Tuesday, August 5, 2025

Oh, boy. Not a Big Boy. Just an "Oh, boy". UP wants to buy NS.

Not this




This


+



UP wants to pay Norfolk Southern shareholders a total of $85B for a company that's worth $62B at the moment.  

You KNOW I have an opinion on this.  Here it is. 

That $23B that's going to NS shareholders could be spent on actually improving the railroad.  Most of the merger benefits are doable without the merger, although it would take some hard work.

Net result?  At best a delay and distraction from the real work of railroading.  At worst, an integration nightmare that will take years and years just to get back to the starting point.

Here's why.

UP and NS aren't stupid, so why are they doing it?  Here's some of the claims.

Smoothing interchanges.

This is a real benefit.  Lots of east-west traffic doesn't move on the most efficient route.  It moves to get the originating road a prime share of the revenue split.  For example, chemical traffic from Texas to the northeast mostly moves through interchanges to NS and CSX in Illinois. A shorter and faster route though New Orleans exists, but would "short haul" UP and BNSF.  Do you need a merger to do it?  No.  UP and NS could negotiate routes and revenue split to get the "win-win".

Chicago congestion (this is a subset of better routing/blocking/faster merchandise trips)

This is a paper tiger.  Lots of Chicago interchange traffic could find a route to avoid Chicago if two things were true.  

One, the railroads did blocking optimization between roads to find the best routes, some of which would avoid Chicago, some of which would create more through blocks and some of which would reduce single car classification to block swaps in Chicago.  

Two, the alternate routes can handle the traffic.  Just because you can find routes through St. Louis and Kansas City, for example, it doesn't mean those routes are up to the increased traffic.  It might take a good bit of infrastructure and crew hiring to accomplish.  After all, these very assets have been "skinnied down"with PSR over the past decade.  Also, changing how traffic is handled in Chicago can change flow and require changes in yard use.  A hump yard is not a block swap yard.

Once again, this is doable without a merger.  It only takes the railroads to negotiate and do joint planning.  Not easy.  But, doesn't require merger.

Better routing/blocking/faster merchandise trips

Right now, roads tend to optimize their blocking and train plan for their internal trips and routes and only do minimal "quid pro quo" through blocking with each other on the really low hanging fruit. A much better blocking plan is theoretically possible.  A "clean sheet" network redesign using optimization tools (that NS has, at least, or a consultant like Oliver Wyman can supply) could result in meaningful and measurable improvement in the carload merchandise traffic handling. 

Again, this can all be done without a merger.  All it takes is some negotiation and planning.

Reduction in staff /back office personnel

This is real, but with each successive merger, it's diminishing returns.  Exactly how many people work in Finance and HR et. al.?  Not that many.  $23B would pay 500 people for 200 years.

Now, let's check out the other side of the ledger.  The cost.  Or, more precisely the cost of "What could go wrong?"

Every major railroad merger since 1990 has had major issues with service interruptions and congestion.  Sources of the trouble include:

  • - IT issues
    •     Systems from two roads won't communicate properly or on a timely basis
    •     Cutting over new territory from one railroad's system to another fails
    •     IT system capacity to handle more data improperly estimated
    •     IT systems complexity increases risk when integrating and cutting over.  (i.e. PTC data is reliant on car reporting and crew call data)
    •     Complexity and fragility of IT systems is increasing, some due to system age, some is IT evolution
  • -Traffic issues
    •     Incomplete understanding of traffic flow changes
    •     Lack of resources - crew, track, power - to handle changes in traffic flow
    •     Incomplete and under resourced understanding of transient effects of traffic flow changes
  • -Management
    •     Institutional culture changes
    •     Insufficient transfer of institutional knowledge
    •     Poor employee moral  

The UP-SP merger and CSX-NS Conrail split were examples of where just about everything on this list went wrong.

Every new merger has claimed that "they have learned from the past", yet even the recent, small, simple CP - KCS merger is having problems with system integration.

