Agreements can be renegotiated though. New traffic patterns can develop, and new operating efficiencies can be realized with this acquisition. When your are a much bigger company, with more traffic sources, you bring more to the table to bargain with. However, you have to be careful of the inefficiencies that result from being a larger company too. They would be foolish not to look at the operations of the smaller parts, and try to not streamline things to some extent. CSX and NS realized this with the break up of Conrail. They now have much larger networks, much more leverage, and more bargaining power with customers.MQT3001 wrote:This speculation of streamlining over these railroads, now under the same parent company, is for now more or less pointless because these railroads still have their interchange agreements.
With the example of the T&P, and C&IM around Peoria. If traffic from those points are bound to the east coast, G&W can now bypass a UP or BNSF connection to Chicago and connection to CSX or NS, and keep the car on G&W properties for delivery direct to NS at Logansport, or CSX at Reynolds, IN. They can eliminate one 'interchange' at Peoria, gain more of the haul, and make more money for the 'parent'. Suddenly they're going from a 30 or 40 mile haul, to a 200 mile haul, with revenue split two ways, instead of three.
If MQT, by itself, were to go to CSX and try to renegotiate their agreements, they don't have much leverage. When G&W goes to the table now, they have a lot more on the table to offer and leverage with. In so far as interchange agreements amongst the smaller parts, those can be re-negotiated too. From a customer standpoint, they can now go to the table and argue that they shouldn't be getting charged 3 interchange fees, when 2 of the railroads are under the same corporate umbrella. Holding company or not, its all the same company despite the set up of different operating departments. CSX has different Divisions, all with their own management structure. On a division you have the 'sub-divisions' each with their own crew budgets, field managers, MOW budgets, etc. It basically operates as separate railroads, different budgets, etc but it still works together. Just because it has a "MQT" sub lettering under the cab, doesn't mean it has to be operated as a separate property from everything else. It may in so far as equipment, etc, but overall you could have greater efficiencies though cooperating, car routings, etc.
Just like a Class One, it is all the same pair of pants, its just different pockets the money goes into and out of. In the end, its all G&W money.
While G&W is just a 'holding company' all being under the same umbrella makes it easier to move traffic over adjoining properties. It would be in the company's best interest for 'co-operation' amongst the smaller parts. Plus, you don't have G&W negotiating with Watco, or RA, or whomever, its G&W operating under its own umbrella and its in its best interest to come to agreements amongst itself.
As far as making 'more' money, it does make 'more' money when they are owned by the same company. Less revenue being divided up amongst the different parties. If moving a car from point A to point B involved 3 railroads before, and now you own 2 of them, you're going to be making 'more' money on that car. Despite that everything is a 'paper barrier' now, the overall parent company is making more money off that car if they have a larger part of the haul. As before, its a bigger pair of pants now, with more pockets. If can now competitively move a car from point A to point B without having to involve another party, then you will have additional revenue coming your way. A lot of interchange agreements aren't exactly 'fair' to all parties. G&W can now re-negotiate rates and revenue distribution to its advantage, as they aren't the small pie in the room with a 500lbs gorilla. They may not be a 500lbs gorilla themselves, but the do have a little more power overall then they did.MQT3001 wrote:Connecting up all these small railroads doesn't really make MORE money, and in the process would likely tick off their Class I neighbors, which could cause some financial loss.
One other thing I see DAILY concerns interchanges between carriers. Each uses a different computer system, and if the systems don't 'talk' to each other correctly, billing information doesn't translate, etc then you have a car that gets mis-routed, lost, or ends up bouncing back and forth until someone fixes the problem. That *usually* doesn't happen until a customer calls and says "Why has my car gone in between XXX and YYY three times?" By eliminating the possibility of errors in billing between parties, you're going to have some cost savings right there. May not be much, but it will add up over time.
Your analogy of Watco, RA, etc not being 'railroads' but holding companies speaks for just about every 'railroad' out there. CSX has owned has owned barge lines, container lines, pipelines, ocean port facilities, etc. Diversification occurred in the 70's and 80's when the railroads were looking for ways to help off set the losses they were incurring by running a 'railroad'. CSX is now getting into land development, specifically customer sites. I believe CSX sold off most of their 'non railroad' interests over the last 15 years. In the case of the ICG, they sold a lot of the real estate the railroad had, and diversified. Chicago Northwestern did the same thing, and in the 70's became 'employee owned' when they sold off the operating portion because of the excessive losses. IC became a separate company again when its 'parent' sold off the operating division, and kept the 'other' investments they had acquired.
In most of those cases, the 'parent' didn't buy up other railroads, so G&W, Rail America, etc are unique in that they can get some rationalization in management structure, facilities, car routing, etc.
Practice Safe CSX
Thanks again.
