by C.B. Hall, Vermont Business Magazine A pending deal for the merger of much of New England rail network under one owner has elicited criticism from Amtrak, Burlington-based Vermont Rail System (VRS) and the Vermont Agency of Transportation (VTrans).
Under the proposal, which the federal Surface Transportation Board must still approve, CSX, one of the nation's biggest railroads, would acquire Pan Am Railways (PAR), which owns, wholly or in part, railroads in New York, Connecticut, Massachusetts, New Hampshire and Maine, as well as a few miles in Vermont's southwest corner.
Opposition to the proposal has focused on the so-called Connecticut River Line between White River Junction and Massachusetts.
That line is owned by the New England Central Railroad, a subsidiary of Genesee & Western. Inc (GWI), which owns or holds an interest in more than a hundred railroads worldwide.
But PAR runs trains on the line by virtue of an access agreement with the NECR. PAR and the Norfolk Southern Railway each hold a 50 percent interest in that operation, a company known as Pan Am Southern Railroad (PAS), which owns certain other New England rail routes.
Under the plan pending at STB, CSX would acquire PAR's interest in PAS, which would hire a second subsidiary of GWI, the Berkshire & Eastern, to operate PAS on a contractual basis. GWI subsidiary NECR also operates its own trains on the route.
The CSX-PAR merger would thus reduce the number of freight carriers operating on that line from the current two, GWI and PAS, to one, GWI.
The CSX-Pan Am proposal has raised concerns about the reduction of competition.
VRS, which owns 24 miles of track in Vermont and New York, and also operates over 305 miles of track owned by the State of Vermont, currently interchanges freight at White River Junction and Bellows Falls, on the Connecticut River route, with both PAS and GWI – which VRS described as "vigorous competitors" in a filing with STB that opposes the merger deal as it stands.
Such interchanges are crucial to railroading, since they facilitate freight movement across multiple lines, offering shippers the benefits of the entire continent-spanning rail network.
For VRS, classified as a low-volume railroad – a short line, in railroad parlance – the acquisition by CSX, classified as a major, or Class I railroad, would significantly limit VRS's access to that network.
"Currently, PAS accounts for the vast majority of Conn River Line interchange traffic with VRS, reflective of both better PAS service and other competitive considerations that favor VRS’s use of PAS over NECR," VRS's attorneys stated in their submission to STB.
VRS president Selden Houghton declined to comment for this article.
But the consolidation would allow for streamlined operations on the Connecticut River Line.
"Freight can be combined on fewer trains… This would make a big difference and probably generate opportunities for Vermont shippers," a September 2 release from the Vermont Rail Action Network advocacy group stated.
PAS and GWI currently run about eight trains a week on the route, VRAN executive director Christopher Parker told VBM.
"Realistically I would expect that you see one train a day, and there will be a contractual arrangement between GWI's two subsidiaries to combine operations," he said. "In practice that has some advantages for shippers."
Elsewhere, officials give support
Many affected parties, including New Hampshire officials and both of Maine's senators, have supported the deal in statements to STB.
They have pointed to increased efficiency in moving freight, CSX's assurances of infrastructure upgrades, and other benefits for both freight and passenger service.
Amtrak and the Massachusetts Bay Transportation Authority, that state's commuter rail operator, run trains over Pan Am tracks in New Hampshire, Maine and Massachusetts.
Maine governor Janet Mills, for example, stated in a letter to STB that, "CSX has indicated that it will make upgrades to track and locomotives to provide improved service, extend positive train control on Amtrak's Downeaster, and make other improvements to the rail network."
Positive train control is an advanced safety technology.
The Downeaster trains run between Boston and Maine.
In a press release, CSX likewise noted that "the transaction will provide significant benefits to shippers, passenger rail users, and local communities."
In an email responding to VBM's request for more details on its infrastructure plans, CSX said that "over five years, CSX will upgrade key segments of Pan Am’s main line track to higher rail class standards, investing in rail, tie, bridge, and yard improvements... Our operating model and updated locomotives will also provide significant emission improvements in the region... Pan Am has been maintained for decades with limited resources, which CSX plans to improve and enhance."
But whatever those improvements might turn out to be, Amtrak has made its wariness about the transaction clear.
In their submission to STB, the national passenger carrier's attorneys stated that "the replacement of Pan Am by CSX poses a grave threat to the Biden-Harris Administration’s vision [for expanded Amtrak service] and Amtrak’s plans to implement that vision."
