Keeping on track

Some Down East businesses fret they'll pay the freight for bringing competitve rail service to the state ports.
By Edward H. Feege Jr.

When John Pike looks at the railroad tracks that serve his company, he sees more than two ribbons of steel stretching to the west. He sees a lifeline. He is operations director of Goldsboro Milling Co., which produces 500 million pounds of turkey and pork a year, fattened on feed made at its two mills in Wayne County. It buys grain from Tar Heel farmers but can’t get enough. “We still have a big hole that needs to be filled. Sixty to 65% still has to come from the Midwest.”

Every week, 185 Norfolk Southern Railway Co. hopper cars, each carrying about 100 tons of grain, roll onto the siding, almost always on schedule. Otherwise the company would have to increase stockpiles, running up its storage and inventory costs. Given the grain’s bulk and the distance it travels, rail is the cheapest transportation. The savings, Pike says, can mean the difference between red and black ink.

But now his company and others are watching the future with a wary eye. Plans to bolster rail service throughout Eastern North Carolina might make the state’s two ports more attractive to shipping lines, importers and exporters and boost the economy of the entire region — the poorest part of the state. But some users fret that the fast, reliable service they depend on could be derailed in the process. “We’re very concerned about anything that makes for inefficient movement on the railroad,” Pike says.

Twenty-three railroads operate commercial freight lines in North Carolina. Two are giants: Norfolk, Va.-based Norfolk Southern and Jacksonville, Fla.-based CSX Transportation Inc. Called Class I railroads, their networks span the Eastern United States. Their main lines carry freight to destinations throughout their systems, and their secondary lines collect local freight and funnel it to the main lines. CSX carries freight to and from the state port at Wilmington; Norfolk Southern does the same for the one at Morehead City.

In 2001, Norfolk Southern created the East Carolina Business Unit – its "railroad within a railroad."

Other railroads are called short lines. They operate in smaller territories and feed freight to Class I railroads. Many were formed after deregulation in 1980, which occurred as the entire rail industry was on the verge of financial collapse. Class I railroads ditched unprofitable lines. Some were abandoned. Others were leased or sold to short-line operators. There were plenty of these marginal lines in North Carolina, including several east of Interstate 95. “In the 1980s and 1990s, Eastern North Carolina was at risk of losing rail service,” says Scott Saylor, president of the North Carolina Railroad Co., the state-owned real-estate investment trust that owns and manages a 317-mile corridor between Charlotte and Morehead City. Norfolk Southern pays $12 million a year to haul freight traffic over it.

In 2001, Norfolk Southern looked at its business in Eastern North Carolina. The picture was dismal. Then-CEO David Goode characterized it as “having flat revenues, high costs and facing costly reinvestment.” The railroad considered leasing its tracks there to a short line, then decided to create a 485-mile “railroad within a railroad” — the East Carolina Business Unit.

Though still an integral part of the railroad’s larger system, ECBU has its own management, as well as a mandate to cut costs and generate business. Its trains operate over company-owned tracks as well as those of the North Carolina Railroad. CSX didn’t develop anything like it, but elsewhere in the country it struggled with a complex, often congested network. It spun off some marginal lines — 2,000 miles of track nationwide in 2004 and 2005 — to short-line operators, allowing it to concentrate on profitable long-haul routes.

Having only one Class I railway serving each port gives the state a competitive disadvantage.

Overall, Class I railroads in the United States have done well financially the last two years. Demand for rail service has jumped as shippers face shortages of trucks and drivers, growing highway congestion and skyrocketing fuel and insurance costs. Results have been mixed in Eastern North Carolina. “Before 2002 we had significant decreases in traffic,” says Ron Taylor, ECBU director of marketing and sales. “Traffic has flattened since the business unit started up. It’s not up, but it’s not down significantly either.” But the unit has experienced productivity gains, and General Manager Jay Traywick rates it a success. CSX doesn’t release information on its specific lines but seems to have held its own in the region.

