CSX: Files Supplemental 2022-2027 PAR/PAS Traffic Forecast

CSX's Wallace responds to STB request for additional information on traffic forecasting in the Revised Application

19.August – CSX filed a response by EVP Mark Wallace to the Board’s request in Decision #4 (30.July.2021) for additional information, to wit:

So that the Board can fully evaluate whether the impact of the Merger and Related Transactions would have any potential for environmental impacts warranting environmental review when the PAR System integration has occurred, the Board directs CSXT to update its projections by providing traffic forecasts through 2027—five years after the date of the anticipated year of the issuance of a final decision from the Board.

(Spoiler: The Supplemental VS concludes that any reasonable 2022-2027 forecast presents potential environmental impacts that would exceed the STB’s thresholds on any segment of rail line that is at issue in this proceeding.)

Excerpted and edited from SUPPLEMENTAL VERIFIED STATEMENT OF MARK WALLACE, filed 19.August:

“[The] Board instructed CSXT to “[use the specific] segments shown in CSX Environmental Comment” and to [add] projections … for segments on the Southern Route.

“[The respondent understands] that the Board is seeking … updated traffic forecasts through 2027 for a comparison of “no action” and “proposed transaction” [scenarios based on freight density].

“[The respondent asserts] that none of the traffic growth scenarios following consummation of the Merger and Related Transactions over a five-year period would exceed the STB’s thresholds for identifying significant environmental effects on any segment of rail line that is at issue in this proceeding.

“[Discussion] of traffic forecasts in [the] prior Verified Statement (01.July.2021), included [discrete projections] for the PAR System and for the PAS network, and for CSXT (“Southern Route”). [This Supplemental V.S. also includes distinct PAR, PAS, CSX forecasts under a “no action” and a “proposed transaction” scenario. The exhibits attached to this Verified Statement present the results of my estimates (the Exhibits are included in this ANRP post, below – Ed.) .

Exhibit 1: Adjustments to GDP projections

The Supplemental VS revises the basic growth projection factor, finding that a “basket” of authoritative 2022-27 GDP forecasts average out to a 1.9% projected growth rate, rather than the 1.5% used for CSX projections in the original Wallace VS (01.July.2021).

Wallace-Supplement-Exhibit-1e
Exhibit 1: GDP Update Forecast Scenario: Wallace’s 01.July Verified Statement presumed traffic growth averaging 1.5% annually 2019 – 2024, which CSX accepts as a general basis for its corporate economic forecasting. In response to STB’s Decision #4 request, Wallace’s 09.August Supplemental Statement incorporates 11 distinct authoritative 2021-published GDP forecasts which each address at least some portion of the 2022-2027 period, to yield a more precise average forecast on which to calculate future carload traffic on the PAR lines. 
To avoid complicating the GDP forecast estimates for 2020-2022 with pandemic effects, the Supplemental Statement averages annual growth in the median forecast value in each year from 2023 through 2027. The median GDP growth figures range from 1.7% (2025 to 2026) to 2.3% (2022 to 2023), and result in a projected annual growth rate of 1.9%, to be applied henceforth in these proceedings.

Exhibit 2: Growth projections for PAR high-volume commodities

Summary of organic growth forecasts for nine high-volume PAR commodities under current operations, showing that across, organic growth would average 2.3% annually. Based upon the assumption that PAR would be able to support this level of growth even without the benefits of CSX’s infrastructure spending and improved service, Respndent applies the 2.3% average annual growth through 2027 in a “no action” scenario.

[The revised] Transaction Impact scenario incorporates the Traffic Shift and applies an average annual growth rate of 2.3% for 2019 through 2024 (organic growth without new traffic diversions) and an average annual growth rate of 3.8% for 2025 through 2027 (organic growth plus new traffic opportunities).

