Pan Am Sale: Winners and Losers

Winners

Port of Saint John/ J.D. Irving/Irving Limited
PSJ gets a third Class 1 to compete for traffic to the Midwest and Northeast, likely to include crude oil for Irving in the future. However, CN appears uninterested in container traffic from Halifax to the northeast, considering it as short-haul.

Canadian National Railways
CSX and CN forged an intermodal alliance in advance of the sale announcement of the Massena line. CN was initially a leading bidder for Pan-Am, but withdrew to “pursue other opportunities,” at which point CSX entered the fray. One could imagine a CSX connection via Saint John and Mattawamkeag (where Pan-Am now has haulage rights) giving CN access to New England, New York. However as noted above, CN may view that as a short-haul market, not worth its involvement.

Physical Plant
It is probable that CSX invests to raise track standards. It is all but certain that Pan-Am’s tattered second-hand power fleet is mothballed in favor of newer-generation CSX engines.

Tim Mellon
Who just became richer and sold his company when valuations are high. Not to mention the lawyers and bankers who help with the deal.

Genesee & Wyoming, Fortress Investment, and other Shortline Operators
CSX will probably look to quickly spin-off off several Pan-Am branchlines. Shortline operators are waiting eagerly in the wings.

East-West Passenger Rail In Massachusetts
By acquiring the other route across Massachusetts to the Albany region, CSX can sell the passenger route to the Commonwealth, slashing the state’s cost to develop the service while funding much of CSX’s cost to purchase PAR.

 

Losers

Shippers
Pan-Am has worked hard in recent years to provide good service, and traffic growth has reflected this. While CSX has made impressive strides and is developing groundbreaking dock to dock trip plans, no Class 1 can meet Class 2/3 service standards. Pan-Am is far from perfect, but it communicates well and responds to shippers’ needs. In particular, Omya stands to lose as its limestone slurry business from Vermont to Maine is short-haul and unlikely to be valued by CSX. Unrealized business from Poland Spring to New York is also seems not to fit the Class 1 business model. 

Counterpoint: Some shippers still have not seen improvement in PAR service. PAR inconsistency has caused lapses or buildup to spot unreliable deliveries. Adams Branch comes to mind and also the White River Jct VT-area shipments that wait to reach a certain number before PAR will drill them.

Employees
Pan-Am has become a good place to work in the last two decades, considerably exceeding quality-of-life on a Class 1. For managers in Billerica and the shop in Waterville, job losses are highly probable. Pan-Am’s marketing department is excellent and has delivered results, but one would expect CSX to merge their functions into the bigger corporate structure. The only hope is if CSX decides to keep the operation independent under their ownership, perhaps to keep their operating ratio from being dragged down.

Counterpoint: This is largely subjective. The pay and benefits are good, but the work and inconsistency is a huge sticking point among PAR employees.

Amtrak Passengers
The Downeaster was 82% on-time in 2019, beating every Amtrak route operated by CSX ( scores ~60-70% for other state supported routes).

MBTA Commuters
CSX on-time performance on commuter lines in Maryland and Virginia is worse than Pan-Am performance on comparable Massachusetts routes, and CSX has been notably harder to deal with than locally managed Pan-Am, which has developed strong, longstanding relationships with state agencies.

Shareholders
Most mergers (in all industries) do not work out as planned, and most do not add value. CSX shares fell sharply following the 30.November sale announcement. Norfolk Southern shares also fell. Shortlines are now being sold at inexplicably high valuations. And, Pan-Am was shopped around to at least 15 bidders, no doubt raising the price.

 

No score

Economic Development
There has been almost no industrial development along Guilford and Pan-Am routes until relatively recently. While developers might like to sell their tenants on shortline-style service, it still seems likely that CSX would generate more confidence among builders.

Norfolk Southern
The sale clearly weakens NS’s position, relative to CSX, and in the region. CSX will probably divert a trainload of East-of-Ayer business away from NS. On the other hand NS will benefit from a straight-forward Pan-Am Southern relationship with a partner with superior track standards than PAR, and who is more likely to invest in major projects, such as raising Hoosac Tunnel clearance for double-stack trains. 

Vermont Rail System
VRS loses a great partner that had become their largest interchange connection, and will suffer for that. However, they do not lose any Class 1 connections. VRS may be in line for some compensatory parting gift, such as the Connecticut River Line and/or the New Hampshire main line north of Lowell. However those lines could also go instead to a more voracious shortline operator.

Intermodal
One could imagine new terminals in Lowell/Billerica and Portland areas, and perhaps Connecticut. However these are low volume short-hauls, which doesn’t comport with CSX PSR-oriented strategy.