Buffalo Coal Co., which is dependent on the Chessie rail system to move its coal from Western Maryland to Baltimore and the Washington area, is eyeing the U.S. Senate debate over the potential sale of Conrail with some trepidation.
If the Senate approves the U.S. Department of Transportation's plan to sell Conrail to Norfolk Southern Corp., Buffalo Coal could be hit hard, said company official Alfred Whitehouse, who explained that the small firm that mines in Allegany and Garrett counties is dependent on railroads to move its product at an affordable price. The company could wind up paying higher rail rates than competitors using other railroads, or it could wind up having no rail line, he complained.
The federal government took control of Conrail (Consolidated Rail Corp.) in 1975 by combining the bankrupt Penn Central and other ailing railroads in an effort to save the freight lines that serve the northeast section of the country, and then it poured about $7 billion into it. Transportation Secretary Elizabeth Hanford Dole recommended to Congress last year that the federal government sell its interest in Conrail to Norfolk Southern.
This week the Senate is scheduled to consider the Conrail sale, and the Maryland business and political community has lined up firmly against the Norfolk Southern bid.
Much of the local controversy has been stirred by officials in Western Maryland and in Baltimore who fear that the Chessie system will go through with threats to abandon or sell its Baltimore & Ohio lines, including the one running through Hagerstown, if Congress approves the sale to Chessie's rival, Norfolk Southern.
Chessie officials have complained that the sale would put them at a disadvantage because they would be competing with a much larger rail system.
Sens. Paul S. Sarbanes (D-Md.) and Charles McC. Mathias Jr. (R-Md.) said they have been inundated with letters and calls claiming that the Norfolk Southern sale would hurt the port of Baltimore, eliminate rail competition and throw 5,000 Maryland railroad workers out of work.
Virginia's two Republican senators, John W. Warner and Paul S. Trible Jr., also have been flooded with mail. Yet the senators are trying to steer clear of a brawl between two railroad titans based in Virginia. CSX, the Richmond-based holding company that owns Chessie, is waging an all-out battle to stop Norfolk Southern, which is based in Norfolk, from buying Conrail.
Norfolk Southern, which is seeking Conrail as a way to extend into the Northeast, sent its sales persons to every Virginia city and county that the railroad serves and secured endorsements from 90 county boards of supervisors and city councils.
The senators received the resolutions as well as letters from about 120 Norfolk Southern customers, including the E.A. Griffith lumber company of Manassas.
Bob Robinson, executive vice president of the wholesale lumber company, said he wrote to his senators after talking to sales persons at Norfolk Southern, which transports all of his timber from the West Coast. Norfolk Southern "is our lifeline. Without them we wouldn't exist," he said, adding that if the Conrail purchase makes Norfolk Southern stronger and more efficient, "it makes us stronger."
James Mock, president of L.C. Smith Inc., an Alexandria company that "moves millions and millions of bricks each year" on Norfolk Southern, agreed. He said he is strongly opposed to an alternative bid by Morgan Stanley & Co., an investment firm, that some people opposing the Norfolk bid are promoting as a way to preserve competition. "I wouldn't want a heart surgeon laying bricks and I wouldn't want a bricklayer performing heart surgery," said Mock.
The high stakes, the complexity of the issues, and the number of businesses that could be affected has made this a troublesome issue for the four senators from Maryland and Virginia.
Sarbanes is strongly opposed to the Norfolk Southern proposal and may support the Morgan Stanley offer, but he wants to study the details. Mathias is "not going to show his hand yet," said one of his aides.
Trible voted for the Norfolk Southern proposal in the Senate Commerce Committee in April, but he has not commented on how he will vote on the floor. He plans to "listen carefully to debate on the Morgan Stanley plan," said a Trible aide.
Warner said he will listen to the debate on the two proposals, as well as an offer by a third bidder, Allen & Co. Inc., before deciding how to vote.
For Maryland, much of the debate centers on the future health of the ports of Baltimore and Hampton Roads, Va., which are major East Coast ports in close competition. The vitality of each port is linked closely with the railroads that serve it.
Norfolk Southern has concentrated much of its activities and money at the port of Hampton Roads, while Conrail has focused on the port of New York and CSX on the port of Baltimore.
"If Conrail's primary position is a New York market, and Norfolk Southern is Hampton Roads, what benefit would either of those two carriers get in making capital and service investments at the port of Baltimore?" said David Ziolkowski of the Maryland Port Authority.
"We are concerned that traffic . . . may be permitted to gravitate north to New York and south to Hampton Roads, because those are the two strengths of the system," said Ziolkowski.
Officials at the port of Hampton Roads are skeptical of the sale also. J. Stanley Payne, general counsel to the Virginia Port Authority, said that much of the "primary reason for our success vis-a-vis Baltimore" is that Norfolk Southern does not go farther north of Norfolk on the coast.
"The sale will mean the opening of outlets in the north" for Norfolk Southern, said Payne. "We're afraid that hooking into the mid-Atlantic rail system will result in more use of the Baltimore harbor."
Senate aides said that this discrepancy between the predictions for the ports points out a major problem in the debate -- that so much is based on speculation.
Another example of this is the differing prediction of the rates that will be charged shippers. Baltimore Gas and Electric is opposing the Norfolk Southern sale, predicting that the absence of competition would boost its rates.
K. Donald Vroom, director of fuel procurement for Baltimore Gas and Electric, said the utility ships about 2.5 tons of coal a year to the Baltimore area. About two-thirds is shipped on Chessie and about one-third on Conrail.
Vroom said that Conrail in particular has been innovative and aggressive in services and pricing to win more business. He fears this would stop if Conrail was bought by Norfolk Southern and Chessie pulled out.
Thomas Hoppin, CSX assistant vice president, has said that if Congress approves the sale to Norfolk Southern, Chessie will dispose of its Baltimore & Ohio line.
But Buffalo Coal Co.'s predictions about rail charges on the new, enlarged system are the opposite of Vroom's.
Whitehouse said the company fears that rates on the combined Norfolk Southern and Conrail system could be lower, because the system would be so large and efficient.
Therefore coal mines in Pennsylvania, Kentucky and other areas served by Norfolk Southern would be able to ship into this area and sell cheaper than Buffalo Coal, which cannot use Norfolk Southern.
Whitehouse said he does not think that the company will be left without a railroad line, even if CSX decides to get rid of the Western Maryland line.
"I think someone will buy it. Somehow, I don't think we'll be left high and dry, but I don't know that."