CP Set to End Norfolk Pursuit If Resolution Fails, Harrison Says

I reckon we'll know by Monday how good a job Squires and company have done convincing NS' largest shareholders that the current management strategy is superior to what EHH can bring to the table.

I still suspect there will be a move by several large NS shareholders to unseat enough current board members to gain control.  And I hope I am proven wrong.

Curt

My guess this has been a ploy all along, after this rejection they will move back to their real prize, CSX who has been busy mothballing lines and shedding costs to make them much more attractive.

Last night I was reading the Feb. '16 (current) issue of Railfan & Railroad magazine. The article indicated that Pershing Capital has recently had some fairly substantial losses and Bill Ackman is being investigated by the FBI for alleged stock manipulations and Pershing was supposedly supplying some of the capital for the CP-NS merger/buyout. I don't believe CP is in top financial condition either? The article indicated they may no longer have enough capital for the merger and that a takeover would be quite costly in addition to the merger costs. I imagine this is probably old news (and may have been previously mentioned here?) because the magazines are usually a few weeks behind on this stuff, but I thought it was an interesting read.

     I, as, it seems, most everyone else here, am hoping this falls in Norfolk Southern's favor. I'm no expert, but I know enough history to know that, when the industry is in rough waters, the last thing it needs is a mega-merger. It seems to result in either the mutual destruction of the merger partners (Penn Central) or in the destruction of another road (Burlington Northern seems to have been a major cause in the demise of the Milwaukee)

Trains Magazine's on-line newsletter just noted that United Parcel Service came out in opposition to a CP/NS merger. They said it would diminish service to shippers, particularly intermodal, and lead to retaliatory mergers that would also damage service levels.   Excellent!

And CP announced today they will ask the STB for a declaratory order regarding their proposed arrangement to, in effect, place CP in trust while EHH comes over to NS and attempts to merge the two railroads.

This one ain't over by a long shot folks.

Curt

How does Harrison just barge in on the NS ?  Would think the STB would place great credence in a major, major shipper objecting to the merger.

Amount of stock he and others own??  Dissedent board members??  Thieves have ways.

Harrison taking over NS wouldn't be good for the 611. Harrison would probably ban all steam from NS like CSX did. We got tickets for a Manassas 611 trip on June 4 because the future is so uncertain. There is no guarantee of 611 excursions in 2017.

     I am not clear on what happened here. Is this a gamble on NS's part? Are they hoping that the STB will reject CP's proposal?

Regards,

No offence to you Mark, but this made me laugh.

"Trains Magazine's on-line newsletter just noted that United Parcel Service came out in opposition to a CP/NS merger. They said it would diminish service to shippers, particularly intermodal, and lead to retaliatory mergers that would also damage service levels"

This has got to be one of the most clear-cut cases of the "the pot calling the kettle black" that I have ever seen.

Maybe Mr. UPS should just be thankful that he has his trucks and planes and leave the trains alone.

Charlie

Robert K posted:

Harrison taking over NS wouldn't be good for the 611. Harrison would probably ban all steam from NS like CSX did. We got tickets for a Manassas 611 trip on June 4 because the future is so uncertain. There is no guarantee of 611 excursions in 2017.

You do realize that there's WAY more at stake here than a steam program, right? 

That's the LEAST of many concerns here.

CP Rail Asks STB to Rule on Viability of Norfolk Trust Structure ...............................

Canadian Pacific Railway Ltd. is asking U.S. regulators to rule on the proposed voting trust structure it wants to use to acquire Norfolk Southern Corp.

Canada’s second-largest railroad will seek a declaratory order from the U.S. Surface Transportation Board confirming the viability of the mechanism, according to a statement Tuesday. While urging Norfolk Southern to “assist constructively” in this effort, Calgary-based Canadian Pacific said it would proceed regardless of the U.S. carrier’s cooperation.

Bringing in the STB is the latest attempt by Canadian Pacific Chief Executive Officer Hunter Harrison to make headway in his efforts to build a transcontinental railroad.

Norfolk Southern has rejected several approaches from Canadian Pacific, including one in December that valued the U.S. carrier at $27 billion, saying the merger and the proposed voting trust wouldn’t be approved by regulators.

