Copyright 2008, Traffic World, Inc.
In a pair of bold marketing moves, Norfolk Southern Railway is attempting to remake rail operations for key segments along its northern tier.
NS and Pan Am Railways agreed to launch to a joint venture rail corridor that runs roughly between Boston and Albany, N.Y.
Industry observers say it looks like a Northeast version of the Meridian Speedway project that NS operates in the Southeast in a venture with track owner Kansas City Southern.
Separately, NS has agreed with officials at various short lines connected to its system across New York state to begin joint marketing of cargoes under a simplified rate structure for delivery to customers on another small railroad at the other end.
Tentatively dubbed the "Empire Link" to play off New York''s nickname, that innovative concept would allow carload-originating short lines to sell a full transportation package to bulk shippers, with a rate that combines the costs of NS mainline service and final delivery to customers on a distant short line.
Currently, industry sources said, those cargoes often go from the first short line onto NS'' Class I system, but revert to truck hauls at the other end as shippers find it easier and cheaper to pull shipments off the rails rather than negotiate separately with yet another railroad.
Besides cutting total delivered costs by simplifying what is now a cumbersome system for shippers using more than one railroad, one source said the short lines would offer shippers "a rate that attracts traffic" to stay on rails for the whole trip.
Another source said NS could be looking to gain 30,000 additional carload hauls through the Empire Link and 10 short lines in that network, loads now going by truck at one end.
While much of the carload traffic would stay inside New York, the plan also envisions connecting Empire Link cargoes with short lines in adjacent states.
Observers agree on one point: If it works as hoped, this could spread across the country and change how short lines and their Class Is market carload freight.
Anthony Hatch of ABH Consulting said the joint venture with Pan Am and the Empire Link plan show NS is willing to embrace new concepts of business opportunities.
For years the larger railroads focused on building long-haul traffic, where they have a distinct advantage over trucking''s higher costs to move freight long distances.
But "there''s a new mindset" behind the plans in New York and Massachusetts, Hatch said. "These guys are thinking about different lengths of haul" to increase rail volumes in the current freight slowdown, now in its second year.
In addition, "one of the things that''s stimulating this is the price of fuel," he said, as railroads find they can compete in shorter hauls against trucks as diesel prices surge.
NS and Pan Am are calling their joint venture the Patriot Corridor, and said they will each own 50 percent of it.
Pan Am will toss in its 155-mile mainline track from Ayer, Mass., near Boston to Mechanicville, N.Y., outside Albany. It will also include 281 miles of secondary and branch lines in those states and neighboring Connecticut, New Hampshire and Vermont.
NS will put in property and cash totaling $140 million, of which $87.5 million will be spent on track and signal upgrades to boost train speeds and capacity, along with terminal expansions.
The companies plan to build new intermodal and automotive terminals near Albany, and Pan Am''s Springfield Terminal Railway subsidiary will provide all railroad services to the venture.
The deal must be approved by the Surface Transportation Board, which last year rejected a proposed NS venture in central Michigan. However, in that case NS was trying to carve some of its own track into a short line entity to cut costs while retaining some ownership and control. This time, NS would pay for upgrades to existing Pan Am track, a model that resembles the 2006 venture with KCS between Meridian, Miss., and Shreveport, La.
The Empire Link might get going sooner. It amounts to a marketing agreement in which short lines at either end act almost as sales agent or forwarder on a route with NS tracks in between.
Sources say it began when a delegation of leading short line industry executives visited Norfolk Southern headquarters Feb. 14 to explore the idea. By May 5, NS officials were touting it at the American Short Line and Regional Railroad Association''s annual meeting in San Antonio.
Short lines in other regions will be watching the Empire Link closely. "If this proves a success," one official said, "NS will expand it in other areas."