CSX-SEA-LAND MERGER

WHAT CONSTITUTES A RAILROAD? Is it the track, the so-called right of way that railroads own? Is a company that owns rail terminals and rail cars but no track a railroad? Does the amount of revenue a company derives from railroad operations make it a railroad even though it may not own track, terminals or railcars?

Those are some of the questions that the Interstate Commerce Commission must deliberate when considering CSX Corp.'s July 14 application seeking permission to acquire control of Sea-Land Corp.CSX is a $7.4 billion holding company headquartered in Richmond, Va., whose largest holding is railroads. CSX itself resulted from a merger in 1980 of the old Seaboard Coast Line and the Chessie System.

Its 24,000 route-miles of track make it the third largest railroad in the country. CSX's track rights cover most of the southeastern quarter of the United States but also extend north to Philadelphia and beyond, as far west as Chicago. In all, its rail system serves 21 states, the District of Columbia and a Canadian province.

CSX also has natural resources and other transportation interests, including American Commercial Lines Inc., the largest barge operator in the country, and major motor carrier operations.

Sea-Land Corp. is a $1.6 billion holding company headquartered in Menlo Park, N.J. Its largest revenue producer is Sea-Land Service Inc. Operating under the U.S. flag, it is the world's third largest container operator by capacity, with 57 vessels. Sea-Land's vessels serve all major ocean routes above the equator.

Sea-Land also operates an extensive double-stack rail service, with revenue considered to be in excess of $50 million a year, and has motor carrier operating authority.

Because of Sea-Land's extensive rail reach, American President Cos. filed an objection with the ICC that this would be a merger between two railroads rather than a railroad and an ocean containership company.

Headquartered in Oakland, Calif., APC itself has extensive containership and railroad holdings. Its largest revenue producer is American President Lines, which has the largest share of market in the Pacific trades of any U.S.-flag company. APC operates an even larger double-stack train network than Sea-Land.

CSX seeks control of Sea-Land under provisions of the Panama Canal Act, specifically Section 11321 of Title 49 in the United States Code. If the ICC rules on the merger proposal under the Panama Canal Act, proceedings could be shortened considerably, perhaps by two years or more. Proceedings on the merger of two railroads could take three years or more.

Under the Panama Canal Act, CSX must substantiate that its railroad holdings do not compete for traffic with Sea-Land's shipping operations. Since

CSX is a domestic railroad and Sea-Land is an international ship company, and its ships do not move domestic containers between U.S. ports, one might reasonably conclude that, on the face of it, the ICC should rule that the merger does not run afoul of the Panama Canal Act.

The Panama Canal Act was enacted in 1912 to protect the revenue base of the newly constructed canal. Railroads, which then were the dominant companies in the country, had a penchant for buying up competitive modes, like steamship operators, and then lowering the rates charged by the vessels to the point of driving out of business other carriers. The ultimate objective was to divert cargo to the railroad.

In arguing that the ICC should view CSX and Sea-Land as a merger of two rail carriers, APC's statement to the ICC says ...Sea-Land's lease of rail terminals, with its other rail activities, makes it fully appropriate for the

commission to determine that the growth of Sea-Land's surface transportation activities...pushed it over the line into rail carrier status.

Along with Southern Pacific Transportation Co., Sea-Land originated the double-stack railcar capable of carrying one ocean container on top of another. In 1981, Sea-Land, in conjunction with SP, began operating a dedicated 20-car double-stack unit train service between Long Beach and Houston. By the end of the year, Sea-Land expects to own or lease nearly 300 five-car articulated double-stack units capable of hauling some 3,000 containers.

Sea-Land's rail service today goes coast-to-coast from Tacoma, Wash., to Little Ferry, N.J., and from Long Beach, Calif., to Chicago and Long Beach to New Orleans. It also makes many stops along the way. Its cars operate on other companies' rights of way, including CSX's tracks. Sea-Land owns no right of way itself.

The merger between Sea-Land and CSX would not result in the first transcontinental railroad, as APC contends. If Sea-Land is a railroad, as APC contends, Sea-Land already operates a rail service that crosses the nation. And APC operates one, too.

We believe that Hays T. Watkins, CSX chairman and chief executive, is more to the point in his prepared statement to the ICC. The merger, he says, should result in CSX becoming the first international intermodal transportation company.

That is what this merger is all about and it might well be that existing law and regulations are inadequate and inappropriate in dealing with this new transportation phenomenon. But more on that tomorrow.

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