Canadian Pacific said last week that it planned to submit a resolution to Norfolk Southern investors requesting that the U.S. company’s board “engage in good faith discussions.” The U.S. railroad said such talks weren’t in shareholders’ best interests unless Canadian Pacific offered “compelling value” and addressed potential regulatory concerns.

http://www.bloomberg.com/news/...?cmpid=yhoo.headline

My thinking.......................STB will not approve of the a Norfolk Southern Trust. It would be crazy to let Hunter Harrison have access to NS books and be in control of  NS. It is 4th quarter with a 2 minute warn.... and no time outs.  Harrison..................it's time to give it up!

Regards,

Swafford

Still do not understand how Harrison walks in with a "declaratory order" from the STB and takes over the NS. It's still a publicly owned company, and not owned by him or Pershing SQ Capital/CP.  Even when the New York Central was taken over by Robert R. Young in 1954, he had sufficient proxies from shareholders to do so.

Charlie - don't understand your comment. Fairly recently - in the 2000's - there was talk of United Parcel buying the entire United States railroad industry!  The UPS is a huge - and lucrative railroad shipper - their complaint would be taken very seriously by the STB, I would imagine.

Mark:

NS has been expressing much doubt regarding whether the STB would approve CP's proposed voting trust and has challenged CP multiple times to seek a declaratory order from the STB if they are so certain the Board would approve the trust.  With their announcement yesterday, CP is calling NS' bluff. NS can assist CP with the filing of this petition or refuse to participate. 

With their petition, CP will ask the STB to review their proposed voting trust whereby Hunter would go to NS and CP will be placed in trust while the STB considers a formal merger petition.  If STB says they would approve the voting trust, then NS shareholders, who apparently are the ones pushing CP to seek this declaratory order, would have a greater confidence level going forward to nominate a slate of directors favorable to a merger with CP.    Assuming those directors were elected and seated, they could then force NS management to begin merger talks with CP.

To summarize, what you have here is really two different STB processes.  The request for a declaratory order is simply to ask the STB if they would look favorably on CP's proposed voting trust.  If the Board says no, the merger is likely dead.  If the Board says yes, then CP can work with NS shareholders to force the issue with Jim Squires and his team. 

I imagine STB will take their time with any review of the petition for a declaratory order.  In fact, it would not surprise me if they manage to drag it out just about as long as an actual merger review might take.  So, with CP's announcement yesterday, the NS management team has, in effect, been given about 1-2 years to get the railroad turned around to the point that large shareholders gain confidence in the current NS strategic vision and decide the future is brighter for a standalone NS.   

Curt

Hey Mark:

I guess the irony of one company (UPS) who is almost a monopoly itself, complaining about another situation that could lead to “damaged” service, i.e. a monopoly in the rail industry, is funny to me.

It’s OK for UPS to have almost no competition, but it’s NOT ok for the rail industry to have the same kind of (almost) monopoly? Again, nothing meant against you Mark, just the situation.

Charlie

Charlie:

There is a big difference between UPS and the railroad.  For example, when you have a package to ship, you can choose between FedEx, UPS or the USPS.  There is no regulatory framework in place that says because of where you live you MUST use UPS.  For a rail shipper, there is a regulatory framework in place that dictates which railroad we must use for shipments outbound or inbound to our sites.

And with regard to UPS' opposition to a CP/NS merger; their rationale is that they are heavily reliant on the intermodal service provided them by NS.  Since CP and EHH in particular view intermodal as a dog; UPS is rightly concerned about what would happen to their service levels and costs from a merged CP/NS.

Curt

Charlie - well, UPS does have the US Postal Service and Fed Ex, as competitors. In the early part of the 2000's UPS's capitalization was greater then the entire US railroad system. They are a big outfit with a lot of "throw weight" on Wall Street!

Curt - Ah, a voting trust functions the same as getting shareholders to turn over their voting authority to a proxy - - ala the 1954 New York Central situation. I get it.   It's going to be tough to improve earnings for NS what with the downturn in coal traffic over the next two years. Still, major shippers have to be listened to by the STB. Has Harrison/CP approached NS shareholders for their membership in a voting trust? Don't recall reading anything to that affect, although Harrison/CP has put some offers on the table.

Curt - EHH/CP view intermodal as "a dog"?  Thought it was a lucrative part of railroad revenue.

Er, there is another situation going on here.  EHH must ave forgotten about the Presidential election here.  This may not be a good time for the urge to merge!

