http://hamptonroads.com/2011/10/csx-muscles-norfolk-southerns-cargo-business

CSX muscles in on Norfolk Southern's cargo business
By Philip Walzer
The Virginian-Pilot
© October 17, 2011
NORFOLK

For decades, Norfolk Southern Corp. has controlled all but a tiny sliver of the containerized cargo moving to and from the port of Hampton Roads by rail.

That's about to change.

CSX Corp., the nation's third-largest railroad, has signed a national contract with Maersk Line, the world's largest ocean carrier, that will shift the lion's share of rail-cargo operations at APM Terminals Virginia from Norfolk Southern to CSX.

The contract takes effect Jan. 1.

"The premise is more competition at the port and a growing pie," said Ryan D. Houfek, assistant vice president/sales at CSX Transportation, based in Jacksonville, Fla. "It really kind of gets us out of the gate here and makes CSX a real force in the Port of Virginia."

What may be good for CSX and the port won't be so good for one of Hampton Roads' largest corporate citizens. Norfolk Southern's intermodal business - its haulage of truck-size shipping containers and truck trailers - accounted for just over $1 billion of the Norfolk-based railroad's $5.5 billion in sales in the first half of 2011.

Robin Chapman, a Norfolk Southern spokesman, said the railroad will lose only the Maersk Line business going through APM Terminals.

"We can still handle traffic going into APMT from other ocean carriers," he said.

The new contract covers other East Coast ports as well, Chapman confirmed.

Five years ago, Maersk Line was a much larger intermodal customer of Norfolk Southern than it is now, said Jason H. Seidl, a stock analyst with Dahlman Rose & Co. LLC, who follows both Norfolk Southern and CSX.

"We haven't heard any specific reasons as to why Norfolk Southern did lose the contract," Seidl said.

Maersk Line cited the needs of its customers as its first priority in an email from Timothy R. Simpson, its director of marketing for North America, based in Madison, N.J.

"To that end," he wrote, "we design our service networks in a manner that best enables us to serve the markets that are meaningful to our customers."

CSX executives said the logic behind the decision went beyond Virginia.

"Our ability to more efficiently serve the Port of Virginia through APMT played a role in this," said Quintin Kendall, CSX's regional vice president. "But there are other parts of our service offering - where we go, what kind of transit time efficiency that we have, I think, that was attractive to them as well. Their decision to do this was not Virginia-based."

With the addition of Maersk Line, CSX will have contracts with the world's top three ocean carriers - Maersk, Mediterranean Shipping Co. and CMA-CGM, Houfek said.

(AND DON'T FORGET HYUNDAI)

Out of more than 30 shipping lines moving cargo through Hampton Roads' terminals in fiscal year 2010, those lines were among the top 10, according to Virginia Port Authority records.

Ports, railroads and steamship lines don't dictate where big importers like Home Depot and Target ship their goods. The chain stores do, often in conversation with the ocean carriers.

"It's a blend of what the customer wants," Houfek said.

If a customer wants to use a particular port, the ocean carrier will try to accommodate that, while trying to keep costs down, he added.

Last year, 28 percent of the port's cargo volume was handled by rail, according to the Port Authority. Trucks accounted for 68 percent and barges 4 percent.

The port's rail volume is higher than at any other East Coast port, said Tom Capozzi, vice president/global sales and customer service at Virginia International Terminals Inc., the private firm that runs the Port Authority's facilities.

"Today almost all of the cargo that we get that comes via the Panama Canal is local truck cargo that's going within a 300-mile radius of here; there's very little rail," Capozzi said.

That's expected to change with the opening of an expanded Panama Canal in 2014, enabling the transit of container ships more than twice the size of those moving through it now.

Rail is a linchpin of the Port Authority's long-term strategy for growth, enhanced by Hampton Roads' 50-foot channel depth and quick access to the open sea.

The bigger role that CSX soon will play in Hampton Roads will add to the options the port can offer shippers.

"When you have both Class 1 railroads calling at your port, it really helps us," said Joe Harris, a Port Authority spokesman. "When you're dealing with ship lines and customers and potential customers, you want to be able to lay that full menu of offerings in front of them."

While CSX will handle much of the cargo in and out of APM Terminals in Portsmouth, Norfolk Southern will continue to handle virtually all of the rail cargo moving through Norfolk International Terminals, the Port Authority's other big container facility.

The full impact of the new arrangement may be a few years away, when CSX's "National Gateway" comes online. The gateway is a planned double-stack rail route connecting mid-Atlantic ports, including Hampton Roads, with the Midwest.

Until then, CSX will be running only single-stack container trains in and out of the port. For now, it's five trains a week, each way, between northwest Ohio and Portsmouth.

Beginning in January, five additional eastbound trains will be added each week from Chicago to Portsmouth, CSX officials said.

(I'm hopin ta be able ta hold one of em...)

The National Gateway project includes fixing a railroad bottleneck in Washington, D.C. - the Virginia Avenue tunnel - through which CSX's Midwest-linked traffic must pass.

It isn't big enough to accommodate trains carrying shipping containers two high, or double-stacked, the most efficient way to carry such cargo by rail.

Once the reconstructed tunnel opens, CSX will have plugged a hole in the mid-Atlantic section of its rail network. "We can double-stack out of New York, we can double-stack out of the Southeast, but then there's this big hole in the middle," Kendall said.

The port recently announced the start of a new CSX service linking Hampton Roads with the railroad's new containerized cargo terminal in northwest Ohio, which CSX calls "the cornerstone of a new double-stack freight rail corridor between East Coast sea ports and the Midwest."

The new facility, which opened in February, will handle hundreds of thousands of containers a year once it's fully operational, according to CSX.

Hampton Roads' connection with that terminal will open up new Midwestern markets - such as Indianapolis - to the port, Houfek said.

A former Norfolk Southern executive agreed that, from the port's perspective, the contract shift isn't that big a deal, though it could prove to be a plus down the road.

"Norfolk was always viewed as an NS port because CSX didn't have much access or business," said Tom Finkbiner, who headed Norfolk Southern's intermodal operations during the 1990s and now is senior chairman of the Intermodal Transportation Institute's board of directors at the University of Denver.

"With CSX having the Maersk critical mass, they will have a chance to build better service to many destinations," he said. "The real impact will be that NS will lose a lot of business and CSX will gain a lot of business."