On Monday the long-rumored acquisition of the southern end of the historic Delaware & Hudson Railroad by one of the two titans of railroading in the eastern US, Norfolk Southern, finally came to pass. On the one hand, this is a relatively minor transaction that simply brings ownership of a long-suffering rail line into line with the railroad that is its majority user. On the other, it’s a deal that has the potential for wide-ranging effects in the small world of Northeastern railroading—most prominently, to bring real competition to the rail freight market in New England for the first time since probably the 1960s.
History of the D&H
The D&H, whose main line (for now) extends from Sunbury (traditionally Wilkes-Barre), PA to Montreal, has a checkered and often-unprofitable history. A corporate descendant of an early canal corporation, it was in its early years a coal-hauling route, but has essentially struggled to survive on bridge traffic since the decline of the Pennsylvania coal fields. The story of
the D&H in the second half of the 20th century is a story of a railroad struggling to keep its head above water, but never useless enough to be abandoned. At various points, it has been owned or operated by Norfolk Southern predecessor Norfolk & Western, Guilford Industries (owner of what is now known as Pan Am Railways, a key player in this week’s acquisition), the independent regional New York, Susquehanna, and Western, and, for the last 20 years, Canadian Pacific. Very little traffic originates on-line, and as Canadian Pacific has struggled to develop the through traffic to Northeastern US markets it anticipated when it bought D&H, the line’s importance to the Canadian railroad has declined, especially south of Schenectady. Above the Capital District, CP uses the line heavily for oil traffic bound for the Port of Albany—CP has the only single-line haul from the Bakken Shale to an East Coast oil port—but those trains don’t use the line down to Binghamton and Pennsylvania.
The New England Gateways
In more recent years, much of the D&H’s traffic has been shaped by a business alliance external to the railroad itself—one that has more to do with the New England market than with the D&H’s historic Pennsylvania-Canada axis. There have, historically, been essentially three routes carrying large amounts of rail freight into New England. The southernmost was the New Haven Railroad’s Maybrook Line, which used the majestic Poughkeepsie Bridge until its suspicious damaging fire in 1974. The second was the New York Central controlled Boston & Albany, an early example of masterful American engineering that connected its two namesake cities across the Berkshires and is still the dominant rail freight corridor into New England. The northernmost of the major New England access routes was the Hoosac Tunnel route, controlled for most of its history by the Boston & Maine and its successor, Guilford/Pan Am. Finished later than the B&A, and cursed with eternal tight curves, single track (though it does have the advantage of less severe grades), and different-line connections to the west, the Hoosac line was always the weaker competitor in the Albany-Boston corridor. Since the reorganization of the railroad industry in the 1960s and 1970s, the Hoosac line has become increasingly marginal, since it fell under the control of a weak regional railroad, while the B&A was controlled by much larger railroads: NYC, Penn Central, Conrail, and now CSX.
Pan Am Southern Enters the Scene
In 2009, the fortunes of the Hoosac route began to look up. Norfolk Southern, seeking to break into the lucrative New England market over which CSX held a virtual monopoly, entered into a business partnership with Pan Am for joint control of the Hoosac Line from the connection with D&H at Mechanicville, NY to the intermodal terminal at Ayer, MA, and associated branch lines. Known as Pan Am Southern, the partnership brought NS capital investment to the ever-strapped
Hoosac line, with the promise of additional traffic to come. The Hoosac line still stands at a clear disadvantage to the B&A—it is still single-tracked, is not cleared for double-stack container traffic, and needs a lot of capital investment before it will be ready for fast-moving intermodal traffic. And let there be no confusion—the intermodal market is what NS is after. In days of yore, the railroads moved finished manufactured goods out of New England; now, they’re looking for a slice of the market for moving consumer goods to the region, especially since Boston’s port is not cleared for post-Panamax container ships and has never developed as a major container port.
The closest NS-owned tracks come to the Hoosac Line, though, is Binghamton. And that’s where the D&H comes in, neatly connecting NS’ Southern Tier line at Binghamton to the Hoosac line at Mechanicville. NS has had trackage rights over that segment since the Conrail breakup in the late ‘90s, and the frequency with which it took advantage of them increased markedly after the Pan Am Southern kickoff. In recent years, D&H has reduced local service to 3 days/week, and 80% of traffic on the line has been NS traffic-rights trains (a lot of my information on this comes from the STB filing for the proposed acquisition). It makes sense, then, for NS to try to gain control of the line from a railroad that uses it little and has little incentive to invest in the infrastructure. And that’s how we landed where we are today.
From the STB filing
NS’ purchase of the D&H’s southern end may remove one major carrier from a small slice of the US, but it carries with it the potential to bring true rail freight competitiveness back to New England for the first time since at least the Penn Central merger. Though the Hoosac Line is not cleared for double-stack intermodal carriage, Pan Am Southern has initiated an efficient “fillet/toupee” operation in Mechanicville, and NS has stressed the D&H purchase’s potential to bring longer, more efficient trains to and from Mechanicville Yard (apparently D&H currently limits train lengths to 8,000 feet, relatively short by today’s standards). NS does not project train volumes to rise much from current levels, but with longer trains running at faster speeds, the volume of freight flowing to New England will surely rise. With NS in full or partial control of Pan Am Southern and, for the first time, a friendly western connection as well, the Hoosac Line stands to be in a position to compete with the B&A in short order.
And the entrance of a strong second competitor into the New England market could have a major impact on the picture for both freight and passenger rail. Currently, CSX essentially has both the New York and Massachusetts state governments over a barrel when it comes to expansion of passenger service. The railroad has refused to allow the use of an unused half of the historic Water Level Route right-of-way for passenger service in New York, and bled Massachusetts for improvements to the B&A that would be necessary for increased passenger service. As I have written in the past, the strong entrance of NS into the New England market, which has now become manifest, allows both state governments (and especially Massachusetts), should they so desire, to put the screws to CSX somewhat. The Hoosac Tunnel route will never be suitable for modern passenger service, and the B&A is barely so, but Massachusetts should be using the threat of employing the public treasury to help NS lower the floor of the Hoosac Tunnel to cow CSX into allowing restoration of a second track for passenger service on the B&A, among other things.
What to Expect
I see little chance the STB will have any problem with this transaction, given its essentially pro-competitive nature. Over the next couple of years, the (former) D&H south end should see a surge of investment in track, signals, and the like, and I’d expect NS to pour more cash into Pan Am Southern as well. Many New England-area railfans would love to see NS take over Pan Am as a whole as well; since the Guilford era, the railroad has had a reputation for neglecting infrastructure and driving away customers that seems to be fairly well-deserved. I doubt that that is going to happen on any quick timetable; NS seems perfectly happy to proceed slowly with its Upstate and New England investments, and it already has significant sway over the most lucrative part of the Pan Am system. But it could happen down the line, especially if NS decides the Portland, ME market (and its port) are a worthy target.
Also predicted: I will finally get my ass over to Mechanicville to watch some trains. I’ve lived half an hour away for over a year and haven’t been yet. If it’s time for real freight rail competition in New England, it’s time for me to get there.