Rail Mergers: Some lessons for the future

1. Rail Mergers: Some lessons for the future Association for Transportation Law, Logistics & Policy Jackson Lake Lodge, WY June 28, 2004 Jim McClellan Woodside Consulting

2. Agenda The good, the bad and the ugly Some lessons learned What next?

3. Mergers I have known Southern/Central of Georgia Penn Central Amtrak Conrail CSX NW/Southern NS/Conrail#1,2,3 and 4

4. Why mergers, anyway? Markets move but the tracks don’t So a railroad gets there with connections, or with a merger

5. Why not alliances? Disconnects in: goals resources ability to execute Often lead to: poor service or no service whatsoever

6. Some good news Most (but not all) mergers have succeeded Significant efficiencies have been achieved There are no truly weak carriers remaining Though some are struggling right now

7. And bad news Some mergers have failed outright Many (most in recent years) mergers have stumbled at the start Improved service quality, always promised, has been elusive

8. Root causes Two wrongs don’t make a right Investor and regulatory pressure Political, community, customer and environmental “gauntlet” Disconnects/arrogance/culture clashes Show me the money

9. Root causes Two wrongs don’t make a right Investor and regulatory pressure Political, community, customer and environmental “gauntlet” Disconnects/arrogance/culture clashes Show me the money

10. Root causes Two wrongs don’t make a right Investor and regulatory pressure Political, community, customer and environmental “gauntlet” Disconnects/arrogance/culture clashes Show me the money

11. Root causes Two wrongs don’t make a right Investor and regulatory pressure Political, community, customer and environmental “gauntlet” Disconnects/arrogance/culture clashes Show me the money

12. Root causes Two wrongs don’t make a right Investor and regulatory pressure Political, community, customer and environmental “gauntlet” Disconnects/arrogance/culture clashes Show me the money

13. Root causes Two wrongs don’t make a right Investor and regulatory pressure Political, community, customer and environmental “gauntlet” Disconnects/arrogance/culture clashes Show me the money

14. More mergers? Someday First, run what we have

15. Job one: Move the freight Continued high demand Freight volumes expected to double in twenty years Increasingly, new highways are a non-starter Railways will have a bigger role If they can do the job

16. And the jury is out Virtually no redundancy left in the system Segments of many mainlines operating at capacity Some issues in some terminals Shortage of crews and locomotives compound the problem Metrics tell the tale

17. Traffic is up; performance is down YTD volume: up 5.5% Intermodal: up 8.4% Trailers: up 13.5% YTD train speed: 6.6% worse best performance: KCS and NS worst performance: UP and CN YTD terminal delay: 10.3% worse best performance: KCS and NS worst performance: UP and CSX

18. One success story: Norfolk Southern YTD volume: up 6.1% Intermodal: up 12.7% Trailers: up 20 plus % YTD train speed: 0.3% better YTD terminal delay: 0.8% better Best performance by a major carriers

19. Key to NS’s success: 2000-2003 Build terminals ($150 mil) Remove choke points ($150 mil) New operating plan (TOP) Hire and train crews ahead of the need Hurt 2003 financial results

20. Getting it done Vision Investment Paid for with efficiencies and freight rates; government will play a minor role A good plan Execution

21. Until the network is working reliably, we do not need any more mergers Thank you for your time and attention Copies: e-mail request to jimmcclellan@att.net