Railroads set Conrail split date

Shippers, get ready. Norfolk Southern and CSX Corp. expect to complete the division of Conrail on June 1.

By Staff -- Logistics Management, 2/1/1999

The railroads are calling it the "Split Date"--the date that Norfolk Southern and CSX Corp. will complete their acquisition of Conrail, the sole remaining Class 1 railroad in the Northeast. Shippers have known for months that it was coming, but they didn't know exactly when. But last month, Norfolk Southern and CSX set June 1 as the date on

which they will complete the Conrail transaction and each will begin operating its portion of Conrail's network.

To date, the two companies have been proceeding with some caution. Executives for both railroads say preparations for taking over Conrail have included customer-service planning, capital-improvement projects, employee training, and forging and implementing labor agreements. The railroads now are testing computer systems integration. Both David Goode, Norfolk Southern's chairman, president, and chief executive, and John W. Snow, CSX's chairman and chief executive, express confidence that the transition will proceed smoothly and without interruptions in rail service. Their strategy has been formed at least partly in response to lessons learned from Union Pacific's troubled takeover of Southern Pacific in 1996.

Once the transition has been completed, Norfolk Southern Railway will operate a 21,600-mile rail system in 22 states, the District of Columbia, and Ontario, Canada. Its system will include 7,200 miles of former Conrail routes. CSX Transportation, the rail operating company of CSX Corp., will operate a 22,300-mile rail system, including 4,000 miles of former Conrail routes. The CSX system will encompass 23 states, plus the District of Columbia and portions of Quebec and Ontario.

The Conrail name will survive in several "Joint Operating Areas," highly congested sections of the Northeast and Midwest where both railroads will operate. A joint company using the Conrail name will be responsible for operations in those areas.

Ready or Not

What should shippers do to prepare for the Split Date? The National Industrial Transportation League (NITL) urges all companies to re-examine their internal processes to ensure that they will provide correct routing instructions on and after June 1. In addition, NITL suggests that shippers be aware of the following:

* Routing instructions must be changed effective June 1 to reflect new routings, otherwise shipment delays and billing errors may occur. Beginning on that day, CSX and Norfolk Southern will not recognize bill-of-lading instructions that specify Conrail. Instead, shipping instructions must specify either CSXT or Norfolk Southern. The two railroads will have a manual process in place to correct routing errors, but NITL urges shippers to minimize those cases. Connecting railroads also are expected to have a manual process in place to correct routing errors, but the league "strongly recommends" that members not rely on them.

* Conrail customers that exchange electronic data interchange (EDI) messages with that carrier must contact the electronic commerce departments of CSX and Norfolk Southern prior to the Split Date. Conrail systems will not be supported after June 1. CSX's Electronic Commerce Customer Integration Center can be reached at (800) 334-4256. Norfolk Southern's Electronic Commerce Group's telephone number is (800) 235-5551.

The two railroads appear to have operating plans for the transition well in hand. That alleviates some worries for shippers, but other concerns remain. Months of jockeying between CSX Corp. and Norfolk Southern for the rights to purchase Conrail led to a bidding war that forced both bidders to pay a premium price for the Northeast railroad. Many shippers remain concerned that CSX and Norfolk Southern will attempt to recover their enormous investments through rate increases. CSX and Norfolk Southern, however, insist that they will pay for the transaction through more efficient operations and by drawing freight away from motor carriers.