Curt - EHH/CP view intermodal as "a dog"?  Thought it was a lucrative part of railroad revenue.

Mark:

Most of the Class 1's do view intermodal as a profitable part of their traffic mix.  Hunter has a somewhat different opinion of intermodal though.  When he led CN, he abolished many of the intermodal trains and moved trailers and containers in manifest freight trains.  As I recollect, he thought pure intermodal trains ate up too much capacity because of the operating windows necessary to maintain the speeds necessary to keep their schedules and the money CN was making on all but the most premium intermodal traffic made it not worth the disruption.  Stick the containers and trailers on a freight train and the problem goes away. 

Curt

Huh!!  EHH clearly is a man of his own devisings.  Guess intermodal put manifest freights "in the hole" to allow run around, thus slowing velocity. Poorer service to premium customers, but maybe they were captive anyway ? !   Thank you for the explanation, Curt.

I think on the intermodal, EHH might have a point.  Has the RR industry done a study to see how much a train, and its quality level, costs railroad.

Charlie posted:

 

No offence to you Mark, but this made me laugh.

"Trains Magazine's on-line newsletter just noted that United Parcel Service came out in opposition to a CP/NS merger. They said it would diminish service to shippers, particularly intermodal, and lead to retaliatory mergers that would also damage service levels"

This has got to be one of the most clear-cut cases of the "the pot calling the kettle black" that I have ever seen.

Maybe Mr. UPS should just be thankful that he has his trucks and planes and leave the trains alone.

Well, UPS is going to have plenty of its own problems to worry about if Amazon indeed goes through with plans to begin their own delivery service, as has been reported.

Dominic:

I don't know if "the industry" has ever studied the profitability of intermodal.  That said, it would appear Class 1's like BNSF and UP have figured out a way to generate a profit off of intermodal.  They have both  poured significant amounts of capital into capacity expansions on their transcon lines and that money has not been because of growth potential in manifest traffic.  Intermodal is their bread and butter on certain corridors and they are spending big bucks to handle more of it.

Curt

Think old EHH may be on to something. Northwestern University has an MS program addressing automobile traffic management. Their model is the human circulatory system. Minor disruptions have systemic affect, particularly at rush hour. So, Harrison is possibly observing that an intermodal train is a "disrupter" that systemically slows the entire railroad circulatory system.....because it travels at a different speed.  By incorporating intermodal into manifest trains, system velocity stays higher. As was long ago observed in a Trains Magazine guest editorial, there's not much point in running the wheels off a train to just have it sit in a siding for hours waiting for a meet. Harrison's intermodal customers may receive comparable, or better, service, as compared to a dedicated train. Perhaps the man is a genius.....an evil genius !

I think to run a railroad at two speeds, and you have the traffic to do it, is to have a mainline with two main tracks.  Every so often you have to have FOUR main tracks for overtakes!  

mark s posted:

Think old EHH may be on to something. Northwestern University has an MS program addressing automobile traffic management. Their model is the human circulatory system. Minor disruptions have systemic affect, particularly at rush hour. So, Harrison is possibly observing that an intermodal train is a "disrupter" that systemically slows the entire railroad circulatory system.....because it travels at a different speed.  By incorporating intermodal into manifest trains, system velocity stays higher. As was long ago observed in a Trains Magazine guest editorial, there's not much point in running the wheels off a train to just have it sit in a siding for hours waiting for a meet. Harrison's intermodal customers may receive comparable, or better, service, as compared to a dedicated train. Perhaps the man is a genius.....an evil genius !

SW Airlines flies only the 737.  It turns its planes around quickly, and keeps them full.  And it makes money.  Is EHH the "SWA" of the railroads?

Swafford posted:

CP Rail Asks STB to Rule on Viability of Norfolk Trust Structure ...............................

 “While we remain fully confident in our comprehensive regulatory plan, shareholders of both CP and NS have recommended that we seek this declaratory order,” Harrison said in Tuesday’s statement. “We still think this action is unnecessary, however, we believe listening to the shareholders -– the owners of our respective companies –- is important.”