Can North Carolina mix rail and water? It must. With only a single Class 1 railroad serving each port, their development is being strangled, some experts argue. “The [shipping lines] that serve the ports prefer competitive transportation options,” says Patrick Simmons, director of the N.C. Department of Transportation’s rail division. Importers and exporters want to move freight as inexpensively as possible. Shipping lines support them by calling on ports where inland transportation costs are held down by competition. The issue has become more pressing as the State Ports Authority pursues its plans to build a $1 billion port south of Wilmington in Brunswick County.

The new port will be devoted to handling containerized freight — cargo traveling in 20- and 40-foot metal boxes that can be transferred easily between ship, truck and rail. International trade is expected to double by about 2010, and with burgeoning imports from China and a growing shortage of port capacity throughout the country to handle it, the North Carolina International Port could quickly become a major gateway for such shipments.

First, however, it has to offer a full range of services. In most gateway ports, shippers can move containers by truck or train or by a combination of the two — referred to as intermodal transportation. Now, though, neither Tar Heel port offers it. Wilmington is the only state port with a container terminal, and virtually all containers there move by truck. The Ports Authority has been pushing for intermodal service from Wilmington for years, according to Glenn Carlson, its managing director of business development. CSX insists that there’s not enough volume. That will change when the International Port opens in six to eight years, but the new port will have to compete with established gateways such as Hampton Roads, Va., Charleston, S.C., and Savannah, Ga. — all of which offer intermodal shippers more than one rail carrier.

Railroad geography in Eastern North Carolina makes it unclear exactly how dual rail service to the ports — intermodal or otherwise — would happen. Stephen Haynes, Ports Authority director of commodity marketing and sales, thinks there are numerous ways, such as persuading CSX and Norfolk Southern to allow each other’s trains to run over their lines.

Simmons suggests establishing an inland port, similar to intermodal terminals in Charlotte and Greensboro, that would host trains from both lines. Earl Brinkley, owner of Wallace-based Accu-Track Logistics and former director of worldwide logistics for John Deere, thinks an inland port could be a key part of a broader transportation network. “The state needs to be covered like a blanket” with terminals, he says. In his suggested network, no manufacturer would be more than 80 miles by road from an intermodal terminal, each receiving freight routed through the International Port.

Norfolk Southern delivers 18,500 tons of grain a week to Goldsboro Milling – almost always on time.

Brinkley believes this integrated system would attract manufacturing and distribution businesses — and the higher-paying jobs they bring — to communities throughout North Carolina. Simmons and Brinkley see Wayne and Johnston counties, where major highways and railroad lines intersect, as potential locations for an inland terminal.

However, Simmons says there’s another piece of the puzzle that must be put into place to achieve rail competition for the ports: CSX and Norfolk Southern would surrender responsibility for hauling freight from Wilmington and Morehead City to a short-line railroad. The short line would still exchange freight with the big railroads but only at the inland port. That could give shippers a choice of carriers.

Such an arrangement, Simmons says, would fit the big railroads’ desire to concentrate on longer, more profitable hauls on their main lines, leaving local, lower-margin operations — such as hauling freight in and out of state ports — to low-cost short lines. ECBU already functions like a short line, and CSX has spun off routes to short lines in other parts of the country. He points to a study from the late 1980s that envisioned this type of restructuring of rail service in the East, with construction of an inland “Port of Selma,” where the tracks intersect I-95 in Johnston County.

DOT’s rail division will evaluate similar options again this year. Its appropriations bill directed the department to assess by May the need for a deep-channel port in Wilmington, an inland ocean-cargo terminal and a logistics operations center, as well as rail requirements to support them.

Pike, on the other hand, hopes the short-line piece of the plan never gets beyond the study phase. The proposal would end local service by Class I railroads for companies like his that lie between the ports and the big railroads’ main lines. It would force them to use the same short-line railroad as shippers who move freight through the ports, which he says won’t work. Interjecting a short line between his company’s mills and the Class I railroad would add time, handling and costs that the company cannot afford. And Pike has little faith that a short line can provide consistently reliable service.