EXHIBIT 2 REDACTED

Exhibit 3: Sources of traffic growth

For the PAR segments, this Transaction Impact forecast scenario incorporates three specific sources of traffic growth:

“1. Traffic Shift: CSXT’s Revised Application (Environmental Comment) identifies a traffic shift between the two available East-West rail segments across Massachusetts (The Northern Route, a/k/a Patriot Corridor, B&M, and the Southern Route, a/k/a CSX Selkirk Line, B&A). In particular, there will be an increase of one NSR intermodal/automotive train pair per day on the Southern Route (CSXT’s Selkirk Line), and a corresponding decrease of one train pair per day on the Northern Route, with adjustments of certain current CSX traffic routed over the Northern Route. This shift affects the traffic volumes on one PAR segment, Worcester to Ayer. Details about the traffic shift were included in the Environmental Comment, Exhibit 4-A.

“2. PAR Growth: The Transaction Impact forecast incorporates the same 2.3% annual average organic traffic growth on PAR lines that was used in the PAR Growth Forecast Scenario.

“3. Additional Rail Traffic: As described above, the combined CSXT/PAR system will attract and support new rail traffic by diverting truck shipments and generating new business. To produce an estimate of the amount of growth that will occur due to these diversions and new traffic opportunities, [the respondent’s 01.July V.S.] discussed examples of such opportunities for the following commodities [REDACTED] … [as example] opportunities for diversion of traffic from trucks.

EXHIBIT 3: These illustrative commodities account for nearly 14 million tons of total “longer-haul” shipments to/from New England. Thus, they represent opportunities for the combined CSXT/PAR system to divert traffic from trucks. The Supplemental V.S. estimates that increasing the rail share of these shipments by 1 percentage-point by 2027 equates to traffic growth of roughly 1,900 total carloads.

EXHIBIT 4: Segment-specific forecasts

The Supplemental VS details forecasted traffic growth on specific segments along all related lines, focusing on environmentally sensitive segments.

“The Board’s 31.July decision instructed CSXT [to submit] the following: “For the updated projections, and to the extent that it has not already done so in previously submitted projections, CSXT should ensure that the traffic forecasts are on [the same] segment-specific basis [as] shown in CSX Environmental Comment.” CSXT has complied with this instruction. Exhibit 4 distinguishes segments by PAR segments, PAS segments, and CSXT segments.”

EXHIBIT 4: Summary of the 2027 estimated volumes for the individual PAR segments under each of the four forecast scenarios. For 10 of the 11 STB-highlighted segments, the differences between the “no action” forecasted 2027 volumes and the Transaction Impact projections range from 4-11%. For the Worcester-Ayer segment that involves the Traffic Shift, the forecasted 2027 volumes reflecting the Transaction Impact are 74-85% higher than the baseline projections, due primarily to diversion of two NSR premium trains per day (one in each direction) to the CSXT “Southern Route.”
PAS and CSXT Traffic Impact Projections:
Patriot Corridor (PAS Northern Route) 2027 traffic levels range from 48% lower to 24% higher than the 2027 projections without the impacts of the Merger and Related Transactions.
Knowledge Corridor (PAS North-South route), the Merger and Related Transactions have no impact on the forecasts of 2027 traffic levels.
CSXT Southern Route (between Worcester MA and Voorheesville NY) 2027 traffic levels range from 2-15% higher than the 2027 projections without the impacts of the Transaction.

[No change is expected] on CSXT’s Southern Route as a result of the Proposed Transaction. Infrastructure, operational and service changes will be focused on the PAR lines to be acquired, and not on CSXT’s existing lines.

Conclusions

“The purpose of this Supplemental Verified Statement is to comply with Decision No. 4 and to provide the Board with the requested traffic estimates through 2027 … As requested by the Board and demonstrated in my Supplemental Verified Statement and the attached exhibits, none of the multiple traffic growth scenarios following consummation of the Merger and Related Transactions over a five-year period through 2027 would exceed the STB’s thresholds on any segment of rail line that is at issue in this proceeding.”