Nobody has formally asked this NS shareholder a thing! Now, who's zooming who?

juniata guy posted:

Dominic:

I don't know if "the industry" has ever studied the profitability of intermodal.  That said, it would appear Class 1's like BNSF and UP have figured out a way to generate a profit off of intermodal.  They have both  poured significant amounts of capital into capacity expansions on their transcon lines and that money has not been because of growth potential in manifest traffic.  Intermodal is their bread and butter on certain corridors and they are spending big bucks to handle more of it.

Curt

What Juniata guy said!

Around here (Kansas City area, BNSF tracks) I probably see 3 or 4 intermodal trains to every 1 mixed freight train. BNSF just recently built a new intermodal facility near here in Edgerton, KS as well. The facility was built with future expansion in mind. I forget what BNSF said the planned capacity was or what it ended up being currently? I don't know as much about what UP hauls around here? UP has tracks here, but I am not near their tracks and don't see them very often. 

Clearly intermodal should win over road trucks.  They can travel as fast and instead of 300 truck drivers...you have crew of two.  And no matter how low oil goes...trains will always be more efficient ... saving even more $$$ for shipper.  So the railroads need to focus on great service across all business groups.  Also make as many routes as possible friendly for double stacks....have more routing options.. this will improve short haul intermodals chances.  The railroads survived the 60's and 70's the worst ever for RR and grew the business the the highest levels ever.  I don't think they are going away.  Most major interstates have a mainline parallel railroad in some form.    Essentially..isnt manifest growing too.  That was NS argument to add on to Bellevue.  Railroads seem to shoot themselves in the foot on manifest.  Try to move it faster too.  Why send a car 500 miles out of the way taking days.  

EHH is a genius and not an evil one.

Intermodal traffic has been recognized as being marginal for decades but the carriers don't like to talk about that - intermodal is sexy and boxcars aren't.  Even back in the 1970s, it was admitted by a high level CR traffic manager in my presence that intermodal traffic had to travel 700 miles on their road in order to break even.  700+ miles is not a big deal out on the UP or BNSF but when you come east to NS and CSX it's another matter... and that's just to break even, not to make a profit.  Yes, railroads are far more efficient that trucks but trucks don't have to own and maintain their roads - we do.

Note:  Highway user fees are a bad joke, the GAO issued the numbers and government has elected to ignore them.  We have the best government money can buy.

What EHH did early in the new century was to re-invent the wheel and the timetable which propelled him and CN to stardom; it also re-awakened the industry.  By re-inventing the "time freight" he was able to move intermodal traffic effectively in general merchandise trains by increasing the speed and frequency of all trains and ensuring that those trains made their connections to keep the traffic moving.  Furthermore, because the wheels were turning and not standing still in yards, he was able to trim the size and number of yards.

EHH sought to undo the damage done by Mr. Robert Young's successors.  During the doldrums, which began in the 1950's, the carriers stopped running "time freights" - freight trains that operated on timetables in order to make connections with other trains that operated on timetables to move traffic expeditiously.  Over-regulation, management stupidity, union greed, management greed and stockholder apathy all played their roles but the result was that time freights were no more.  The absence of any mention of time freights in this present discussion among intelligent, knowledgeable people is proof positive of their utter obliteration.  Running time freights is just too hard!  You have to get all your trains to run on time, meet their connections, pick up, set out, and MOVE!

Note: Remember that Young also wanted a transcontinental railroad - "A hog can cross the country without changing trains - but you can't.".

The replacement for the "time freight" was the "sometime freight".  Cars move from the customer to a yard where they wait until what is deemed a sufficient number of cars accumulate to justify running a train to move them to the next yard where, once again, those same cars must wait until a sufficient number of cars accumulate to justify moving them to the next yard, et cetera, et cetera, ad nauseam.  As the customers fled to trucks in order to MOVE their goods, the rail industry sank deeper and deeper into the "sometime" morass.  You can take my word for it because I was a short line end-user who had to plead, cajole, beg, bribe and blackmail class I carriers, daily, particularly CR and NS, in order to get our cars to MOVE so that our customer didn't.

CP has been known as the dumber but nicer Canadian railroad.  It made lots of bad decisions like trading the profitable old Soo Line for pieces of the unprofitably operated Milwaukee and then recoiling in horror when the New Soo lost money but the Old Soo - the Wisconsin Central - made money.  Worse yet, the CP was shocked when CN bought the Old Soo - the Wisconsin Central - to compete with CP by using what had been their own tracks.  You can't make this stuff up!

