Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, July 4, 1993 TAG: 9306290298
SECTION: BUSINESS PAGE: B1 EDITION: METRO
SOURCE: DANIEL HOWES STAFF WRITER
DATELINE: LENGTH: Long
\ IT wasn't too long ago that rail customers lived at the whim of the railroads, contradicting the old adage, "The customer is always right."
And it wasn't too long ago - in the mid-1980s - when Norfolk Southern Corp. bloodied itself in an unsuccessful battle to acquire Consolidated Rail Corp., now its stiffest competitor to the north.
Fast forward seven years.
Norfolk Southern and Conrail, keen to expand their reach and jump-start revenue growth, recently launched a joint venture to market door-to-door transportation service for retail customers across the eastern half of the country.
The transportation industry calls such service "intermodal" - hauling goods from one point to another with a combination of, say, trucks and trains, or trains and ships, or planes and trains. Sometimes, the "modes" are owned by separate companies working together; less often, the modes are owned by the same parent company.
Norfolk Southern and Conrail want to exploit their self-described advantages over the trucking industry: declining labor costs; precisely timed deliveries; the ability to haul, say, 100 trailer loads of goods with two train crew members instead of with 100 drivers.
The railroads see possibilities, for example, in the Interstate 81 corridor running from Hagerstown, Md. - a key interchange between the two railroads - through the Roanoke Valley and to Memphis, Tenn. Railroad planners figure they can divert some long-haul freight from trucks heading south and southwest from the Northeast.
Indeed, new core routes - Chicago-Harrisburg, Pa., Atlanta-Harrisburg and Atlanta-New York - are intended to connect key Northern cities with the Southeast. Norfolk Southern already had been running service between Atlanta and Chicago through its intermodal subsidiary, the Fort Wayne, Ind.-based Triple Crown Services Co.
"We each have advantages to be gained," says D. Henry Watts, Norfolk Southern's executive vice president for marketing. "We each lose some flexibility, meaning we can't do things by ourselves anymore."
To be sure, it was a marriage of convenience, born of the necessity to expand beyond their own finite rail networks:
Triple Crown in recent years has become an established truck-to-train-to-truck hauler with a system criss-crossing the Southeast and the eastern half of the Midwest.
Conrail, based in Philadelphia, shared the Great Lakes cities with NS; but it "owned" the populous cities of the Northeast, especially the Boston-Washington corridor. Norfolk Southern wanted access to the big Northeastern cities, the big money and the trove of would-be customers.
"Even though we were antagonists," says Thomas Finkbiner, Norfolk Southern's assistant vice president for international and intermodal marketing, "we exchanged more freight with Conrail than any other carrier by virtue of the fact that they serve the largest metropolitan areas of the Northeast."
Both were seeking ways to expand their intermodal business. The fastest-growing segment of the railroad industry, intermodal trains generally haul freight atop flat cars in trailers or containers, some of them double-stack; or they use specially-designed cars called RoadRailers before, in each instance, delivering the freight to another mode of transportation.
So how could the railroads capitalize on their informal interchange relationship, achieving a few strategic goals in the process?
Norfolk Southern sold half of Triple Crown - revenues of $100 million last year - to Conrail for an undisclosed sum. Traffic World, a trade magazine, said Conrail's investment in Triple Crown "is thought to be" $20 million. Additionally, Conrail has agreed to spend $15 million to clear a double-stack container route from New York to Atlanta.
Norfolk Southern, for its part, already has begun work on $2 million in system upgrades required by the deal with Conrail, the magazine reported - the better to speed Triple Crown traffic from north to south.
That may sound like big bucks, but for two railroads with combined revenues of nearly $8 billion, the venture could be described as a drop in the bucket.
"There's really never been an alliance like Triple Crown," Finkbiner says. "It'd never been done before, and five years ago that would have been reason enough not to do it."
But these are different times.
"The bottom line and what's driving it is the shipper and his need to ship" efficiently anywhere in the country, he says. "If you're a nationwide shipper, you don't want to talk to seven railroads."
