One shippers group settles some Conrail issues

By Staff -- Logistics Management, 1/1/1998

The National Industrial Transportation League (NITL), the nation's largest shippers group, has reached agreement with CSX Corp. and Norfolk Southern over some of the key issues in the proposed division of Conrail. But other shipper groups say the pact is too weak for their liking. The Chemical Manufacturers Association and the Society of the Plastics Industry say the NITL agreement does not go far enough. They remain opposed to the proposed deal.

CSX and Norfolk Southern, operators of two of the major railroads in the eastern United States, have agreed to purchase the third--Conrail--and divide its assets. That plan must be approved by the federal Surface Transportation Board.

The railroads argue that their plan will create rail competition in the Northeast, where Conrail is dominant. But shippers are worried about many parts of the deal. The agreement with NITL announced last month resolves some of those issues, but it does not address what is perhaps the shippers' greatest concern--the possibility that the railroads may boost rates to recover the premium price they paid for Conrail. The railroads dismiss that worry, arguing that they will pay for the purchase with improved efficiency and by attracting freight off the highways.

The agreement between the NITL and the carriers, which now becomes part of the railroads' formal application before the STB, includes the following provisions:

* It creates a shippers advisory council that would allow shippers to discuss their concerns about the Conrail deal directly with the railroads. The council will be created by the end of this month.

* The railroads promise that by Feb. 1, they will provide information on how they will operate what they call "Shared Asset Areas." These are facilities in northern New Jersey, the Philadelphia area, and Detroit that will be operated by a separate business unit jointly owned by CSX and Norfolk Southern.

* The railroads agree to complete necessary labor negotiations and have management information systems in place before implementing their pact. Labor issues and MIS problems were major contributors to service failures after the Union Pacific and Southern Pacific merged in the West.

* The railroads agree that the STB will retain oversight of the merger implementation for at least three years. CSX and Norfolk Southern will be required to provide the STB with quarterly progress reports that include shippers' comments.

* Conrail's contracts will remain in force and will be split between CSX and NS. After six months from the closing of that transaction, any shipper that is dissatisfied with service can request arbitration. The remedy would be transferring the contract to the other carrier.

* For five years after the closing, CSX and NS will not charge more than $250 per car, adjustable for inflation, for reciprocal switching. Though that's higher than some shippers had wished, it does provide shippers with price protection in cases where service will change from a single line to two lines.