Digging out from congestion is very difficult for railroads.  Why?  Resources - crew, locomotive  and track.  It takes the least amount of resources to operate smoothly.  To operate in a congested state, requires more resources.  To dig out from congestion, even more.  

A highway provides a simple analogy.  A highway is flowing freely at 60 mph, with 1000 vehicles per lane per hour, Rush hour starts, more vehicles enter the highway.  Traffic builds until it gets to capacity - 2000 vehicles per lane per hour. But, everything is still moving along. Then, a squirrel runs across the road.  A few people brake hard for a few seconds, dropping their speed.  A chain reaction ensues and now there is stop and go traffic with an average speed of 30 mph.  At this speed, capacity is only 1000 vehicles per lane per hour.  But, "demand" is 2000, so the back-up traffic jam continues to grow to the rear and congestion will continue to grow until "demand" gets down below 1000 cars per lane per hour, sometime after rush hour is over.

Highways usually get a good "reset" after rush hour is over.  Airlines get a good reset every day, overnight. Railroads have steady flow 24/7.  There is no "reset" for them.  Instead, they have to have extra crews available, more locomotives and more places for trains to sit in order to survive and recover from congestion.  All of these resources have really long lead times.  It's a year to train a locomotive engineer, a year or more to buy new locomotives and many months to years to add more track.

Railroads used to have quite a bit of extra capacity.  Before deregulation, the process to abandon or sell rail lines was long and complicated and often a "no."  Fewer, smaller railroads provide alternate routes for traffic.  Large variability in service meant keeping a good buffer of crew personnel available.

Deregulation, mergers and better planning tools led to a great reduction in excess capacity.  The ultimate expression of this is Precision Scheduled Railroading, which aims to tune service to a very low resource, steady state.  Over the past 20 years, there have been several service congestion issues on the large railroads due to the inability to keep up with business cycle traffic fluctuations or other service interruptions with the necessary resources.  That issue is not fully resolved.  NS is still recovering from post-pandemic traffic recovery and several house-cleanings at mid and upper management in the past decade.  CSX still not up to speed with disruption from planned tunnel outage in Baltimore, for example.

So, is there any reason to think UP and NS can merge operations with minimal problem?  No.  Absolutely no.  Particularly these two railroads.

  1. There is less excess capacity-crew, locomotives, yards - than pre-PSR days.
  2. Neither NS nor UP have managed big merger integration without massive congestion.
  3. Neither road is any better equipped to manage integration than they were 25 years ago. In fact, they may be worse since data integration is tighter and more complicated in their internal systems...and there are fewer folk to manage it.  NS ground to a complete halt on at least one occasion when a connection between PTC and the UTCS dispatching system got clogged and dragged down the entire IT system.

Okay, so what should UP spend $23B on?  Key factors:
  1. Nearly all the operational benefits are available without merger thru marketing deals/alliances.
  2. The key to making more money is velocity. Not max speed. Avg speed. Electrify and smart braking system are the way. How about 400 mile crew districts? A trucker can do 500.

Electrification is about $4M per route mile.  $23B gets you 5700 route miles. (using Amtrak's New Haven to Boston cost adjusted for inflation - $4M/route mile)  That's 80% of what's needed to do all of UP's heavy mainlines.  Chicago to Ogden Utah and on to LA and Seattle plus LA to Houston to Chicago (7100 miles).  
  • Electrification allows: 
    • much greater energy efficiency as power is not restricted to generation by heat engines
    • regenerative braking
    • much greater HP per locomotive, which allows for faster train acceleration, braking and ability to maintain track speed for longer time.

  • A smart, electronic braking and intelligent freight car system could be developed to allow:
    •     Faster "restricting" speed as low speed braking distances are cut in half
    •     Closer train spacing as braking is based on adhesion and not "worst case" wheel sliding on empty cars
    •     Near elimination of defect caused train delays using on-board detection.
    •     Near elimination of train handling issues including derailments
    •     Near elimination of delays and time to add/drop cars from trains due brake system requirements (pumping air, no "bottling", air brake testing)

Railroad dabbled in electronic braking (ECP) 30 years ago.  The braking performance has been proven.  Now is the time to do a complete redesign using new technology and get a workable system designed, tested, hardened and implemented.