And who was Vice President and Chief Operating Officer of CN at the time it acquired Old Soo - Wisconsin Central?  Why, that would be E. Hunter Harrison.  Now, EHH has been called out of retirement by that ne'er-do-well of Wall Street, William Ackman, to run the CP.  I have no doubt that Ackman acquired control of CP only after he had a blood compact with EHH, anything else would have been suicide.  Now the incompetent, complacent folks at CP are squealing like little girls because somebody wants them to do their jobs and cans them if they don't.  Aw, ain't that too bad.  Meanwhile, EHH is finding lots of good people at CP and they're finally rising to the top where they belong.

Much as I hate the idea of the Canadians acquiring more and more American railroads, we are apparently too busy having "lifestyles" and have lost the will to own and run them ourselves.  I can understand EHH's desire to have a transcontinental railroad because that's what his competition has - and it's all about competition.  CN is not only transcontinental east to west, it's transcontinental north to south, thanks to the acquisition of the Illinois Central.  Deciding how this current drama will end I'll leave to you wiser folks to discern but calling a hero a bad guy is not something I can let stand.

If you noticed over the years in railroad employee timetables, there were fewer and fewer freights.  Then only Passenger/Amtrak was shown.  Then Amtrak is placed in its own station timetable in the back.  Today I could see that.  It Amtrak changes times, the whole Timetable does not have to be redone.

CNW in the 1970's and 80's did have first class freights with the FALCONS.  Intermodal, yes, but they were on the timetable!

Each of the Class 1's have a manifest freight schedule of sorts.

For example, when we release a loaded car to either NS or CSX, a trip plan is created for that car that shows the assigned trains it is scheduled to take between origin and destination along with the dates and times and ETA at destination.

Unfortunately, these schedules aren't a guarantee as cars may be delayed for any number of reasons enroute.  When this happens, the trip plan is altered and a new ETA at destination is created.  

The trains cars are assigned to are scheduled, however.

Curt

Rapid Transit Holmes posted:

EHH is a genius and not an evil one.

Intermodal traffic has been recognized as being marginal for decades but the carriers don't like to talk about that - intermodal is sexy and boxcars aren't.  Even back in the 1970s, it was admitted by a high level CR traffic manager in my presence that intermodal traffic had to travel 700 miles on their road in order to break even.  700+ miles is not a big deal out on the UP or BNSF but when you come east to NS and CSX it's another matter... and that's just to break even, not to make a profit.  Yes, railroads are far more efficient that trucks but trucks don't have to own and maintain their roads - we do.

Note:  Highway user fees are a bad joke, the GAO issued the numbers and government has elected to ignore them.  We have the best government money can buy.

What EHH did early in the new century was to re-invent the wheel and the timetable which propelled him and CN to stardom; it also re-awakened the industry.  By re-inventing the "time freight" he was able to move intermodal traffic effectively in general merchandise trains by increasing the speed and frequency of all trains and ensuring that those trains made their connections to keep the traffic moving.  Furthermore, because the wheels were turning and not standing still in yards, he was able to trim the size and number of yards.

EHH sought to undo the damage done by Mr. Robert Young's successors.  During the doldrums, which began in the 1950's, the carriers stopped running "time freights" - freight trains that operated on timetables in order to make connections with other trains that operated on timetables to move traffic expeditiously.  Over-regulation, management stupidity, union greed, management greed and stockholder apathy all played their roles but the result was that time freights were no more.  The absence of any mention of time freights in this present discussion among intelligent, knowledgeable people is proof positive of their utter obliteration.  Running time freights is just too hard!  You have to get all your trains to run on time, meet their connections, pick up, set out, and MOVE!

Note: Remember that Young also wanted a transcontinental railroad - "A hog can cross the country without changing trains - but you can't.".

The replacement for the "time freight" was the "sometime freight".  Cars move from the customer to a yard where they wait until what is deemed a sufficient number of cars accumulate to justify running a train to move them to the next yard where, once again, those same cars must wait until a sufficient number of cars accumulate to justify moving them to the next yard, et cetera, et cetera, ad nauseam.  As the customers fled to trucks in order to MOVE their goods, the rail industry sank deeper and deeper into the "sometime" morass.  You can take my word for it because I was a short line end-user who had to plead, cajole, beg, bribe and blackmail class I carriers, daily, particularly CR and NS, in order to get our cars to MOVE so that our customer didn't.

