On April 27th, CSX filed their revised bid for Pan-Am with the Surface Transportation Board in conjunction with a separate application Genesee & Wyoming to assume operation of Pan-Am Southern.
This transaction reduces Vermont Rail System connecting carriers from 3 to 2. Certain markets (including the critical connections to CSX and NS) effectively go from 2 carriers to 1.
Seeking to remedy this situation, Genesee & Wyoming re-structured their bid slightly. As submitted, G&W proposes to grant “haulage rights” to Vermont Rail System on three routes — from Hoosick Junction to Mechanicville (interchange with NS) — Rotterdam Junction (interchange with CSX), and also from White River Junction and Bellows Falls to East Deerfield, where the Pan-Am yard is used to store propane for winter use.
So what is the concept of “haulage rights?” It is an outgrowth of “trackage rights” where one company is granted rights to operate trains over another company’s tracks for a fee (using the tenant’s crews and locomotives, generally dispatched by the host railroad). Instead of “interchanging” freight with another railroad (which sets their own rates on that portion of the move). “Haulage rights” mean that the receiving railroad will haul traffic at a flat wholesale per car fee on a designated route. On the bill to the shipper, it is as if that railroad wasn’t involved. For billing purposes it would appear that Vermont Rail System directly interchanges with CSX and NS.
But haulage rights are not the same thing as direct access and they do not grant equal power. One issue is the fee. It’s fine to grant rights, but they are meaningless if they are not priced competitively. G&W has promised that the haulage rights they grant will be on commercially reasonable terms that will not unreasonably escalate. Promises like this keep lawyers in business afterward, but G&W does have a commercial incentive to maximize its haulage business.
Another concern: the service is provided as the hauling railroad sees fit. For example, cars for haulage have sat for days in Bellows Falls or White River Junction on Genesee & Wyoming’s New England Central Railroad. Plenty of railroads have been known to play games with neglect of service (a similar problem exists when host railroad dispatch tenant trains – such as Amtrak – according to their own priority and convenience). In this case in comparison it may simply be that Vermont Rail System prizes reliability and customer service higher than G&W, which as a publicly traded operation prioritizes efficiency and cost cutting (but sometimes suffers from staff shortages or other complications). Vermont Rail System trains are highly consistent (over decades) and shippers can count on them.
Vermont Rail System already has existing agreements providing “haulage rights” over the New England Central between Bellows Falls and White River Junction. They also have haulage rights on the same trackage using Pan-Am as the provider. Additionally, the VTR has haulage rights to Palmer, Massachusetts. Canadian Pacific has haulage rights over the Vermont Rail System from Whitehall New York through Rutland to Bellows Falls and then further south into New England via the New England Central Railroad.
Haulage rights allow a company like Vermont Rail System to market to the customer a move directly to NS and CSX with assurance of a consistent rate. Importantly, they do not have to share sensitive billing and customer information with G&W.
While haulage rights (assuming they are at a reasonable fee) do address the commercial concerns of Vermont Rail System and Vermont shippers in terms of rates, these rights will still mean that service choices at White River Junction and Bellows Falls go from 2 to 1 and will eliminate an outlet to reach NS and CSX. Vermont Rail System will be at the mercy of Genesee & Wyoming. G&W asserts and responds that its status as a contract operator to CSX and NS will mean it will be required to provide decent service.