These two technologies can greatly increase velocity and service reliably which increase the value and market reach of the product, and reduce cost as resource requirements and energy consumption go down.

Railroads need to improve their product in order to complete and fit into the 21st Century logistics network that is going to require more velocity, flexibility and lower costs.  The alternative is a glorified "going out of business" sale.  

It's past time to start.  That's what $23B should be doing.

Monday, July 21, 2025

Oh, Canada! The long slog home.

 It was 1200 miles back to Fredericksburg from PEI.  We decided to take it in three chunks.  The first day was 500 miles to Portland ME.  It started out rainy, but improved after we crossed the long and expensive bridge to New Brunswick  ($45 CAD!).  The drive across New Brunswick was long stretches of rural wilderness with the occasional town. Crossing the border was at Houlton ME, the very top of I-95.  The US border guy was rather jokey - which was probably part of his shtick...  But an easy crossing.  Not like the "old days", but not bad.

We stayed in South Portland near the airport at one of the worst Hampton Inns ever.  Broken glass in the lobby.  One elevator not working.  Very worn and cruddy room.  Too much driving to go downtown to eat, we ate at a local brew pub and had one last lobster roll.

Standard travel arrangement.  Four in a Telluride.


The last lobster roll...


We broke up the second day of driving at Poughkeepsie with the bridge across the Hudson.


Walk Across the Hudson



The evening, we were at a Spark in Clark Summit PA.  Spartan , bit clean and nice.  Walked down to a take-out pizza place and had some surprisingly good pizza for dinner.



Takeout pizza - better than expected!

The third day, we broke up the trip with a quick detour through Pottsville. Didn't even get out of the car.  Patti's parents were both from there and she spend a lot of time there growing up. 

Maternal grandparent's house

Paternal grandparent's house

Catholic church

Patti's grandfather's planter still in use!


 We also made a quick stop in Shippensburg PA to see the Conrail "It's just a box car, I promise!" Museum for Don.  Did get out of the car...




I told you it was just a box car...

Tom and Sue cooked a nice steak dinner for everyone at their house after we all got to see Gavin and Rachel's new house nearby.

We said goodbye the following morning and made the jump to Atlanta in one day, just missing some road closures on I-40 from flooding the previous night.


Peachy Gafney SC

The last day.  A trip tradition.  An afternoon Reeses Peanutbutter Cup snack.

One more thing... A Lobster accounting.



And just like that, the trip was over.  All 3800 miles of it.  Next trip in two years.  Where to?  But, maybe we should fly?!?


Oh, Canada! Ferries and Mussels and Oysters! Oh, my!

For starters....


Happy Canada Day!

It was July 1st. after all.  We did the most Canadian thing we could do.  Dress in red.  Wave flags.  Get Tim Hortons.

It was off to catch the ferry to Prince Edward Island.  There is a bridge, but that was the long way around and who doesn't enjoy a good ferry ride?  Indeed.

 

Lobster pots at Caribou..,


Our ferry arriving...


MV Northumberland.  Built in 2007 in Norway.  Replaces ship that burned beyond repair last year.

The harbour at Woods Island.  More lobster pots.



Very pretty harbour light house.  Would be nice if we could dock.  

End visor on the ferry wouldn't go up...we can't dock.


Lots of tools and banging...
While we were waiting, a local PEI person chatted us up.  Or we chatted them up.  ...and we got some good ideas of where to go and what to do on the island - even if we didn't have any idea where or what she was talking about.

Over an hour later...success!

An hour and 15 minutes late, we arrive Charlottetown, Prince Edward Island...


Our Lodging



...and have real PEI Mussels.