He also believes forcing companies to rely on short-line service would harm efforts to bring the new businesses Eastern North Carolina desperately needs. “They’ll want to be on a Class I,” he says, “not a short line.” Saylor partially agrees. “Some major industries don’t want to be served by a short line. Others might. It depends on the industry.” He’s also wary of having the ports serviced by a short line.

“[Each port is] about 100 miles from the other Class I railroad. The risk would be in taking away Class I service to those industries now served along these 100-mile stretches.” Building, maintaining, and operating the short line would be a major financial undertaking, though the exact cost isn’t known. “Any short-line intermediary would have to have substantial capital, maintenance and rail-car supply capabilities.”

Given that the port and rail proposals are still in the study stage, neither Class I railroad has weighed in on their merits. CSX spokesman John Dillard says the railroad is willing to discuss possibilities with DOT, which he calls “a great partner.” Norfolk Southern’s Traywick hasn’t heard of the plan, but he disagrees that single-railroad service has hurt the port at Morehead City. “We look at the overall market, and the idea that we’re taking people to the cleaners because we’re the only carrier just doesn’t hold water.”

Another part of overhauling rail service to the ports involves rebuilding 27 miles of track north of Wilmington between Wallace and Castle Hayne. DOT purchased the line from CSX after the railroad abandoned it and removed its track in the 1980s. In July 2005, the department called for the track’s restoration, emphasizing that the re-established line would be a shorter, more direct route for passenger and freight trains to Wilmington. The study also concluded that the move might open shipping options for businesses between Goldsboro and the port.

Such a move also would interfere with customers such as Goldsboro Milling, Pike says. A study for passenger service to Wilmington recommended two alternative routes from Raleigh. Both would use North Carolina Railroad tracks between Raleigh and Selma, while the second also would rely on the railroad’s tracks between Selma and Goldsboro. Either choice would put passenger trains on the NCRR route Norfolk Southern uses east of Goldsboro.

"We're very concerned about anything that makes for innefficient movement on the railroad."

Pike, who was appointed to the North Carolina Railroad board in 2005, doesn’t believe freight and passenger service can mix on the single track. Norfolk Southern’s ECBU operates 12 “road” trains per day, eight of them dedicated to entering customers’ sidings, pulling out full rail cars and spotting them on the North Carolina Railroad track for pick up and to delivering empty cars. For Goldsboro Milling alone, the process can take several hours, during which time the line can be blocked.

Add passenger trains, which have priority over freights, and the whole dynamic changes. When a train with people is scheduled to overtake one loaded with freight, the freight train must go onto a siding until the passenger train passes. If the passenger train is delayed, so is the freight.

Goldsboro Milling saw what could happen to its delivery schedules in the summer of 2004, when Amtrak passenger trains had problems keeping their schedules. Norfolk Southern trains were stuck on sidings for hours. The legally allowed working time of train crews expired, forcing unscheduled crew changes, which caused even more delays. Locomotives scheduled to move from one train to another were likewise held up. Selma, where freight and passenger services intersect on CSX and North Carolina Railroad lines, became a choke point.

Saylor and Simmons say such conflicts could be avoided with more investment in tracks, signals and other infrastructure. Norfolk Southern isn’t opposed to running passenger trains over its tracks, Traywick says. But before it would agree, it would insist that combined operations be safe and that its passenger partners add “as much infrastructure as necessary to protect the freight franchise.”

Pike, however, is skeptical that current North Carolina Railroad capital-improvement projects would allow smooth flow of both passenger and freight trains. “The addition of passing tracks certainly adds some general flexibility to traffic patterns, but it doesn’t make running freight and passenger service on the same line an efficient operation.” Pike, who has been with Goldsboro Milling almost 25 years, supports the status quo for practical reasons: His company never would have grown as it has without reliable freight service.