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Rail Mergers: Some lessons for the future. Association for Transportation Law, Logistics & Policy Jackson Lake Lodge, WY June 28, 2004 Jim McClellan Woodside Consulting. Agenda . The good, the bad and the ugly Some lessons learned What next?.

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rail mergers some lessons for the future

Rail Mergers: Some lessons for the future

Association for Transportation Law, Logistics & Policy

Jackson Lake Lodge, WY

June 28, 2004

Jim McClellan

Woodside Consulting

agenda

Agenda

The good, the bad and the ugly

Some lessons learned

What next?

mergers i have known

Mergers I have known

Southern/Central of Georgia

Penn Central

Amtrak

Conrail

CSX

NW/Southern

NS/Conrail#1,2,3 and 4

why mergers anyway

Why mergers, anyway?

Markets move but the tracks don’t

So a railroad gets there with connections, or with a merger

why not alliances

Why not alliances?

Disconnects in:

goals

resources

ability to execute

Often lead to:

poor service

or no service whatsoever

some good news

Some good news

Most (but not all) mergers have succeeded

Significant efficiencies have been achieved

There are no truly weak carriers remaining

Though some are struggling right now

and bad news

And bad news

Some mergers have failed outright

Many (most in recent years) mergers have stumbled at the start

Improved service quality, always promised, has been elusive

root causes

Root causes

Two wrongs don’t make a right

Investor and regulatory pressure

Political, community, customer and environmental “gauntlet”

Disconnects/arrogance/culture clashes

Show me the money

root causes9

Root causes

Two wrongs don’t make a right

Investor and regulatory pressure

Political, community, customer and environmental “gauntlet”

Disconnects/arrogance/culture clashes

Show me the money

root causes10

Root causes

Two wrongs don’t make a right

Investor and regulatory pressure

Political, community, customer and environmental “gauntlet”

Disconnects/arrogance/culture clashes

Show me the money

root causes11

Root causes

Two wrongs don’t make a right

Investor and regulatory pressure

Political, community, customer and environmental “gauntlet”

Disconnects/arrogance/culture clashes

Show me the money

root causes12

Root causes

Two wrongs don’t make a right

Investor and regulatory pressure

Political, community, customer and environmental “gauntlet”

Disconnects/arrogance/culture clashes

Show me the money

root causes13

Root causes

Two wrongs don’t make a right

Investor and regulatory pressure

Political, community, customer and environmental “gauntlet”

Disconnects/arrogance/culture clashes

Show me the money

more mergers

More mergers?

Someday

First, run what we have

job one move the freight

Job one: Move the freight

Continued high demand

Freight volumes expected to double in twenty years

Increasingly, new highways are a non-starter

Railways will have a bigger role

If they can do the job

and the jury is out

And the jury is out

Virtually no redundancy left in the system

Segments of many mainlines operating at capacity

Some issues in some terminals

Shortage of crews and locomotives compound the problem

Metrics tell the tale

traffic is up performance is down

Traffic is up; performance is down

YTD volume: up 5.5%

Intermodal: up 8.4%

Trailers: up 13.5%

YTD train speed: 6.6% worse

best performance: KCS and NS

worst performance: UP and CN

YTD terminal delay: 10.3% worse

best performance: KCS and NS

worst performance: UP and CSX

one success story norfolk southern

One success story: Norfolk Southern

YTD volume: up 6.1%

Intermodal: up 12.7%

Trailers: up 20 plus %

YTD train speed: 0.3% better

YTD terminal delay: 0.8% better

Best performance by a major carriers

key to ns s success 2000 2003

Key to NS’s success: 2000-2003

Build terminals ($150 mil)

Remove choke points ($150 mil)

New operating plan (TOP)

Hire and train crews ahead of the need

Hurt 2003 financial results

getting it done

Getting it done

Vision

Investment

Paid for with efficiencies and freight rates; government will play a minor role

A good plan

Execution

until the network is working reliably we do not need any more mergers
Until the network is working reliably, we do not need any more mergers

Thank you for your time and attention

Copies: e-mail request to jimmcclellan@att.net