Walked down to Peak's Quay for dinner.  Had some PEI mussels!  The real deal.  Tom had some PEI oysters.  He loved them. (cue Jaws music...).  One thing we didn't know, was who was Prince Edward?  Asked the server.  A local who should have been all over her PEI history, especially on Canada.  No clue.  We had to look it up and explain it to her.  He was Queen Victoria's kid who established and led a fort on the Island.  We teased her a bit over it - us weird Americans...   

Also, Canada Day fireworks!  PEI has the lead.  Biggest display!  Postponed.  High winds.

The next morning we decided on doing an audio tour in the car.  Another "Gary" adventure?  No.  No Guide Along here, either.  Instead, "Josh"  was our guide.  Informative - his speaking voice...bagpipe drone.  zzzzz.  

However, between the tour, a map, and the unpuzzled advice from our ferry friend, we had a nice day out.

The Inn had breakfast every morning.  This morning spring rolls and scrambled eggs.  Seemed an odd combo, but delicious!



Dalvay by the Sea - one of J D Rockefeller's compatriots at Standard Oil built this summer cottage.

Covehead Harbour Lighthouse in the National Park




Early settlement in Rustico

Oyster farm in Rustico

Catholic Church in Rustico

North Rustico


After cruising through Rustico, we got a look at Cavendish cliffs and beach  Very close to the setting for Anne of Green Gables

National Park emblem


Cliff and beach at Cavendish

Tom ponders the big question.

Next stop, Anne of Green Gables Heritage Site.  It had a home that Lucy Maud Montgomery spent some time at that shaped here novels.







Then, lunch!  Back to Rustico Harbour and "On the Dock" restaurant.  It took a bit of hunting to find a parking spot, but the setting and meal were worth it!  Tom had PEI oysters yet again. (Cue Jaws theme crescendo...)

On the Dock.

Josh droned us back to Charlottetown and a low key afternoon.  A bit of walking around the waterfront and finally dinner out at a place that had a big crown on Canada day but now was strangely empty.  No problem, though.  Good meal.  Tom, however, was feeling a bit rugged.  (cue Jaws attack music!)  The oysters strike back!  Tom was down and out of for 24 hours.  

old hotel

Also, back at our Inn, we met Bob and Joanne from Ontario.  Nice happy hour on hotel deck with long discussions usually centering on "what was wrong with you Americans?"  ...we promised them we were trying to fix it...



Me with William Henry Pope as he rowed out to greet the "Fathers of the Confederation"

The postponed fireworks were that night.  Sue, Patti and I went.  Great show, but only 10 minutes long - no finale.  We could teach them a bit about firework shows, I think.




Our last day on the island, Don, Patti and Sue did a self guided walking tour of Charlotte's Town recommended by the tourist info center.  The highlight was the Beaconfield House - or the Yo-Yo cookies.  A New Zealand creation with a PEI twist.  

Yo-Yos

Beaconfield House was built by a sailing ship builder right at the end of the sailing ship era.  He went bankrupt just a year or two after the house was built.  The next owner bought it in foreclosure and lived there for decades, but never really enjoyed it.  After, it was a dormitory for women nurses, before being restored to it's original appearance and becoming a historical home.



Tile with the pigment all the way through - not just the glazing.

170 y.o. Christmas cactus



The view from the coupla.  The original owner wanted a good view of ship traffic.  Bet it pained him to see more and more steam ships...


The main Anglican Church in town.










Interior of this church was faux-marble.  A mixture of paint and plaster of paris.




Lunch was at a corner restaurant that was always packed - Water Prince Corner Shop.  Delicious lobster rolls and a history lesson.  Server was 4th grade school teacher.  Our ferry friend mentioned her job was on Nunavut.  Weeks on then weeks off.   It was not easy to get there. Was this a new province way up north?  We asked our server.  Yes. Created out of Northwest Territories, partly Truth and Reconciliation for First People.  

By dinner, Tom had come back alive and we headed out for an Italian place on Queen Street in the middle of town.  Very nice.  


A nice way to end the last day in Canada.  Now, the long slog back to the messy reality show that is the US.

Oh, Cananda!  It was really, really nice!