk Southern alone. Increased competition between railroads and trucking firms could then drive down shipping costs and make it cheaper for businesses to move goods.
"The entire freight complexion of the region could be changed,'' says Jack Dean, a planner and freight expert with Regional Plan Association, a nonprofit research and planning group for New Jersey, New York, and Connecticut.
More goods moved by train could also mean fewer trucks on the road.
"John Q. Public might benefit from that competition if the railroad indeed manages to take some freight away from the truckers, because it may take trucks off the road,'' Professor Spasovic says.
Furthermore, if a Conrail merger allows the new company to sell off redundant, parallel tracks, it could prompt some states to seek commuter-rail service on some tracks that have, until now, been off limits.
Conrail says it is unclear how its merger with either company will affect commuter trains or anything else on the East Coast's transportation landscape.
"We have absolutely no idea what specific facilities or regions of the company are going to be impacted as a result of the merger,'' says Conrail spokesman Rudy Husband.
Congress created Conrail in 1973 from the dregs of six struggling private rail companies. Conrail - the Consolidated Rail Corp. - became a private corporation in 1987. Though financially sound, the company has been rumored to be on the buying block for a few years.
Some industry analysts say Norfolk Southern, based in Norfolk, Va., is the more efficient company and would be a better partner for Conrail than CSX. A merger with CSX, based in Richmond, Va., would create a larger company, with more miles of track and more employees.
The federal Surface Transportation Board must approve a Conrail merger with either of its suitors. That process could take a year. Meanwhile, the Federal Railroad Administration and the Justice Department are reviewing whether the merger would create a monopoly and violate antitrust laws.
Two other rail megamergers in the past year were approved by the federal government. These were Burlington Northern's purchase of Santa Fe Pacific in 1995 and Union Pacific's linkup with Southern Pacific this summer.
But the implications of a Conrail merger, because it would control the high-volume freight industry of the Northeast, loom larger than the two previous mergers, and federal approval is not a given.
"This is probably more significant than the previous two mergers,'' says David Bolger, spokesman for the Federal Railroad Administration.
"You have the entire Northeast of the United States that's in play here.... Significant cargo goes through that area," Mr. Bolger says. "It's a big event, and we're watching it closely.''