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Show DEREGULATIONS AND MERGERS REMAKING RAIL INDUSTRY One of the most favorable results of federal railroad deregulation has been freedom to merge, with appropriate safeguards for the public and competitors. com-petitors. First was the combination of Chessie System and Seaboard Coast Line Industries into CSX Corporation, providing pro-viding the service in the East from the Great Lakes to Florida. Next was the blending of Norfolk & Western and Southern Railway into Norfolk Nor-folk Southern Corp., a 23-state transportation transpor-tation system. Then, this past December, the Union Pacific-Missouri Pacific and Western Pacific were merged into the Union Pacific Corp., a holding company serving perhaps the best 21-state transportation market in the West. Remaining potential merger candidates can-didates include Southern Pacific, Rio Grande Industries and Kansas City Southern. Adding to the ranks of merger candidates, Norfolk Southern recently bought 5.01 percent of Santa Fe Industries, In-dustries, which could ultimately lead to our first true transcontinental system. DEREGULATION EXCESSES MAY DERAIL PROGRESS When deregulation of the railroads began in 1980, it was heralded as the dawn of a new era since the rails were given more autonomy in rate setting and were granted flexibility in retaining or abandoning unprofitable lines or portions thereof. While, on balance, deregulation has been and will continue to be beneficial, there are signs that some lines are embracing the concept too enthusiastically en-thusiastically and are seeking to maximize max-imize profits by either refusing to interchange inter-change cars with other lines as usual, or raising the price for that service. When some lines such as Conrail sometimes balk at interchange at certain ' points, they usually offer reduced rates to shippers, but the price may be longer delays in transit time. The growing trend toward closing gateways between railroads, ending joint freight rates and reciprocal switching, is eroding rail shippers' freedom of access to all available routes and could increase their costs. There is a rising chorus of protests over this trend, and the National In- " dustrial Traffic League, a shippers' or rail users' group .with some 1800 members, has requested congressional oversight hearings ori'the problem. Unless some of the carriers back off and begin to act some responsibly, the industry in-dustry could ultimately be saddled with more regulation, not less, as the Staggers Rail Act of 1980 originally promised. CONSUMERS FUEL TRAFFIC PICKUP Up until the last few weeks, rail traffic, traf-fic, and hence revenue and profits, were not expected to show much improvement before the second half of 1983. However, there have been signs that a pickup in shipments chiefly consumer-oriented consumer-oriented is starting to occur much - sooner than had been expected. Early first-quarter traffic for housing-related housing-related lumber and wood products, motor vehicles and allied equipment, and piggy-back-carried goods all increased appreciably from year-ago levels. While railroad executives are understandably cautious in making forecasts based on such early returns, a number have indicated that they have seen a promising uptrend in consumer-oriented consumer-oriented rail traffic and generally feel the improvement should continue. In addition, the actual and projected reductions in crude oil energy costs over the next few months should put more cash into individual pocketbooks and lend further upside impetus to this consumer-led pickup in rail shipments. NEAR-TERM OUTLOOK FOR RAIL INVESTORS While the rail industry will always remain re-main rather cyclical, deregulation, tax reforms and mergers are resulting in stronger and more viable transportation companies better able to cope with today's to-day's fast-changing world. At present, most of the rail stocks pretty much reflect this more favorable outlook; hence, we consider only one Union Pacific in buying range at the moment. |