The statement took CSX to task for failing to cooperate with Amtrak in the latter's recent plans for relatively minor service expansions on the Gulf Coast, and between Albany, NY; and Pittsfield, MA.
The State of Vermont has also filed objections with STB, noting that the proposal, if consummated, "will lead to a reduction in competitive alternatives for rail shippers in Vermont. Under the Board’s rules and well-established case law, the Board cannot approve a transaction that harms competition rather than promoting it."
The state said that CSX was proposing "to re-arrange the railroad map to its advantage," and urged STB to require that an entity completely separate from GWI and CSX receive the right to operate on the Connecticut River Line, much as Pan Am Southern does now.
"Shortlines and shortline holding companies [other than GWI] have the ability and credentials in the industry to operate the PAS in a truly independent manner," the state noted.
Asked by VBM about the possibility of VRS receiving that right, CSX did not answer directly, but noted that it would be "engaging with the Vermont Rail System and Vermont shippers."
The response also stated that the Berkshire & Eastern "will be obligated to operate PAS in the interest of PAS as an independent rail carrier."
The "near monopoly on interchange," to quote the state's submission, could obviously encourage the monopolistic pricing of service.
The state asked rhetorically, "What incentive does GWI have to compete with itself ... along the Conn River line where VRS enjoys two interchange carrier[s] today?"
"Notwithstanding VTrans' consistent efforts to identify and seek a way to address [the issues of diminished competition], the railroads that are proposing the merger ... have remained unwilling to propose a solution to them," Dan Delabruere, director of VTrans' Rail and Aviation Bureau, concluded in an attachment to the state's comment.
Vermont's congressional delegation has not taken a formal position for or against the merger, but in a letter to STB, they stated that "without competitive guarantees, CSX’s acquisition risks anticompetitive harms to stakeholders in Vermont and across the region," and asked STB to give the proposal maximal scrutiny.
The Short Line Box
VRAN's Parker saw both positives and negatives in the envisioned merger.
"We see the competitive issues for VRS – that is a serious concern – but we also see the efficiency reasons for GWI combining operations" on the Connecticut River tracks, he said.
"For Vermont, having friendly rail connections determine[s] whether freight can move efficiently by rail or will be trucked," VRAN's press release noted. adding that "lack of easy access to major markets will mean lower market share."
Parker mentioned VRS's access to the New York City area as a case in point.
"This is something of a Monopoly game, the way it's playing it out," he put it. "CSX is making moves to acquire short lines so they're going to own the Short Line box on the Monopoly board."
Joshua Davidson, who edits the trade newsletter Atlantic Northeast Rails & Ports, told VBM that, since its initial merger application to STB in February, CSX had filed two revised applications and GWI has made significant adjustments to their related application to operate certain lines involved in the proposal.
"CSX can't ignore the push-back that they've gotten," he said, referring particularly to objections filed by the federal government in late August.
In that submission, the Department of Justice's Antitrust Division urged STB to specify that operation of Pan Am's so-called Patriot Corridor also be assigned to an entity fully independent of GWI.
That line runs east-west between the Albany, NY, and the Boston area.
The merger application proposes that a GWI subsidiary gain operating control of that route as well as the north-south Connecticut River Line. VRS interchanges traffic directly with the Patriot Corridor at Hoosick Junction, NY, just west of Bennington.
The feds' brief also chimed in with the fears of reduced competition on the Connecticut River line and called for "a fair, open, and competitive marketplace" free of "excessive market concentration."
The brief's "highly skeptical" view of CSX's assurances of adequate competition got something of an echo from Davidson, who noted that "words on paper and actions on steel are different things."
Still, like Parker, Davidson saw pluses in the proposal – including CSX's plans to make infrastructure improvements.
"Genesee & Wyoming doesn't intend to be unmerciful [in controlling the Conn River line]. This is going to be a good thing for railroading in the region."
He said he expected the STB to approve the proposed configuration on the north-south line.
"The real conflict," he said, "is going east-west" – which is the predominant axis for rail traffic across the continental United States as a whole.
Hovering over the debate is the question of the extent to which competition can be sacrificed in the name of the efficiency that consolidation brings.
STB will address that question as it sifts through all of the many filings in the case over the next several months. The board's decision is expected next year.
C.B. Hall is a freelance writer from Southern Vermont.