Scott A. Hartley
JACKSONVILLE, Fla. — CSX Transportation sees the potential for growth through its planned acquisition of New England regional Pan Am Railways.
“If you look historically, they’ve been able to grow a little bit faster than what we’ve been able to achieve. So we think the growth profile is attractive for us,” Chief Financial Officer Kevin Boone told an investor webcast on Thursday.
CSX will be able to improve customer service and operations of North America’s largest regional railroad, Boone says.
“We think from a customer service perspective, there’s an opportunity to add a lot of value there, and there’s some investments we can make to grow the business over the long term as well,” Boone says.
CSX Chief Operating Officer Jamie Boychuk has hi-railed the Pan Am system and has a sense of the railroad’s growth potential, Boone says.
Pan Am President David Fink has said the 1,700-mile regional has a robust growth pipeline that includes rebounding Maine paper and forest products traffic, as well as propane, biodiesel, municipal solid waste, aggregates, and Poland Spring water.
CSX is Pan Am’s largest interchange partner, with most of their interline traffic moving through the Worcester, Mass., gateway. The railroads also connect at Rotterdam Junction, N.Y., in the Albany area.
CSX did not provide specific answers to Trains’ questions regarding growth opportunities on Pan Am, such as extending single-line intermodal service to Maine or furthering Pan Am’s plans to build an intermodal terminal in Naugatuck, Conn., to serve the New York City market.
“We are evaluating all our opportunities and options to grow the business,” spokeswoman Sheriee Bowman says.
CSX also declined to provide specifics on its plans to improve Pan Am’s physical plant.
Track speeds on the regional’s freight-only routes generally top out at 25 mph. Grants from the Federal Railroad Administration, matched by funding from Pan Am, support trackwork that will boost speeds on the former Maine Central to 40 mph from Royal Junction to Waterville, and to 25 mph from 10 mph between Waterville and Mattawamkeag, where Pan Am interchanges with Irving-owned short line Eastern Maine Railway.
“We are confident that there are opportunities for CSX to make select investments in Pan Am’s system to support growth and improved service and safety,” Bowman says.
The Pan Am acquisition, announced on Monday, is a turnabout for CSX, which has been selling low-density lines over the past two years.
Among them: Its route across the Florida Panhandle, a grain-hauling line in Illinois and Indiana, and an industrial branch in West Virginia and Ohio. Canadian National’s acquisition of CSX’s Massena Line, which links Syracuse, N.Y., with Montreal, remains stuck in regulatory limbo. And in October, CSX leased a Massachusetts branch to a short line.
Boone says it made sense to put those lines into the hands of other operators, but adds that CSX is winding down its line sales. “Quite frankly, our operating team is best in class. And I’d rather them have more railroad to run, because we think there’s a lot of value that can be created there,” Boone says.
The Pan Am deal is not a signal that CSX is swinging into acquisition mode, Boone says.
“Pan Am was more of a unique situation in terms of short lines. I don’t think you can look for us to be big buyers in that market necessarily over the next few years,” Boone says. “If there are assets that come up that are unique and are a fit, we’ll certainly look at those. But I wouldn’t read into anything there in terms of more transactions.”
CSX expects to file its merger application with the U.S. Surface Transportation Board by the end of the year. The railroad anticipates regulatory approval of the acquisition in the second half of 2021.
Norfolk Southern, Pan Am’s partner in the Pan Am Southern joint venture, has said the deal would undermine competition in New England. CSX would obtain Pan Am Railways’ 50% stake in Pan Am Southern, which is NS’s route into the region. Pan Am subsidiary Springfield Terminal operates the 437-mile Pan Am Southern, including dispatching.
NS signaled its opposition to a CSX-Pan Am deal in a pre-emptive letter sent to the STB early last month.
Pan Am, comprised primarily of former Maine Central and Boston & Maine trackage, is privately held. Terms of the CSX-Pan Am deal were not disclosed, but people familiar with the matter say the purchase price was nearly $700 million.
Boone spoke with analyst Allison Landry at the Credit Suisse Eighth Annual Industrials Conference.