CP has been known as the dumber but nicer Canadian railroad.  It made lots of bad decisions like trading the profitable old Soo Line for pieces of the unprofitably operated Milwaukee and then recoiling in horror when the New Soo lost money but the Old Soo - the Wisconsin Central - made money.  Worse yet, the CP was shocked when CN bought the Old Soo - the Wisconsin Central - to compete with CP by using what had been their own tracks.  You can't make this stuff up!

And who was Vice President and Chief Operating Officer of CN at the time it acquired Old Soo - Wisconsin Central?  Why, that would be E. Hunter Harrison.  Now, EHH has been called out of retirement by that ne'er-do-well of Wall Street, William Ackman, to run the CP.  I have no doubt that Ackman acquired control of CP only after he had a blood compact with EHH, anything else would have been suicide.  Now the incompetent, complacent folks at CP are squealing like little girls because somebody wants them to do their jobs and cans them if they don't.  Aw, ain't that too bad.  Meanwhile, EHH is finding lots of good people at CP and they're finally rising to the top where they belong.

Much as I hate the idea of the Canadians acquiring more and more American railroads, we are apparently too busy having "lifestyles" and have lost the will to own and run them ourselves.  I can understand EHH's desire to have a transcontinental railroad because that's what his competition has - and it's all about competition.  CN is not only transcontinental east to west, it's transcontinental north to south, thanks to the acquisition of the Illinois Central.  Deciding how this current drama will end I'll leave to you wiser folks to discern but calling a hero a bad guy is not something I can let stand.

I don't even know where to start with this...

First off, "hero" is a pretty strong (and IMO, misplaced in this case) word.  He might be a "hero" to the 1%, but I'll bet those who work for him take a different view.  And I'm sure if YOUR job was at his mercy, you'd be singing a different tune- regardless of your condescending attitude.

Intermodal was marginal "in the 70's." You DO realize the 70's are long gone, right?  This is a TOTALLY different time and era in the railroad industry and everywhere else.  Properly-run intermodal is a huge money-maker for railroads.  They haven't been building and improving intermodal terminals just for the fun of it.

Finally, your generalization about Americans being too busy "having lifestyles"... I really don't know exactly what you mean by that, but it's a load of crap.  I'm personally sick of hearing blanket statements about how we're too lazy, incompetent, etc to do anything.  Are there people like that? Sure.  Is it everyone?  NO!  I'm not going into the political reasons for much of the current downturn in the industry, and I've certainly never been an NS "fanboy"- but until the current state of the energy sector came about, NS was one of the best-run railroads- from a financial standpoint- in North America.  I don't agree with a lot of their employment policies but that's a seperate issue.  My point is, we have companies and personnel who are fully capable and willing to run profitable, efficient railroads.  We don't need EHH, CP, Pershing Square or anyone else to do it for us.  Your remark is an insult to those who have worked their tails off for decades to make our freight railroads efficient and profitable again after the disaster that was the 70's.  

Rant over.

Dear M. Lavender,

Thank you for validating every one of my points.  Your entire rant is focused on The Railroad Employee, the 1%, the 99%, decades of devotion to the status quo de jur and NS employment practices.  At no point do you concern yourself with The Customer.  As we used to say in passenger service, "This would be a great place to work if it wasn't for the people."

Please be wary of the hype.  Before you accept the hype regarding intermodal profitability, study the pre-intermodal hype regarding storage and milling in transit.  The sales people, marketing people and traffic people at all the granger roads conspired to make that business look profitable.  Upper management believed the hype and sapped the main lines in order to keep the "profitable" branches dependent on such traffic alive.  There are no granger roads left standing, as such, the big city elevators stand empty and most of those "profitable" branches are hiking trails.

"What has been is what will be, and what has been done is what will be done, and there is nothing new under the sun."  Ecc. 1:9

Peace be with you.

Suspect it was governmental regulatory agencies that kept unprofitable granger branch lines going far beyond their utility, as state governments were attuned to the voting power of farmers.

Read a recent business publication regarding EHH's ascendancy at CP, and it was noted that a certain percentage of CP e/e's and managers were only puting in half days - the '70's have been alive and well on the CP!