PAR Sale: CSX EVP Wallace Statement on Markets

Rail share of freight tons handled in New England is just over 3%, considerably below the national average of 8%.

(Among the many new sections in the Amended and Supplemented Application is a detailed review of PAR-line marketing prospects by recently-appointed CSX EVP Mark Wallace, presented as a Verified Statement. This article intends to gather the key excerpts from the Verified Statement. – Ed.)

CSXT’s Executive Vice President Mark Wallace’s marketing plan touches upon CSXT’s expectations for marketing the primary commodities handled by the PAR System, the expected impact of the Proposed Transaction on traffic flows, intermodal competition and modal share, CSXT’s plans for attracting new business that is currently handled by trucks, and access to regional ports. Click here to review the entire Verified Statement of Mark K. Wallace.

Important points excerpted from the Statement:

“In pursuing the Proposed Transaction, CSXT aims to i) provide New England shippers with a truck-competitive freight service and ii) to sustain and grow the substantial interline business CSXT enjoys today with the PAR System as it converts to single-line business tomorrow.

“The Proposed Transaction will improve the efficiency of existing traffic flows via seamless access to CSXT’s network, without significant changes to current traffic flows. 

“The Proposed Transaction will integrate the PAR System [as] a natural extension of CSXT’s existing network into New England, which will benefit customers on both PAR and CSXT. CSXT’s rail network reaches the largest consumption and production regions in the Eastern United States. //The Proposed Transaction will give PAR shippers direct rail access to// major ports including the Port of New York/New Jersey, Port of Savannah, Port of Norfolk, the Gulf Coast, (and thousands of other) locations, [as well as] seamless access to [UP, KCS, and BNSF].”
The CSXT-PAR combination will expand customer choice by creating more efficient access to consumption points, warehouses, and distribution points across CSXT’s network. [It] will reduce transit time and costs, [to compete] with trucks, [which will attract PAR-origination traffic] into the greater New York metropolitan area.

“CSXT does not expect the Proposed Transaction to … substantially change the way rail freight moves in the region … in the near term. Rather, CSXT’s operating model and planned investments will support customer growth objectives and enable CSXT to participate in the resulting organic growth over time.

“The service and reliability CSXT will bring to the region will allow rail shippers to expand their own business as the New England economy expands … [and] will create strong opportunities to divert freight from trucks.

“PAR’s customers will benefit from CSXT’s considerable investment and effort in developing ShipCSX … PAR customers currently have limited insight into the status of their rail shipments … CSXT will provide PAR customers with a suite of tools that integrates the ability to price rail shipments, ship and trace railcars, and pay for services, including account invoices and accessorial charges.

“[Upgraded infrastructure will] provide a more reliable, consistent, and cost effective service product to PAR’s customers. CSXT’s planned investments, resources, and ability to execute operationally will support … truck-to-rail diversions.

Rail share of freight tons handled in New England is just over 3%, considerably below the national average of 8%. Maine, where PAR’s activity is concentrated, is an outlier in the region, reflecting the significant presence of forest product activity in the state.

Details of Commodity Strategies

An Appendix attached to the Verified Statement identifies the four most significant commodity categories on PAR lines, treating each product type to a (highly redacted for public viewing) strategic market analysis on the basis of current freight movements, competitive opportunities, and forecast. The categories are:

  • Forest products (printing paper, woodpile, pulpboard, lumber)
  • Non-forest Construction products (aggregates, gypsum wallboard, cement)
  • Energy (LPG/Propane)
  • Waste (C&D/MSW

While vast swathes of black obscure at least half of the Appendix, many interesting and important points and facts remain. Here we will review what can be discerned from the redacted Forest Products section:

” […] The PAR originates pulpboard, woodpulp, printing paper, and lumber directly on its network, … [comprising a large proportion] of PAR’s total carloads. […] Wood products customers will benefit from access to CSXT’s car fleet [since] rail equipment utilization is critical for forest products rail volume growth, affording customers expanded car capacity, and allowing them to ship more tons via rail to more distant and disparate markets … CSXT currently has control (through ownership and/or its TTX allocation) of [####] of the two critical car types used in the movement of forest products.”

Truck Tonnage (1000’s) Moving 500+ Miles to/from New England

Paper and wood products traffic moving by truck over 500 miles is particularly subject to diversion to consistent and reliable rail service.

Paper

“Printing paper [is Maine’s] eighth largest commodity (as measured by total freight tons) requiring freight transportation services, accounting for 5% of the state’s total freight tons in all modes. It is the second largest commodity handled by rail in Maine and eleventh largest commodity handled by truck.

“Rail carries ~17% of the total printing paper freight tons moving in Maine. Of the current truck share, considerable freight tons move to locations where CSXT handles printing paper volumes. Printing paper accounts for nearly {XX units} of CSXT’s annual carload volume, with volume widely dispersed across its network.

“PAR’s recent volume increases reflect heightened activity of in-state traffic … that supports a customer’s diverse supply chain. This local traffic moves from production points in Maine to distribution points in Massachusetts, where the product is further processed. From those distribution points, the product moves by rail, intermodal, and truck to locations throughout North America and New England.

Woodpulp

“Woodpulp is PAR System’s largest commodity, accounting for {XX units} of the PAR System’s total carloads in 2019.

“Woodpulp accounts for nearly {XX units} of CSXT’s annual carload volume, with volume widely dispersed across its network. CSXT moved over {XX units} of woodpulp across its network in 2019, with [a large percentage originating on CSXT] … The balance of CSXT’s originated or received woodpulp carloads came from connecting carriers, primarily short lines located in the Southeastern United States. CSXT’s woodpulp business te1minates across the United States, as well Mexico and Canada.

“Between 2017 and 2019, CSXT saw a noticeable increase in traffic driven by diversions from trucks and … increased global demand for woodpulp. CSXT handles significant tonnage that moves through ports to international markets, as well as product from originating locations to refining/finishing plants.” 

 Pulpboard

“Pulpboard [is the base material for] (1) containerboard, which is used to make corrugated boxes and, (2) boxboard, a thicker single ply sheet used for folded cartons and consumer packaging, and (3) kraft paper, used for paper bags, consumer goods, and industrial applications.

“Pulpboard … mills produce large rolls that can reach widths that [cannot be economically moved] by truck. The … trend  [is] towards … larger roll widths, producing a favorable outlook for rail shipments.

“The combined CSXT-PAR network will [reflect] … the record shipments producers experienced in 2020 and are on track to continue in 2021.”

Lumber

“Lumber … is sourced from four main regions: [Two (prospectively) being in CSX’s core service regions [of] the Eastern [Canadian fiber basket extendion into Maine), and the Southeast United States.

“Lumber is one of the PAR System’s largest volume commodities [and] also a significant commodity on CSXT’s system. The vast majority of CSXT’s lumber volumes originate off its network.”

Worth a read

The Wallace Verified Statement and it Appendix contain numerous additional details. This link will bring you to a discrete .pdf of the document: Verified Statement of Mark K. Wallace.