\ The new Triple Crown, refashioned April 1 as a joint venture of the two railroads, attempts to offer customers seamless service throughout the East. Specializing in hauling dry consumer goods - for example, automotive parts and paper goods, boxed cereal and disposable diapers - the company charges customers by the Rand McNally highway mile, the better to compete with truckers.
Triple Crown aims to be a complete transportation company. With its 135-person work force, the company markets its service and maintains its own 350-person corps of truck drivers, on assignment from NS's North American Van Lines Inc. subsidiary. Triple Crown then contracts rail service from its parents, Conrail and NS, using Triple Crown's 2,332-unit fleet of RoadRailers.
Unveiled in 1955 by Chesapeake & Ohio Railway Co. staff engineers, RoadRailers envisioned a "bi-modal" world in which freight could be delivered to rail yards by truck. The same trailers then would be strung behind a locomotive, eliminating the costly and inefficient transfer of goods to rail cars. Trains would continue the journey until the trailers were passed on to trucks again for final delivery.
The idea soon languished, along with passenger rail service it was designed to complement.
Then along came Robert S. Reebie, a former New York Central marketing executive, and his consulting firm, Reebie Associates. According to Trains magazine, the Federal Railroad Administration hired Reebie to study trends in the intermodal business.
One conclusion: trailer-on-flatcar technology could not compete with the trucking industry. RoadRailer seemed on its way to revival.
Years of testing and federal wrangling followed. By the early 1980s, federal safety approval in hand, railroads began experimenting with RoadRailers, only to later abandon the efforts because of equipment failures, system constraints and high operating costs.
But it wouldn't die.
Norfolk Southern, determined to energize its lagging intermodal business, turned to RoadRailers in the summer of 1986 and created Triple Crown.
"We had a problem with intermodal in 1986," Finkbiner told Trains magazine. "We faced declining revenues on our short hauls. Our intermodal facilities were in bad shape; many were old circus ramps. RoadRailer was the obvious choice."
In less than six years, Triple Crown grew to $100 million and is expected to total $140 million this year - making it part of Norfolk Southern's fastest growing line of business, intermodal.
But the unit only began to turn a profit early last year. "There were rough times when we lost money," says Dan Cushman, a veteran of the trucking industry who's now president of Triple Crown. "I think this was somewhat viewed as Norfolk Southern's folly. Norfolk Southern and Triple Crown were the only companies operating RoadRailer equipment."
The RoadRailer units - 48 feet long by 102 inches wide by 13 feet, 6 inches high at the rear - have double-axle truck wheels that are lifted away from the tracks when "rail bogies" are installed underneath for transit behind a locomotive.
Once the train reaches its destination, the rail bogies are detached, the tires lowered and a truck then completes the delivery. Cushman estimates that 94 percent of a typical haul is done by trains, with pick-up and delivery reserved for trucks.
\ Customers have been skeptical, Cushman concedes, recalling a common question: "How good is it if you're the only ones doing it?"
But Norfolk Southern under former chairman Arnold McKinnon - and now under David Goode - persevered . . . and wondered. Could its network be expanded through an alliance with Conrail, its one-time nemesis?
McKinnon, who retired last August, and Conrail Chairman James Hagen discussed it; Goode and Hagen discussed it some more. Conrail's experiment with retail intermodal service, its so-called "Conrail Mercury," had been abandoned. Executives had concluded the company's east-to-west system in the Northeast and upper Midwest was too limited.
Worse, the aging rail infrastructure of the Northeast, covering some of the country's most densely populated areas, could not easily be modified - if at all - to accommodate double-stack container trains, another fast-growing segment of the intermodal hauling business.
It was simple: The company needed access to the growing cities of the Southeast - where customers up north wanted to go, recalls Gordon H. Kuhn, Conrail's senior vice president for marketing and sales.
Norfolk Southern's Triple Crown and its lower-profile RoadRailers were the answer.
A chunk of cash (no one will say how much) and a commitment by Conrail to spend nearly $15 million on system upgrades bought the Philadelphia carrier a piece of Norfolk Southern's Southeastern network.
"It's not like we were buying into a company that had a bad reputation with the customers," says Conrail's Kuhn, acknowledging the "obvious benefits" of the deal to both railroads.
by CNB